XTI Aerospace, Inc.: Form 10-Q for the period ended Sep 30, 2025

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.”

Overview of Our Business

We are primarily an aircraft development company focused on the design and commercialization of vertical takeoff and landing (“VTOL”) aircraft. We also provide real-time location systems (“RTLS”) for industrial applications and, through our wholly-owned subsidiary, XTI Drones, LLC, offer drone distribution and technology solutions via our recent acquisitions of Drone Nerds, LLC and Anzu Robotics, LLC (see “Recent Events”).

Headquartered in Englewood, Colorado, the Company is developing a VTOL airplane that is designed to take off and land like a helicopter and cruise like a fixed-wing business airplane. We believe our initial configuration, the TriFan 600 airplane, will be one of the first civilian fixed-wing VTOL airplanes that offers the speed and comfort of a business airplane and the range and versatility of VTOL for a wide range of customer applications, including private aviation for business and high net worth individuals, emergency medical services and regional charter air travel, defining a new category of VTOL that we term the “xVTOL.” The TriFan 600 is a seven-occupant airplane intended to provide point-to-point air travel over distances of over 1,000 miles, fly at twice the speed and three times the range of competing helicopters and cruise at altitudes of up to 25,000 feet. Since 2013, we have been engaged primarily in developing the aerodynamic performance and top-level engineering design of 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 advance the detailed design and certification of the TriFan 600, and to eventually engage in commercial production and sale of the TriFan 600.

We continue to work to optimize our airplane design for both manufacturing and certification. The development of an xVTOL airplane that meets our business requirements demands significant design and development efforts on all facets of the airplane. We believe that by bringing together a mix of talent with VTOL and traditional commercial aerospace backgrounds, we have built a team that enables us to move through the design, development, and certification of our xVTOL airplane with the Federal Aviation Administration (“FAA”) in an efficient manner, thus allowing us to achieve our end goal of bringing to market our airplane as efficiently as possible.

To date, we have not generated any revenue from aircraft sales because we are still designing and developing our xVTOL airplane. Additionally, we are seeking the necessary governmental approvals to bring the airplane into service. To continue funding these efforts, we will need to raise capital for the foreseeable future. The amount and timing of our future capital needs will depend on various factors, including the progress and results of our airplane’s design and development, our manufacturing operations, and our success in obtaining the required FAA certifications and other government approvals. For instance, any significant delays in securing FAA certifications or other government approvals may force us to raise more capital and could postpone our ability to generate revenue from aircraft sales.

Our RTLS solutions leverage 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. With our RTLS solutions, businesses can achieve improved operational efficiency, enhanced safety and reduced costs. By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations.

Drone Nerds, LLC (“Drone Nerds”), a Florida limited liability company founded in 2014 and headquartered in Dania Beach, Florida, is one of the largest drone distributors and solutions providers in the United States. Drone Nerds specializes in the wholesale, retail and e-commerce sale of advanced drone systems and related technologies serving commercial, governmental, and consumer markets, including public safety, construction, energy, and agriculture. The company operates both an online sales platform and a retail location in South Florida and maintains one of the largest drone inventories in the U.S., representing over 30 leading brands. Through its nationwide network of sales, marketing, and service professionals, Drone Nerds delivers comprehensive enterprise drone solutions that improve operational performance and data-driven decision-making for its customers.

We currently report financial results for two segments: Commercial Aviation and Industrial IoT. For Industrial IoT, we generate revenue from sales of hardware, software licenses and professional services. During the quarter ended December 31, 2024, we began exploring strategic options to wind down and/or sell the hardware portions of our Industrial IoT business segment in order to shift our focus towards the sales of software products. For Commercial Aviation, the segment is pre-revenue as we are currently developing the TriFan 600 airplane. As of the date of this filing, we have not yet assessed the impact of the recent acquisitions of Drone Nerds and Anzu Robotics to our future segment reporting.

Key Factors Affecting Operating Results

We believe that the growth of our business and our future success are dependent upon many factors, including our ability to retain and develop engineering internal and third-party resources, secure strategic partnerships with suppliers, expand the number of customer purchase orders, locate a facility for further aircraft development and testing, expand on that facility or locate to a new facility for commercial production, build-out production assembly lines in a timely manner, develop ancillary service offerings related to the TriFan 600 such as flight training and maintenance products, and secure the needed financing to achieve FAA certification.

While each of these areas presents significant opportunities for us, they also pose material challenges and risks that we must successfully address to achieve FAA certification of the TriFan 600 and further reach our current aircraft delivery forecasts.

Corporate Strategy Update

Our primary focus is to power what we term the Vertical Economy™ by delivering high-performance xVTOL solutions that scale from aircraft to innovative technologies and infrastructure. We identify seven areas that comprise the Vertical Economy: manned aircraft, unmanned aircraft, power technology, airspace and infrastructure management, artificial intelligence, aircraft advanced materials and next gen manufacturing. The term “xVTOL” is intended to encompass the broad spectrum of vertical lift technologies within the Vertical Economy, including various aircraft types (e.g., electric VTOL, regional VTOL and drones), operational models (manned and unmanned), supporting technologies (e.g., propulsion systems and aerospace-related artificial intelligence technologies) and customer applications. With the TriFan 600 as our flagship commercial aviation product, we are laying the groundwork for an innovative family of versatile aircraft and solutions addressing passenger travel, logistics, autonomous operations and defense missions that we believe will unlock significant growth and market leadership.

Expanding into autonomous, remotely operated drones via the acquisition of Drone Nerds was key to our strategic focus. By combining drone technology with VTOL innovation, we believe we are positioning the Company to accelerate the development of both unmanned aerial vehicles and VTOL solutions, expand its market presence, and create new revenue-generating opportunities across multiple industries. We will also be opportunistic and may consider other strategic transactions, which may include, but not be limited to, other alternative investment opportunities, such as minority investments and joint ventures. If we make any acquisitions in the future, we expect that we may pay for such acquisitions with cash, equity securities and/or debt in combinations appropriate for each acquisition.

Recent Events

Acquisitions of Drone Nerds and Anzu Robotics

On November 10, 2025, XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”) and a subsidiary of our wholly-owned subsidiary, XTI Drones, LLC, acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds (as defined above) and Anzu Robotics, LLC, a Delaware limited liability company (“Anzu Robotics”), pursuant to the terms of two separate membership interest purchase agreements (such transactions, respectively, the “Drone Nerds Acquisition” and the “Anzu Robotics Acquisition” and collectively, the “Acquisitions”), in exchange for aggregate consideration consisting of (i) approximately $20.0 million in cash, (ii) approximately $11.9 million in the form of two promissory notes (including approximately $1.6 million in working capital adjustments) and (iii) an aggregate of 6,524,576 Class B Units of XTI Drones Holdings (the “Class B Units”) with a fair market value of approximately $9.7 million. The aggregate purchase price for each Acquisition is subject to customary post-closing adjustments.

The Class B Units of XTI Drones Holdings are exchangeable at any time after May 1, 2026 for shares of the Company’s common stock on a one-for-one basis, provided that such exchange ratio is subject to equitable adjustments for stock splits, stock dividends, reclassifications and similar transactions affecting the Company’s common stock. In addition, on the date that is 15 months after November 10, 2025, all outstanding Class B Units will automatically be exchanged for shares of the Company’s common stock on a one-for-one basis, subject to the foregoing adjustments. The Drone Nerds and Anzu Robotics sellers entered into lock-up agreements pursuant to which they agreed not to, without the Company’s prior consent, sell, transfer or dispose of any shares of common stock until November 10, 2026. Following the exchange of all outstanding Class B Units into shares of common stock, XTI Drones, LLC will own 100% of the membership interests of XTI Drones Holdings, and Drone Nerds and Anzu Robotics will be indirect, wholly-owned subsidiaries of the Company.

The Company incurred fees of approximately $1.2 million owed to ThinkEquity LLC as compensation for advisory services in connection with the transactions contemplated by the purchase agreements.

Private Placement Investment by Unusual Machines

On November 10, 2025, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with Unusual Machines, Inc., a Nevada corporation (“Unusual Machines”), pursuant to which the Company sold Unusual Machines 25,000 shares of the Company’s newly designated Series 10 Convertible Preferred Stock, par value $0.001 per share (the “Series 10 Preferred Stock”), at a subscription amount of $1,000 per share of Series 10 Preferred Stock for an aggregate subscription amount of $25,000,000 (the “Subscription Amount”), pursuant to a private placement that closed on November 12, 2025 (the “PIPE Offering”). The Company received net proceeds from the PIPE Offering of approximately $23.1 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $1.9 million.

The Company filed a certificate of designation (the “Certificate of Designation”) on November 10, 2025, with the Secretary of State of the State of Nevada designating the rights, preferences and limitations of the shares of the Series 10 Preferred Stock. The Series 10 Preferred Stock has a stated value of $1,000 per share (the “Stated Value”), and is initially convertible at a conversion price of $1.492 per share, subject to adjustment pursuant to the Certificate of Designation.

On November 10, 2025, prior to the closing of the PIPE Offering, Unusual Machines advanced to the Company $10,500,000 (the “Advance”), which was automatically applied to the Subscription Amount at the closing of the PIPE Offering. The Company used the Advance to satisfy certain obligations under Drone Nerds’ and Anzu Robotics’ $25.0 million secured line of credit established pursuant to and evidenced by that certain Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Loan Agreement”), and the other Loan Documents (as defined in the Banesco Loan Agreement).

The issuance of shares of common stock upon conversion of, or as a dividend on, the Series 10 Preferred Stock is subject to the Company’s receipt of its shareholders’ approval of the removal of the limitations on conversion set forth in the Certificate of Designation of the Series 10 Preferred Stock, in compliance with Nasdaq Listing Rule 5635 (the “Shareholder Approval”, and the date the Shareholder Approval is obtained, the “Shareholder Approval Date”). Pursuant to the PIPE Purchase Agreement, the Company agreed to hold an annual or special meeting of shareholders no later than January 31, 2026 (the “Shareholder Meeting Deadline”), for the purpose of obtaining such Shareholder Approval. If Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline, the Company is required to call a special or annual meeting of shareholders 180 days thereafter until such Shareholder Approval is obtained, provided, however, that such obligation will terminate on the two year anniversary of the closing date of the PIPE Offering.

On the Shareholder Approval Date, the Series 10 Preferred Stock will automatically convert into shares of common stock. To the extent not converted in connection with a mandatory conversion, the Series 10 Preferred Stock will be convertible into common stock, from and after the Shareholder Approval Date, at the option of the holder.

Each outstanding share of Series 10 Preferred Stock is entitled to receive, in preference to shares of Junior Securities (as defined in the Certificate of Designation), cumulative dividends (“Preferential Dividends”), payable quarterly in arrears, at an annual rate of 12.0% of the Stated Value. The Preferential Dividends will be payable, at the option of the Company, either in-kind in shares of common stock, through an accrual on the Stated Value of the Series 10 Preferred Stock or in cash, subject to, with respect to the issuance of shares of common stock, the receipt of Shareholder Approval and the Beneficial Ownership Limitation (as defined in the Certificate of Designation). The rights to Preferential Dividends expire automatically on the two-year anniversary of the original issuance date of the Series 10 Preferred Stock.

The Series 10 Preferred Stock has no voting rights, except as required by law and for certain customary protective provisions set forth in the Certificate of Designation. The Certificate of Designation also includes customary liquidation provisions. See Note 19 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for a summary of the other material terms of the Series 10 Preferred Stock.

Pursuant to the PIPE Purchase Agreement, the Company agreed to file a registration statement covering the resale of the shares of common stock underlying the Series 10 Preferred Stock within 90 days of the closing date of the PIPE Offering. The Company agreed to use commercially reasonable efforts to cause such registration to become effective within 60 days (or 90 days if the SEC notifies the Company that it will “review” the registration statement) following the initial filing of such registration statement and to keep such registration statement effective at all times until the earlier of (i) the time that Unusual Machines, Inc. and its successors and assigns do not own any Series 10 Preferred Stock or underlying shares of common stock or (ii) the date on which the shares of common stock underlying the Series 10 Preferred Stock may be sold without restriction, including volume or manner-of-sale restrictions, pursuant to Rule 144.

From the date of the PIPE Purchase Agreement until the later of the date that is 5 days from the date (a) Shareholder Approval is obtained and (b) the date that the registration statement covering the resale of all of the shares of common stock underlying the Series 10 Preferred Stock has been declared effective by the SEC, the Company agreed to not enter into any transaction for the sale of any of its equity securities or securities convertible into its equity securities unless the price per share of common stock or per unit price (or conversion price or exercise price, as applicable) is equal to or greater than $2.50, subject to certain customary exempt issuance exceptions.

ThinkEquity acted as the Company’s placement agent in connection with the PIPE Offering. As compensation, the Company paid ThinkEquity $1,750,000 of placement agent fees, reimbursed ThinkEquity for $175,000 of actual out-of-pocket offering expenses, and issued ThinkEquity and its designees warrants to purchase an aggregate of 837,801 shares of common stock, which were exercisable commencing November 12, 2025, expire November 12, 2030 and have an exercise price of $1.492 per share. The Company’s obligation to issue shares upon exercise of the warrants is subject to the Company’s receipt of Shareholder Approval.

Valkyrie Investment and the Vanguard Platform

On October 27, 2025, the Company and Valkyrie Sciences Holdings LLC (“Valkyrie”), a company developing enterprise solutions via the integration of artificial intelligence and advanced materials, announced the Vanguard Platform, an intelligent technology system for the next generation of VTOL aircraft. The Vanguard Platform will apply Valkyrie’s experience with graphene and composite materials, battery technology, and smart systems architecture to the Company’s TriFan 600 program. In connection with this collaboration, on October 21, 2025, the Company made a $2 million strategic investment in Valkyrie through the purchase of a convertible promissory note (the “Valkyrie Note”) with an initial principal amount of $2 million issued by Valkyrie. Valkyrie and its affiliate Valkyrie Andromeda Corporation (together with Valkyrie, the “Borrower”) are jointly and severally liable under the Valkyrie Note. Interest accrues on the outstanding principal amount at the lesser of 10% per annum or the maximum rate permissible by law. The outstanding principal amount, together with any accrued but unpaid interest, is due and payable on December 31, 2026 (the “Maturity Date”). After a Qualified Financing (as defined in the Valkyrie Note) and if the Company does not elect to convert the Valkyrie Note, the Company may, prior to the Maturity Date, elect to require the Borrower to pay the remaining balance of the Valkyrie Note within 60 days after the delivery of the election notice to Valkyrie.

September 2025 Offering

On September 12, 2025, the Company entered into a placement agency agreement with ThinkEquity LLC (“ThinkEquity”), pursuant to which the Company agreed to issue and sell directly to various investors, in a best efforts public offering (the “September Offering”), 10,575,000 shares of common stock, pre-funded warrants to purchase up to 1,925,000 shares of common stock, and common warrants to purchase up to 12,500,000 shares of common stock. The combined public offering price for each share of common stock, together with one common warrant, was $1.60. The combined public offering price for each pre-funded warrant, together with one common warrant, was $1.599. Each share of common stock, or a pre-funded warrant in lieu thereof, was sold together with one common warrant.

The September Offering closed on September 15, 2025, resulting in net proceeds to the Company of approximately $18.5 million, after deducting the placement agent fees and other expenses payable by the Company of approximately $1.5 million. Upon closing of the September Offering, the Company issued ThinkEquity warrants (the “Placement Agent Warrants”) as compensation to purchase up to 625,000 shares of common stock at an exercise price of $2.00 per share. The Placement Agent Warrants were exercisable immediately upon the date of issuance and expire on the five-year anniversary of the commencement of sales of securities in the September Offering.

Officer Appointments

Effective as of September 1, 2025, Michael A. Tapp was appointed as the Company’s Chief Operating Officer. In connection therewith, the Company entered into an employment agreement and a side letter with Mr. Tapp, the material terms of which are disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 5, 2025, as amended by Amendment No. 1 on Form 8-K/A filed with the SEC on September 11, 2025.

Additionally, on October 2, 2025, we announced the appointment of Steve Zohrabian as Executive Vice President of XTI Aircraft Company, and on October 29, 2025, we announced the appointment of Dr. Alex Williams as XTI Aerospace, Inc.’s Executive Vice President of Technology.

Expansion of Corporate Advisory Board

During the nine months ended September 30, 2025, the Company expanded its corporate advisory board, which is now comprised of ten advisory board members, who are helping the Company evaluate strategic opportunities to capitalize on the anticipated demand for the TriFan 600.

TriFan 600 Engineering Update

We remain focused on advancing the TriFan 600 toward certification and commercialization, with Q3 marking notable progress in both engineering development and regulatory engagement activities. During the quarter ended September 30, 2025, we completed initial flight operations for our Sparrow (1:15 scale model) and Kestrel (1:12 scale model) subscale aircraft prototypes, the results of which validated key design elements of the TriFan 600 under flight conditions. We will continue our subscale aircraft program efforts as we progress toward building our full-scale, piloted TriFan 600 demonstrator, which we expect to complete in 2027.

We maintain active monthly engagement with the FAA, including ongoing support for Tech Fam sessions with agency subject matter experts. These interactions support continued progress in development and help confirm that our approach remains consistent with applicable regulatory requirements.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. 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.

The significant accounting policies of the Company are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” section of the Company’s annual report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to the Company’s critical accounting policies and estimates. However, the Company did identify an impairment as described below.

Valuation of Long-lived and Intangible Assets and Goodwill

We periodically review long-lived assets and certain identifiable intangible assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” Goodwill and intangible assets not subject to amortization are reviewed annually for impairment in accordance with ASC 350, “Intangibles – Goodwill and Other,” or more often if there are indications of possible impairment.

The analysis to determine whether or not an asset is impaired requires significant judgments that are dependent on internal forecasts, including estimated future cash flows, estimates of long-term growth rates for our business, the expected life over which cash flows will be realized and assumed royalty and discount rates. Changes in these estimates and assumptions could materially affect the determination of fair value and any impairment charge. While the fair value of these assets are less than their carrying value based on our current estimates and assumptions, materially different estimates and assumptions in the future in response to changing economic conditions, changes in our business or for other reasons could result in the recognition of impairment losses higher than the amount currently recorded.

For assets to be held and used, including acquired intangible assets subject to amortization, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Significant management judgment is required in this process.

For intangible assets not subject to amortization such as goodwill, we test for impairment annually, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. In testing goodwill for impairment, we compare the fair value with the carrying value. The determination of fair value is based on a discounted cash flow analysis, using inputs and assumptions such as revenue growth rates, other projected expenses, and discount rates. If we were to experience a decrease in forecasted future revenues attributable to the intangible assets, this could indicate a potential impairment. If the carrying value exceeds the estimated fair value, the goodwill is considered impaired, and an impairment loss will be recognized in an amount equal to the excess of the carrying value over the fair value of goodwill.

We perform our annual goodwill impairment test required by ASC 350 as of October 1st of each year. In testing goodwill for impairment, we analyze qualitative factors as stated within ASC 350 to determine if the fair value of our reporting unit may be less than the carrying value of the reporting unit. We have one reporting unit that carries goodwill (Industrial IoT). 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 $12 million in goodwill which was 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. 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 2025 and at the Company’s October 1st annual testing date. As of September 30, 2025, management evaluated potential triggers and determined there was no triggering event during the three months ended September 30, 2025 relating to the Industrial IoT reporting unit.

As of June 30, 2025, management evaluated potential triggers and determined there was a triggering event during the three months ended June 30, 2025 relating to the Industrial IoT reporting unit, in the form of a current period operating and cash flow loss, a consistent history of operating losses, and the revenue results for the current period missing forecasted targets due to (i) the sales cycle to close transactions taking longer than anticipated, and (ii) supply chain issues causing delays in our delivery of Nanotron product to customers. As such, the Company completed a qualitative assessment and determined in the aggregate, it is more likely than not, that the fair value of the IoT reporting unit is less than its carrying value. Therefore, a goodwill impairment of $4.05 million was recognized during the second quarter of 2025. One of the key factors in the calculation of the impairment amount is the Company’s forecasted financial performance for the IoT reporting unit. If the projected revenues decreased by 10%, the goodwill impairment amount would have increased by $2.9 million. This estimate is subject to significant uncertainty due to the potential for volatile financial market conditions.

Components of Results of Operations

Revenue

Commercial Aviation

We continue to design, develop and certify the TriFan 600 airplane and thus have not generated revenue from this segment. We do not expect to begin generating significant revenues until we complete the design, development, certification, and manufacturing of the airplane.

Industrial IoT

Our RTLS products are primarily sold on a license and SaaS mode, which we call “location as a service” or “LaaS.” In our licensing model, we also typically charge an annual maintenance fee. The LaaS model is typically for a 3-5 year contract and includes a license to use, maintenance and hardware upgrades. The LaaS model generates a recurring revenue stream.

Operating Expenses

Research and Development

Research and development activities represent a significant part of our business. Our research and development efforts focus on the design and development of (i) our indoor intelligence products, and (ii) our TriFan 600 airplane, including certain of the systems that will be used in it. As part of our aircraft development activities, we continue to work closely with the FAA towards our goal of achieving certification of our TriFan 600 airplane on an efficient timeline.

Research and development expenses consist primarily of costs incurred in connection with the research and development of the TriFan 600 airplane. These expenses include:

• employee-related expenses, including salaries and benefits for personnel engaged in research and development functions;
• expenses incurred under agreements with third parties such as consultants and contractors; and
• software and technology-related expenses to support computer-aided design of the aircraft, flight simulations, and other technology needs of our engineers.

Research and development costs are expensed as incurred. We expect our research and development expenses to increase significantly for the foreseeable future 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 airplane 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.

Sales and Marketing Expenses

Sales and marketing costs include activities such as aircraft reservation procurement, brand awareness campaigns, public relations and business opportunity advancement. These functions mainly generate expenses relating to travel, trade show fees and costs, salaries and benefits. Sales and marketing expenses are expensed as incurred.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, including non-capitalizable transaction costs; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs, facility related expenses including maintenance and allocated expenses for rent and other operating costs.

We anticipate that general and administrative expenses will increase substantially in the future as we increase our headcount to support continued research and development and commercialization of the TriFan 600.

Other (Expense) Income

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.

Loss on extinguishment of debt includes (i) prepayment penalties and other expenses incurred during the nine months ended September 30, 2025 as the Company fully repaid the Streeterville promissory notes before the maturity date, and (ii) inducement losses on debt conversions incurred by Legacy XTI when it entered into voluntary note conversion letter agreements with several note holders during the first quarter of 2024.

Change in fair value of convertible notes payable represents the remeasurement of certain Legacy XTI convertible notes to fair value. These notes were converted to equity prior to the closing of XTI Merger.

Change in fair value of warrant liability represents the remeasurement of certain outstanding warrants to fair value.

Other consists of miscellaneous income and expense items.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2025 compared to the Three Months Ended September 30, 2024

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

(in thousands, except percentages)

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

Revenues

The revenue amount for the periods presented represents the results of the revenue-generating Industrial IoT segment. Revenues for the three months ended September 30, 2025 were $2.5 million, compared to $0.9 million for the three months ended September 30, 2024, representing an increase of approximately $1.6 million. The increase was primarily attributable to a $1.3 million increase in hardware revenue related to the Company’s IoT business, resulting from improved supply chain conditions. These improvements followed the resolution of disruptions caused by regional conflict in the Middle East, which had impacted operations of the Company’s Israeli supplier and resulted in delays in hardware product deliveries during the first half of 2025. In addition, we communicated our plan to explore our strategic options to wind down and/or sell the hardware portions of our Industrial IoT business to our customers which resulted in customers increasing their hardware purchases, and as a result, we do not expect this trend to continue.

Cost of Revenues and Gross Profit

Cost of revenues for the three months ended September 30, 2025 was $1.4 million compared to $0.4 million for the comparable period in the prior year for an increase of approximately $1.0 million. This increase is consistent with the increase in revenues noted above.

Gross profit for the three months ended September 30, 2025 was $1.1 million compared to $0.5 million for the comparable period in the prior year, an increase of approximately $0.6 million, which is consistent with the increase in revenue. The gross margin percentage was 43.4% and 56.6% for the three months ended September 30, 2025 and 2024, respectively. The margin decrease is due primarily to a shift in sales mix to lower margin hardware products during the three months ended September 30, 2025.

Operating Expenses

Operating expenses for the three months ended September 30, 2025 were $15.9 million and $4.7 million for the comparable period ended September 30, 2024, an increase of $11.2 million. We expect operating expenses to continue to increase as we increase our headcount to accommodate our growth. This increase was primarily attributable to:

• Research and development expenses, which increased by $0.8 million mainly to advance the development of the TriFan 600 airplane.
• Sales and marketing expenses, which increased by $1.7 million, as the Company invested more in brand development and awareness, trade show participation, and business development initiatives.
• General and administrative expenses, which increased by $8.7 million, due primarily to an increase of approximately $8.2 million in stock-based compensation and an increase in administrative headcount to support operational growth.

Other (Expense) Income

Other (expense) income for the three months ended September 30, 2025 was income of $1.4 million compared to a loss of $0.2 million for the comparable period in the prior year.

The income for the three months ended September 30, 2025 was primarily attributable to the recognition of a $2.2 million gain related to the change in fair value of a warrant liability which was partially offset by $0.8 million of financing costs incurred relating to the issuance of warrants in connection with the September Offering.

Income Tax Benefit (Provision)

The income tax benefit (provision) for the three months ended September 30, 2025 and 2024 was immaterial.

Nine Months Ended September 30, 2025 compared to the Nine Months Ended September 30, 2024

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

(in thousands, except percentages)

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

Revenues

The revenue amount for the periods presented represents the results of the revenue-generating Industrial IoT segment. Revenues for the nine months ended September 30, 2025 were $3.6 million compared to $2.2 million for the comparable period in the prior year for an increase of approximately $1.4 million. The increase was primarily attributable to a $0.9 million increase in hardware revenue related to the Company’s IoT business, resulting from improved supply chain conditions. These improvements followed the resolution of disruptions caused by regional conflict in the Middle East, which had impacted operations of the Company’s Israeli supplier and resulted in delays in hardware product deliveries during the first half of 2025. In addition, we communicated our plan to explore our strategic options to wind down and/or sell the hardware portions of our Industrial IoT business to our customers which resulted in customers increasing their hardware purchases, and as a result, we do not expect this trend to continue. In addition, recurring software revenue increased by $0.4 million due to existing IoT customers adding new locations to their contracts.

Cost of Revenues and Gross Profit

Cost of revenues for the nine months ended September 30, 2025 was $1.7 million compared to $0.8 million for the comparable period in the prior year.

Gross profit for the nine months ended September 30, 2025 and 2024 was $1.9 million and $1.3 million, respectively. The gross margin percentage was 53% and 61% for the nine months ended September 30, 2025 and 2024, respectively. The margin decrease is due primarily to a shift in sales mix to lower margin hardware products during the first nine months of 2025.

Operating Expenses

Operating expenses for the nine months ended September 30, 2025 were $38.2 million, compared to $28.3 million for the nine months ended September 30, 2024, an increase of $9.9 million. We expect operating expenses to continue to increase as we increase our headcount to accommodate our growth. The increase was primarily attributable to:

• Research and development expenses, which increased by $2.8 million, primarily related to continued development of the TriFan 600 program.
• Sales and marketing expenses, which increased by $3.1 million, as the Company expanded investments in brand development and awareness, trade show participation, and business development initiatives.
• Non-cash impairment charges, which increased by $4.7 million, relating to goodwill and intangible assets within the Industrial IoT segment.
• General and administrative expenses, which increased by $6.0 million, primarily due to higher legal and accounting fees associated with capital-raising activities during 2025, increased administrative headcount to support operational growth, and higher public company-related professional fees. The 2024 period reflects the operations of Legacy XTI, a private company, from January 1, 2024 through the March 12, 2024 closing of the XTI Merger.

These increases were partially offset by a $6.5 million decrease in acquisition-related costs incurred during the nine months ended September 30, 2024, associated with the closing of the XTI Merger.

Other (Expense) Income

Other (expense) income for the nine months ended September 30, 2025 was a loss of $10.8 million compared to a gain of $5.3 million for the comparable period ended September 30, 2024. The loss during the nine months ended September 30, 2025 was primarily driven by (i) $6.6 million of financing costs incurred relating to the issuance of warrants in connection with the March Offering, June Offering and September Offering, (ii) the recognition of a $3.3 million loss related to the change in fair value of a warrant liability, and (iii) a loss on extinguishment of debt of $0.4 million.

The gain of approximately $5.3 million for the nine months ended September 30, 2024 was primarily driven by the Company recognizing an income gain of approximately $12.9 million relating to the remeasurement of convertible notes at fair value, partially offset by inducement losses on debt conversions of approximately $6.7 million.

Income Tax Benefit (Provision)

The income tax benefit (provision) for the nine months ended September 30, 2025 and 2024 was immaterial.

Liquidity and Capital Resources

Our current capital resources and operating results as of and through September 30, 2025, consist of:

1) working capital of approximately $1.1 million, adjusted to approximately $29.3 million when excluding derivative warrant liabilities;

2) cash and cash equivalents of approximately $32.2 million; and

3) net cash used by operating activities for the nine months ended September 30, 2025 of $30.4 million.

The breakdown of our working capital as of the periods indicated below is as follows (in thousands):

Balance Sheet Improvement

During the nine months ended September 30, 2025, we raised approximately $62.8 million in net proceeds through our now expired ATM with Maxim, public offerings of our securities placed and underwritten by ThinkEquity and the exercise of warrants issued in connection with certain public offerings. The proceeds from these capital raises and warrant exercises allowed us to significantly reduce debt and other obligations, while progressing the development of the TriFan 600 airplane. The following summarizes the improvements to our balance sheet from December 31, 2024 to September 30, 2025:

• Cash and cash equivalents increased by approximately $28.1 million primarily due to the net proceeds received from the January, March, June and September Offerings.
• Net working capital increased by approximately $9.9 million or increased by approximately $38.2 million when excluding derivative warrant liabilities.
• In March 2025, we repaid in full the outstanding secured promissory notes issued to Streeterville, which resulted in the release of Streeterville’s security interest in the assets of XTI Aircraft Company. In September 2025, we repaid in full Legacy XTI’s secured promissory note with the with the U.S. Small Business Administration. As of September 30, 2025, we had no interest-bearing debt outstanding.
• In March 2025, we redeemed the remaining outstanding shares of Series 9 Preferred Stock, leaving zero shares of Series 9 Preferred Stock issued and outstanding as of September 30, 2025. The Series 9 Preferred Stock had restricted our ability to raise capital, as we were prohibited from taking certain actions without prior written consent from the holders of the Series 9 Preferred Stock.
• In March 2025, we repaid the remaining Strategic Transaction Bonus Plan obligation to prior Legacy Inpixon management, which was the primary driver for the approximate $4.4 million decline in accrued expenses and other current liabilities from December 31, 2024 to September 30, 2025.
• In March 2025, we repaid the accounts payable and most commitments that were inherited from Legacy Inpixon. A remaining deferred consulting fee commitment of $0.5 million is still owed to Nadir Ali, the Company’s former Chief Executive Officer, which is payable on December 31, 2025.

We believe the Company’s ability to raise capital has been favorably impacted by the reduction of obligations either assumed from Legacy Inpixon or created by the XTI Merger closing and the elimination of the Streeterville secured debt and equity instruments with fundraising restrictions.

Contractual Obligations and Commitments

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 consist of operating lease liabilities and merger-related transaction liabilities that are included in our condensed consolidated balance sheet and vendor commitments associated with agreements that are legally binding. As of September 30, 2025, the total obligation for capitalized operating leases was approximately $0.3 million, of which approximately $0.1 million is expected to be paid in the next twelve months.

Customer Deposits

As of September 30, 2025, 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. The deposits prioritize orders when the aircraft becomes available for delivery. Customers making deposits are not obligated to purchase aircraft until they execute a definitive purchase agreement. Customers may request a return of their refundable deposit any time up until the execution of a purchase agreement. Customers’ request for a return of their refundable deposits could adversely affect our liquidity resources, and we may be financially unable to return such deposits.

Commitment to Nadir Ali

As disclosed in Note 16 of the condensed consolidated financial statements, as of September 30, 2025, the Company has a remaining commitment to pay Nadir Ali deferred consulting fees of $500,000 due on December 31, 2025.

Risks and Uncertainties; Sources of Liquidity; Long-Term Liquidity Requirements

As of September 30, 2025, the Company has working capital of approximately $1.1 million, adjusted to $29.3 million when excluding derivative warrant liabilities, and cash and cash equivalents of approximately $32.2 million. For the nine months ended September 30, 2025, the Company had a net loss of approximately $47.2 million. During the nine months ended September 30, 2025, the Company used approximately $30.4 million of cash for operating activities.

On November 10, 2025, the Company acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds and Anzu Robotics for total purchase consideration of $40.0 million, which was comprised of $20.0 million in cash, $11.9 million in the form of two promissory notes (including approximately $1.6 million in working capital adjustments), and $9.7 million in the form of equity consideration.

On November 12, 2025, the Company closed the PIPE Offering pursuant to which the Company issued Unusual Machines 25,000 shares of Series 10 Convertible Preferred Stock for gross proceeds of $25.0 million and net proceeds of $23.1 million after deducting the placement agent fees and other expenses payable by the Company of approximately $1.9 million.

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 historically supplemented the revenues it earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines. The Company has incurred net losses and negative operating cash flows from operations since the XTI Merger completed on March 12, 2024, and the Company expects to continue to incur losses and negative operating cash flows for the foreseeable future until it commences sustainable commercial operations of the TriFan 600 airplane. Since the XTI Merger, the Company has funded its operations primarily with proceeds from equity financings, including through our now expired ATM with Maxim and four public offerings completed in January 2025, March 2025, June 2025 and September 2025 (collectively, the “Offerings”), and through the issuance of promissory notes. We believe that our current revenue, as supplemented by proceeds from our financings, including the approximately $57.1 million net proceeds we raised in the Offerings, a portion of which was used to fully repay short-term obligations including the outstanding Streeterville promissory note balances, along with our ability to defer or eliminate certain operating expenses that are under our control, will provide us with liquidity to fund our planned operating needs for at least the next twelve months.

According to our current development schedule, we do not expect to obtain FAA type certification and other necessary regulatory approvals and commence deliveries of the TriFan 600 until 2030 at the earliest. We expect to fund our operations primarily through equity and/or debt financings at least until we commence sustainable commercial operations of the TriFan 600. We filed a shelf registration statement on Form S-3 on August 1, 2025, which was declared effective by the SEC on August 12, 2025, pursuant to which we may offer and sell, from time to time, in one or more offerings, up to $1 billion in any combination of common stock, preferred stock, depositary shares, debt securities, warrants, units and subscription rights until such shelf registration statement expires in August 2028.

Equity financing may result in dilution to the interests of our existing stockholders and could involve issuing securities with rights, preferences, or privileges senior to those of existing common stockholders. Similarly, debt financing could involve instruments with terms that supersede those of preferred or common stockholders and may include operational restrictions. It is important to note that capital markets have experienced volatility in the past and may do so again, which could impact our ability to raise funds on favorable terms or at all.

We currently do not have material cash obligations related to existing contracts. As a result, our future cash needs are closely tied to management’s strategic decisions regarding the pace and priorities of short- and long-term initiatives. These requirements are subject to fluctuation based on operational choices, including the timing and scale of infrastructure and development of sub-scale and full-scale test aircraft. Factors influencing our future capital needs include revenue growth, aircraft pre-order deposit timing, expansion of sales and marketing efforts, and the scope of development initiatives.

We may also pursue strategic acquisitions or investments in complementary businesses, technologies, or products, which could necessitate additional financing. If we are unable to raise additional capital when needed or on acceptable terms, it could limit our ability to innovate, develop, and compete effectively—ultimately affecting our business performance and financial condition. In such a case, we may be forced to reduce or delay investments in manufacturing, infrastructure, and R&D, or adjust our expansion plans—any of which could have a material adverse impact on our operations and long-term prospects.

Cash Flows

The Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2025 and 2024 and certain balances as of the end of those periods are as follows (in thousands):

49

Operating Activities for the nine months ended September 30, 2025

Net cash used in operating activities during the nine months ended September 30, 2025 was approximately $30.4 million. The cash flows related to the nine months ended September 30, 2025 consisted of the following (in thousands):

The non-cash income and expense of approximately $23.1 million consisted primarily of the following (in thousands):

The net cash used in the change in operating assets and liabilities aggregated approximately $6.2 million and consisted primarily of the following (in thousands):

The increase in accounts receivable and corresponding decrease in inventories primarily reflect higher Nanotron hardware sales occurring during the latter stages of the quarter ending September 30, 2025. Cash proceeds from the public offerings completed during 2025 allowed the Company to significantly reduce obligations including accounts payable and accrued expenses. The decrease in accrued expenses and other current liabilities of approximately $4.7 million was mainly attributable to (i) cash payments to settle the remaining accrued transaction bonuses and consulting fees owed to prior Legacy Inpixon executives, and (ii) payment of accrued employee bonuses.

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):

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

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

Cash Flows from Investing Activities for the nine months ended September 30, 2025 and 2024

Net cash flows used in investing activities during the nine months ended September 30, 2025 was approximately $0.1 million.

Net cash flows provided by investing activities during the nine months ended September 30, 2024 was approximately $2.9 million. 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 for the nine months ended September 30, 2025 and 2024

Net cash flows provided by financing activities during the nine months ended September 30, 2025 was approximately $58.6 million. During the nine months ended September 30, 2025, the Company received incoming cash flows of $1.7 million from the now expired ATM, $57.1 million from the sale of common stock and warrants via four public offerings, and $4.1 million from the exercise of warrants issued in connection with the public offerings. During the nine months ended September 30, 2025, the Company paid $2.7 million to fully settle the two outstanding promissory note obligations with Streeterville, paid $0.1 million to fully settle the outstanding SBA loan, and paid $1.4 million to redeem the remaining outstanding Series 9 Preferred Stock.

Net cash flows provided by financing activities during the nine months ended September 30, 2024 was approximately $11.9 million. During the nine months ended September 30, 2024, the Company received incoming cash flows of $9.6 million from the now expired ATM, $2.0 million from promissory notes issued to Streeterville, and $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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Standards

For a discussion of recently issued accounting pronouncements, please see Note 3 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with GAAP.

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2025.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risks. In addition to the risk factor set forth below and the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 15, 2025, which report is incorporated by reference herein, all of which could materially affect our business, financial condition and future results.

Adverse judgments or settlements in legal proceedings could materially harm our business, financial condition, operating results and cash flows.

We may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for example, our securities offerings, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business.

Additionally, we are and we may be made a party to future claims relating to the XTI Merger. On December 6, 2023, Xeriant, Inc. (“Xeriant”) filed a complaint in the United States District Court for the Southern District of New York (the “S.D.N.Y.”) against Legacy XTI, two unnamed entities, and five unnamed individuals. On January 31, 2024, Xeriant filed an amended complaint adding the Company as a defendant. On February 29, 2024, Xeriant filed a second amended complaint, removing the Company and one of the unnamed entities as defendants. The second amended complaint alleges that Legacy XTI breached several agreements with Xeriant, including a Joint Venture Agreement dated May 31, 2021, a cross-patent license agreement, an operating agreement, and a letter dated May 17, 2022, which Xeriant claims arose from its introduction of Legacy XTI to a Nasdaq-listed company as a potential acquirer. Xeriant further alleges that it provided intellectual property, expertise, and capital in connection with Legacy XTI’s TriFan 600 aircraft and was improperly excluded from a subsequent transaction involving the TriFan 600 technology as part of Legacy XTI’s merger with the Company. Xeriant asserts causes of action for breach of contract, fraud, unjust enrichment, and misappropriation of confidential information, and seeks damages in excess of $500 million, along with injunctive and other equitable relief. On March 13, 2024, Legacy XTI moved to dismiss portions of the second amended complaint. The S.D.N.Y. denied that motion on January 14, 2025. Legacy XTI filed an answer on January 28, 2025, and subsequently filed an amended answer and counterclaims on February 18, 2025. The amended counterclaims, further amended on April 14, 2025, allege that Xeriant breached the Joint Venture Agreement by failing to make required capital contributions of approximately $4.6 million and by failing to deliver promised intellectual property and strategic support. Legacy XTI further alleges that Xeriant breached its fiduciary duty by engaging in coercive and self-dealing conduct, including conditioning a strategic introduction on the issuance of equity and assumption of debt. Legacy XTI seeks declaratory relief confirming that the joint venture has been terminated, that all intellectual property related to the TriFan 600 belongs solely to Legacy XTI, and that Xeriant has no rights in the TriFan 600 technology. On April 28, 2025, Xeriant moved to dismiss Legacy XTI’s second amended counterclaims. On September 23, 2025, the S.D.N.Y. denied Xeriant’s motion, concluding that Legacy XTI plausibly alleged claims against Xeriant for breach of contract, breach of fiduciary duty, and declaratory judgment. The S.D.N.Y. found that Legacy XTI had adequately pleaded that Xeriant was obligated to contribute $10 million in funding to the joint venture and that it acted disloyally by leveraging a potential merger opportunity for its own benefit. Following the S.D.N.Y.’s September 23, 2025 denial of Xeriant’s motion to dismiss Legacy XTI’s counterclaims, the litigation has advanced into full discovery. The S.D.N.Y. has since compelled Xeriant to comply with its discovery obligations and warned that continued noncompliance would result in dismissal of its claims. While the Company continues to believe the allegations against Legacy XTI are meritless, the case remains in active discovery and subject to close judicial supervision, which may increase litigation costs and extend the duration of the proceedings. The outcome of the litigation cannot presently be predicted, and any adverse determination could have a material impact on the Company.

In connection with the litigation matter described in the immediately preceding paragraph, on June 12, 2024, the Company received correspondence from legal counsel for Auctus Fund, LLC (“Auctus”), dated April 3, 2024, asserting that the Company and/or Legacy XTI may have assumed Xeriant’s obligations under a Senior Secured Promissory Note (the “Note”) issued by Xeriant to Auctus in the original principal amount of $6,050,000, pursuant to a letter agreement dated May 17, 2022, between Xeriant and Legacy XTI (the “May 17 letter”). Auctus claimed that the outstanding amount due under the Note, including accrued interest, was $8,435,008.81 as of April 3, 2024. In July 2024, Legacy XTI responded to Auctus’s claims, asserting that the May 17 letter is invalid and unenforceable on multiple grounds. Legacy XTI further stated that, even if the May 17 letter were enforceable, it did not create or trigger any obligation for Legacy XTI to assume Xeriant’s debt under the Note or otherwise. On May 13, 2025, Auctus filed a lawsuit against Legacy XTI in the District Court of Arapahoe County, Colorado, asserting a single claim for breach of contract based on its prior allegations. Auctus contends that Legacy XTI is contractually obligated to repay nearly $9 million in principal and accrued interest, based on Legacy XTI’s entry into a loan agreement with Legacy Inpixon in March 2023 and its subsequent merger with Legacy Inpixon in March 2024. On June 25, 2025, Legacy XTI filed a motion to dismiss or, in the alternative, to stay the proceedings pending resolution of the Xeriant litigation. Legacy XTI’s motion asserts that Auctus’ complaint should be dismissed: (i) for lack of standing, because Auctus is neither a party to, nor a third-party beneficiary of, the May 17 letter; (ii) for failure of a condition precedent, because no obligation ever arose in that the alleged triggering condition—a business combination involving Legacy XTI and Legacy Inpixon did not occur within the required one-year time frame; (iii) for lack of valid assignment, because Xeriant’s unilateral assignment of debt to Legacy XTI is void because the underlying Note prohibits assignment without Auctus’s prior written consent, which is not alleged. On August 5, 2025, Auctus filed a response arguing that it was an intended third-party beneficiary of the May 17 letter, that the anti-assignment clause does not bar its claims, and that the request for a stay is unwarranted because the Xeriant litigation involves different parties and broader claims. On September 12, 2025, Legacy XTI filed a Reply Brief reinforcing that Auctus lacks standing, that no obligation ever arose under the May 17 Letter because no qualifying transaction occurred within its one-year term, and that any purported transfer of debt is void under the Note’s anti-assignment clause. The Reply also emphasized that the enforceability of the May 17 Letter is already before the S.D.N.Y. and urged dismissal or a stay to avoid inconsistent rulings. On October 2, 2025, Legacy XTI filed a Notice of Supplemental Authority submitting the September 23, 2025 Order of the S.D.N.Y., which denied Xeriant’s motion to dismiss Legacy XTI’s counterclaims and held that Legacy XTI had plausibly alleged that the May 17 Letter expired by its terms and is unenforceable. Legacy XTI asserted that the S.D.N.Y. ruling directly supports dismissal or a stay because it confirms that the same alleged contract and issues raised by Auctus are already being adjudicated in the federal case. On November 7, 2025, the court denied Legacy XTI’s motion to dismiss or, in the alternative, stay the proceedings. The court held that, when viewing the allegations in the light most favorable to Auctus, the complaint plausibly stated claims for relief under Colorado’s notice-pleading standard. The court further denied XTI’s alternative request for a stay, reasoning that the parties were not identical to those in the federal action and therefore comity and judicial economy did not warrant a stay. The court nonetheless directed the parties to update it regarding the outcome of the federal case to the extent it may be dispositive of overlapping issues. Legacy XTI’s answer to the complaint is due November 21, 2025. The Company will continue to vigorously defend against the claims but cannot predict the timing or outcome of the proceedings or estimate any potential exposure.

Regardless of the merits of any particular claim, responding to such actions could divert time, resources and management’s attention away from our business operations, and we may incur significant expenses in defending these lawsuits or other similar lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial condition, operating results and cash flows. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as deductibles and caps on amounts of coverage. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to coverage for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our available insurance coverage for a particular claim.

We may also be required to initiate expensive litigation or other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily resolve such claims or litigation. Litigation and other legal claims are subject to inherent uncertainties. Those uncertainties include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our current financial status may increase our default and litigation risks and may make us more financially vulnerable in the face of threatened litigation.

Drone Nerds operates in evolving markets, which makes it difficult to evaluate its business and future prospects.

Drone Nerds’ drone, camera and sensor technologies and software and training, operational support and repair services are and will be sold in new and rapidly evolving markets. The commercial unmanned aerial vehicles (“UAV”) industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. National Airspace System is rapidly evolving. Accordingly, Drone Nerds’ business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for the drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following in connection with our acquisition of Drone Nerds:

• Generate sufficient revenue to maintain its historical profitability;
• Acquire and maintain market share;
• Achieve or manage growth in our business operations;
• Renew contracts;
• Successfully stock for the commercial market products and end-to-end solutions;
• Adapt to new or changing polices and spending priorities of current and prospective clients; and
• Access to additional financing or capital when required and on reasonable terms.

If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.

The supplier base of Drone Nerds is highly concentrated. In addition, Drone Nerds is subject to risks arising from ongoing regulatory discussions and potential legislative actions targeting its primary supplier from China, SZ DJI Technology Co, Ltd. and affiliates (“DJI”), who represented a majority of Drone Nerds’ vendor purchases during the 1H 2025.

Drone Nerds has relationships with various global suppliers of drones and electronics, however the top 1 2 and 3 suppliers represent 53%, 10% and 7% of purchases, respectively, for the six months ended June 30, 2025. If any of those suppliers decided to no longer work with Drone Nerds, this could impact Drone Nerds ability to source products.

In addition, under the 2025 National Defense Authorization Act (“NDAA”), a U.S. national-security agency is required to complete a security review of certain suppliers, including DJI, by December 23, 2025. If no agency completes this review by the deadline, the law instructs the Federal Communications Commission (the “FCC”) to automatically add these suppliers to the FCC “Covered List,” which would effectively block new FCC equipment authorizations for their technology and drones in the U.S. (i.e., new models could not be approved).

Drone Nerds relies on DJI for a significant portion of its drone sales, creating significant regulatory and operational risk. Also, in September 2025, Drone Nerds signed an additional one-year contract with DJI to be the official non-exclusive dealer of its products in the U.S. DJI is already listed on certain U.S. government watchlists for national security and data concerns, which could restrict imports and limit access to government or defense-related contracts. This dependence exposes Drone Nerds to potential supply disruptions.

In addition, while existing FCC equipment authorizations for previously approved DJI products would remain valid, federal agencies have indicated that continued use of legacy or in-service DJI equipment may become restricted or phased out over time. Such actions could include procurement bans, limits on participation in government-funded projects, or heightened data-security and export-control scrutiny. Even absent formal revocation of existing approvals, these measures could discourage public-sector or enterprise customers from purchasing or deploying DJI-based systems, thereby reducing demand for Drone Nerds’ products.

Although the NDAA establishes the deadline for the national-security review, the ongoing federal government shutdown has created uncertainty around whether agencies will complete the review on time. Many federal departments responsible for technology and security evaluations are operating with reduced staffing or suspended programs, which may delay interagency coordination and risk assessments. If the review is not completed by the statutory deadline, DJI and other covered suppliers would be automatically added to the FCC Covered List by operation of law. This outcome—caused indirectly by administrative delay—could occur even without any final security determination.

If regulatory developments, including delayed or adverse NDAA determinations, restrict DJI’s market access, Drone Nerds may be forced to renegotiate or terminate this agreement, seek alternative suppliers, or incur substantial transition costs. Failure to diversify its supply base or mitigate these risks could materially and adversely affect Drone Nerds’ business, financial condition, and operating results.

The nature of the Drone Nerds business involves significant risks and uncertainties that may not be covered by insurance or indemnification.

Drone Nerds has developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, its products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we deploy may be available in certain circumstances but not in others. Currently, the uncrewed aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

The Drone Nerds and Anzu Robotics acquisitions may trigger contractual rights under certain agreements.

Drone Nerds and Anzu Robotics are parties to certain agreements that may contain termination or other rights following a “change in control” or “sale of all or substantially all” of such party’s assets. Any counterparty to such agreements may request modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, or they may elect not to grant a waiver or consent. To the extent any counterparty to such agreements requests modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, Drone Nerds and Anzu Robotics will use reasonable efforts to accommodate such modification, but such modifications may not be satisfactory to such counterparty or may not occur. There is no assurance that such counterparties will not assert otherwise and seek to exercise any such rights, including termination rights where available, that the exercise of any such rights will not adversely affect Drone Nerds or Anzu Robotics or that any modifications of such agreements will not materially and adversely affect the Company.

For example, the documentation governing Drone Nerds’ and Anzu Robotics’ $25.0 million secured revolving credit facility contains customary covenants, including a prohibition against a change of control without the lender’s prior written approval. The consummation of the Drone Nerds and Anzu Robotics acquisitions resulted in a change of control under the revolving credit facility, and the lender’s written approval was not obtained prior to the acquisitions, which constitutes an event of default under the revolving credit facility. We are currently in discussions with the lender to obtain a waiver of such event of default or an amendment to the revolving credit facility. In the absence of such a waiver or an amendment, the lender has the right to declare all outstanding obligations under the revolving credit facility immediately due and payable, cancel the facility, cease making advances under the facility, and proceed against the collateral securing the indebtedness under the facility. As of November 11, 2025, Drone Nerds and Anzu Robotics had outstanding borrowings under the revolving credit facility of approximately $9.2 million. There can be no assurance that the lender will agree to such a waiver or an amendment or that we will have sufficient resources available to satisfy all of the obligations under the revolving credit facility if no waiver or amendment is obtained.

We may be unable to repay the Notes issued in connection with the Acquisitions.

In connection with the Acquisitions, XTI Drone Holdings issued (i) the Drone Nerds seller a promissory note in the original principal amount of $10,976,284.58 (the “DN Note”) and (ii) the Anzu Robotics seller a promissory note in the original principal amount of $954,459.53 (the “AR Note”). The principal of and interest on each Note will be payable as follows: (i) no later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $3,680,000 with respect to the DN Note and $320,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the First Required Payment Date, (ii) no later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,840,000 with respect to the DN Note and $160,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Second Required Payment Date, (iii) no later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Third Required Payment Date, (iv) no later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Fourth Required Payment Date, (v) the entire outstanding principal amount, together with all accrued and unpaid interest, of each Note will be repaid on or prior to the one year anniversary of each Note (the “Due Date”), and (vi) all outstanding accrued interest and the unpaid principal amount of each Note will be due and payable in full on the earlier of (A) the Due Date, (B) 90 days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where the Company or one or more of its affiliates raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date of the Note, an aggregate amount of $40 million or more, qualified by the limitation that not more than 20% of net proceeds from any single financing will be applied towards payment of each Note, or (C) the date on which the Note becomes immediately due and payable as a result of the occurrence of an event of default thereunder.

Interest will accrue on the outstanding principal balance of each Note at an annual rate of 7.25%, computed based upon a 365-day year (the “Interest Rate”). If interest is not paid as it becomes due, it will be added to the principal. Our failure to pay the principal and interest of each Note when required will constitute an event of default under the Notes. Upon the occurrence of an event of default (except a Bankruptcy-Related Event of Default), the lender may declare the entire unpaid balance of principal and accrued but unpaid interest on the Note, and all other obligations of XTI Drones Holdings under the applicable Note, to be immediately due and payable and/or exercise any other rights or remedies under any other instrument or applicable law. Upon the occurrence of a Bankruptcy-Related Event of Default, the outstanding principal amount of the Note together with all accrued and unpaid interest and all other obligations of XTI Drones Holdings under the Note will become due and payable automatically. Following the occurrence of an event of default, interest will accrue on the outstanding principal balance of each Note at an annual rate equal to the Interest Rate plus 2.00%. An event of default under the Notes could also lead to a default under agreements governing our future indebtedness.

We may not have or be able to secure financing for sufficient funds to satisfy all amounts under the Notes when due. If there is an event of default under the Notes, our business, financial condition and results of operations could be materially and adversely affected. In addition, to the extent we complete capital raises in an aggregate amount of $40 million or more, we will be required to repay the outstanding balance of each Note, which may reduce our working capital and impact our ability to operate as planned.

We may incur substantial product liability claims relating to our products.

As a distributor of drone and electronic products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could be brought against us if use or misuse of one of the drones we sell causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any of our products.

Changes in U.S. and foreign government administrative policy, including the imposition of or increases in tariffs and changes to existing trade agreements, and other changes to macroeconomic conditions could have a material adverse effect on global economic conditions and our business, results of operations, prospects and financial condition.

As a result of changes to U.S. and foreign government administrative policy, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant increases in tariffs on goods imported into the U.S., particularly those manufactured in Canada, Mexico, Europe, and China, and adverse responses by foreign governments to U.S. trade policies, among other possible changes. China is currently a leading global source of hardware products, including the hardware products that we use. As the implementation of tariffs is ongoing, more tariffs may be added in the future. These tariffs could have an adverse impact on our business, results of operations, prospects and financial condition, and if we are unable to pass such price increases through to our customers, it would likely increase our cost of sales and, as a result, decrease our gross margins, operating income and net income. As of the date of this report, discussions remain ongoing in respect of certain trade restrictions and tariffs on imports from Canada, China, Mexico and Europe, as well as retaliatory tariffs enacted in response to such actions. In light of these events, there continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties, and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our access to suppliers or customers and, in turn, have a material adverse effect on the business and financial condition of such suppliers and customers or other counterparties we do business with, which in turn would negatively impact us.

Deteriorating macroeconomic conditions, including slower growth or a recession, inflation, changes in the U.S. presidential administration, bank failures, supply chain disruption, increases in interest rates, increases to fuel and other energy costs or vehicle costs, geopolitical events, including escalating tariff and non-tariff trade measures imposed by the U.S., Mexico, China, Canada and other countries, the potential for new or unforeseen conflicts such as the impact of the Russia and Ukraine conflict and Hamas and Israel conflict, changes in the labor market, or decreases in government spending power, could in the future result in a decline in customer spending, which could materially adversely affect our business, results of operations, prospects and financial condition. A trade war, other governmental action related to tariffs or trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently do business, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Licenses for new products may be difficult to obtain in the future

The drones and other electronic products sold by Drone Nerds and Anzu Robotics require FCC licenses to be imported into the US and sold to customers. Suppliers may face difficulties in the future obtaining these licenses. In such cases, Drone Nerds and Anzu Robotics will not be able to sell products where suppliers are not able to obtain licenses. This can be a major impact to Drone Nerds and Anzu Robotics’ business.

Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve in the near future.

Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Weak economic conditions generally, sustained uncertainty about global economic conditions, or a prolonged or further tightening of credit markets could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or cash flows. Concerns over inflation, energy costs, geopolitical issues and the availability of credit in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices and wavering business and consumer confidence, have precipitated an economic slowdown and uncertain global outlook. Domestic and international equity markets have been experiencing heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on our business. In the event of extreme prolonged market events, such as the global economic recovery, we could incur significant losses.

The existence of inflation in certain economies has resulted in, and may continue to result in, rising interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result, we have experienced and may continue to experience cost increases. Although we take measures to mitigate the effects of inflation and rising interest rates, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when those beneficial actions impact our results or operations and when the cost of inflation is incurred.

The Drone Nerds and Anzu Robotics acquisitions, and any future acquisitions that we may make, could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results.

The Drone Nerds and Anzu Robotics acquisitions, and any future acquisitions that we successfully consummate, could subject us to a number of risks, including, but not limited to:

• the purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves or result in dilution to our existing stockholders;
• we may find that the acquired company or technologies do not improve our market position as planned;
• we may have difficulty integrating the operations and personnel of the acquired company, as the combined operations will place significant demands on the Company’s management, technical, financial and other resources;
• personnel, vendors, suppliers and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;
• we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;
• we may assume or be held liable for risks and liabilities (including environmental-related costs) as a result of our acquisitions, some of which we may not be able to discover during our due diligence investigation or adequately adjust for in our acquisition arrangements (for example, even if we secure indemnification protections in connection with these acquisitions from undisclosed liabilities, there may not be adequate resources to cover such indemnity);
• our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;
• we may incur one-time write-offs or restructuring charges in connection with the acquisition;
• we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and
• we may not be able to realize the cost savings or other financial benefits we anticipated.

We cannot assure you that, following the acquisitions of Drone Nerds or Anzu Robotics or any future acquisition, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings for us in any future period. These factors could have a material adverse effect on our business, financial condition and operating results.

We may not be able to successfully integrate the business and operations of Drone Nerds, Anzu Robotics or other entities that we have acquired or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.

We plan to integrate the operations of Drone Nerds and Anzu Robotics into our business, and this process involves complex operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves a number of risks, including, but not limited to:

• difficulties or complications in combining the companies’ operations;
• differences in controls, procedures and policies, regulatory standards and business cultures among the combined companies;
• the diversion of management’s attention from our ongoing core business operations;
• increased exposure to certain governmental regulations and compliance requirements;
• the potential increase in operating costs;
• the potential loss of key personnel;
• the potential loss of key customers or suppliers who choose not to do business with the combined business;
• difficulties or delays in consolidating the acquired companies’ technology platforms, including implementing systems designed to maintain effective disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue to comply with U.S. GAAP and applicable U.S. securities laws and regulations;
• unanticipated costs to successfully integrate operations, technologies, personnel of acquired businesses and other assumed contingent liabilities;
• difficulty comparing financial reports due to differing financial and/or internal reporting systems;
• making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder; and/or
• possible tax costs or inefficiencies associated with integrating the operations of the combined company.

These factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the acquisitions, which could have a material adverse effect on our business, financial condition and/or results of operations.

Even if we are able to successfully operate the acquired businesses, we may not be able to realize the revenue and other synergies and growth that we anticipated from these acquisitions in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to:

• the possibility that the acquisition may not further our business strategy as we expected;
• the possibility that we may not be able to expand the reach and customer base for the acquired companies’ current and future products as expected;
• the possibility that we may have entered a market with no prior experience and may not succeed in the manner expected; and
• the possibility that the carrying amounts of goodwill and other purchased intangible assets may not be recoverable.

In addition, a significant portion of the aggregate purchase price of Drone Nerds and Anzu Robotics may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. For the purposes of the unaudited pro forma condensed combined financial information included in our Current Report on Form 8-K filed with the SEC on November 12, 2025, the Company has assumed the excess consideration over the net assets acquired is goodwill. The Company will perform a more comprehensive assessment of assets acquired that may result in other intangible assets being identified in that analysis. If the Acquisitions do not yield expected returns or fair value estimates deteriorate, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.

As a result of these risks, the acquisitions of Drone Nerds and Anzu Robotics and integration may not contribute to our earnings as expected, we may not achieve expected revenue synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of the acquisitions.

The risks arising with respect to the historic business and operations of Drone Nerds and Anzu Robotics may be different from what we anticipate, which could significantly increase the costs and decrease the benefits of the acquisitions and materially and adversely affect our operations going forward.

Although we performed significant financial, legal, technological and business due diligence with respect to Drone Nerds and Anzu Robotics, we may not have appreciated, understood or fully anticipated the extent of the risks associated with the acquisitions. We have secured indemnification for certain matters in connection with the Drone Nerds and Anzu Robotics acquisitions in order to mitigate the consequences of breaches of representations, warranties and covenants under the applicable acquisition agreements and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us. We believe that the indemnification provisions of the acquisition agreements, together with insurance policies that we have in place will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels. Notwithstanding our exercise of due diligence and risk mitigation strategies, the Drone Nerds and Anzu Robotics acquisitions may expose us to unanticipated risks or unknown or contingent liabilities and the costs associated with these risks or liabilities may be greater than we anticipate. We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially and adversely affect our business, liquidity, capital resources or results of operations.