UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2025
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________
to _______________
Commission File Number 001-36404
XTI AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
15505 Wright Brothers Dr.
Addison, TX75001
(Address of principal executive offices)
(Zip Code)
(800)680-7412
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b)
of the Act:
Common Stock, par value $0.001 XTIA The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g)
of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the issuer is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant as of June 30, 2025, the last business day of the registrant’s
most recently completed second fiscal quarter, was $29,189,207 based upon the closing price reported for such date on the Nasdaq Capital
Market.
As of March 31, 2026, there were 38,472,204
shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
XTI AEROSPACE, INC.
TABLE OF CONTENTS
PART I 1
ITEM 1: BUSINESS 1
ITEM 1A: RISK FACTORS 10
ITEM 1B: UNRESOLVED STAFF COMMENTS 47
ITEM 1C: CYBERSECURITY 47
ITEM 2: PROPERTIES 49
ITEM 3: LEGAL PROCEEDINGS 49
ITEM 4: MINE SAFETY DISCLOSURES 50
ITEM 6: [RESERVED] 51
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 68
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
ITEM 9A: CONTROLS AND PROCEDURES 69
ITEM 9B: OTHER INFORMATION 69
ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 69
PART III 70
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 70
ITEM 11: EXECUTIVE COMPENSATION 77
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES 94
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES 95
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This Annual Report on Form 10-K
(this “Annual Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations
or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current
facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,”
“hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,”
“plans,” “would,” “should,” “could,” “may,” or other similar expressions in
this report. In particular, these include statements relating to future actions; prospective products, anticipated expenses, applications,
customers and technologies; future performance or results of anticipated products; and projected expenses and financial results. These
forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our
historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed
in the forward-looking statements include, but are not limited to:
● the impact of competitive or alternative products, technologies and pricing;
ii
● our ability to raise additional capital on acceptable terms, or at all;
● litigation, regulatory investigations and other legal proceedings;
● risks related to intellectual property protection;
● potential impairments of goodwill and other intangible assets;
● other factors discussed under “Risk Factors” in this Annual Report.
The forward-looking statements
are based upon management’s beliefs and assumptions and are made as of the date of this Annual Report. We undertake no obligation
to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking
statements.
This Annual Report also contains
or may contain estimates, projections and other information concerning our industry and our business, including data regarding the estimated
size of our markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies
is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected
in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, studies
and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we
do not expressly refer to the sources from which these data are derived.
iii
EXPLANATORY NOTE
On March 12, 2024 (the “Closing
Date”), XTI Aerospace, Inc. (formerly known as Inpixon) completed a merger with XTI Aircraft Company (“Legacy XTI”)
pursuant to an Agreement and Plan of Merger dated July 24, 2023, as amended (the “XTI Merger Agreement”). In connection with
the transaction, a wholly owned subsidiary of the Company merged with and into Legacy XTI, with Legacy XTI surviving as a wholly owned
subsidiary of the Company (the “XTI Merger”). Upon completion of the XTI Merger, the Company changed its corporate name to
“XTI Aerospace, Inc.”
For accounting purposes, the XTI
Merger was treated as a reverse acquisition, with Legacy XTI deemed to be the accounting acquirer and the Company (formerly Inpixon) deemed
to be the accounting acquiree. Accordingly, the consolidated financial statements included in this Annual Report on Form 10-K (this “Annual
Report”) reflect (i) the historical financial statements of Legacy XTI prior to the Closing Date and (ii) the consolidated results
of the combined company following the Closing Date.
In November 2025, the Company
completed the acquisition of Drone Nerds, LLC and Anzu Robotics, LLC (“Anzu” and, collectively with Drone Nerds, LLC, “Drone
Nerds”) through XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”). The Company holds
an 83.403% controlling equity interest in XTI Drones Holdings through its ownership of Class A Units, and the remaining 16.597% equity
interest is held by other Class B unitholders. The results of Drone Nerds have been included in the Company’s consolidated financial
statements from the acquisition date, and the ownership interest not held by the Company is reflected as noncontrolling interest.
During December 2025, the
Company committed to a plan to dispose of its historical Industrial IoT / Real-Time Location Systems (“RTLS”) operations
(the “Inpixon Business”) and classified the business as held for sale. In accordance with ASC 205-20, the results of the
Inpixon Business have been classified as discontinued operations in the consolidated financial statements included in this Annual Report
and have been retrospectively presented as discontinued operations for all periods presented.
Unless otherwise indicated or
the context otherwise requires, references in this Annual Report to “XTI Aerospace,” the “Company,” “we,”
“us,” and “our” refer to XTI Aerospace, Inc. and its consolidated subsidiaries.
Note Regarding Reverse Stock Splits
The Company effected a reverse
stock split of its outstanding common stock, par value $0.001 per share, at a ratio of 1-for-100, effective March 12, 2024, to comply
with Nasdaq Listing Rule 5550(a)(2) and satisfy the bid price requirement for initial listing in connection with the closing of the XTI
Merger.
The Company subsequently effected
a reverse stock split of its outstanding common stock at a ratio of 1-for-250, effective January 10, 2025, to maintain compliance with
Nasdaq Listing Rule 5550(a)(2).
All share and per share amounts
presented in this Annual Report have been retroactively adjusted to reflect the reverse stock splits, unless otherwise indicated.
iv
PART I
ITEM 1: BUSINESS
Overview
XTI Aerospace is a provider of unmanned aerial systems (“UAS”)
solutions operating through two business divisions: a commercial drone solutions business and an advanced systems and defense division.
The Company expects to continue developing a third business division, a domestic manufacturing and technology division. The Company’s
commercial drone solutions business, conducted primarily through its majority owned subsidiary, XTI Drones Holdings, LLC, which owns Drone
Nerds, LLC and Anzu Robotics, LLC (collectively, “Drone Nerds”), constitutes substantially all of the Company’s revenues.
The advanced systems and defense division (formerly XTI Aircraft) is in an earlier stage of development and has not yet generated any
revenues.
The Company was originally founded
around the development of the TriFan 600, a planned vertical takeoff and landing (“VTOL”) aircraft. In 2025, the Company acquired
Drone Nerds and, in light of that acquisition and its assessment of near-term opportunities in the unmanned systems market, redirected
its former XTI Aircraft division beginning in 2026 toward the design and development of unmanned platforms for defense and commercial
applications. The TriFan 600 program has been paused and the underlying intellectual property and engineering work product is being preserved
and maintained. See “Business Divisions — TriFan 600 Strategic Context and Organizational Evolution” below for additional
detail.
The Company’s near-term focus is on growing its commercial drone
platform, expanding the range of products and services offered to enterprise and government customers, and pursuing strategic acquisitions
that extend its geographic reach and customer base. The Company also is seeking to generate revenue from its advanced systems and domestic
manufacturing divisions.
The Company’s strategy is organized around three priorities:
Corporate Strategy
XTI’s objective is to build
a scalable UAS solutions platform through organic growth in its commercial business, targeted acquisitions and the staged development
of its advanced systems and domestic manufacturing capabilities. The following describes each element of this strategy.
1. Strengthen the Commercial
Drone Solutions Business
The Company is focused on expanding
the scope of products and services offered through Drone Nerds to increase revenue per customer and improve operating margins. Current
expansion areas include training and certification programs, repair and maintenance services, fleet management support, compliance assistance,
and financing solutions. By offering these services alongside hardware distribution, the Company seeks to increase customer retention
and establish longer-term customer relationships.
Drone Nerds operates as an OEM-agnostic
distributor, meaning it is not restricted to the products of a single manufacturer. The Company believes this model provides a competitive
advantage by allowing it to recommend the most suitable platform for a given customer’s operational requirements, independent of
manufacturer relationships. However, the Company’s ability to maintain this model depends on continued access to OEM products and
dealer programs, which are subject to change.
1
2. Grow Through Strategic Acquisitions
and Partnerships
The UAS distribution and services market
is highly fragmented. The Company intends to pursue acquisitions of complementary businesses that expand its customer base, geographic
presence, or service capabilities. The Company uses data derived from its subsidiaries, primarily from Drone Nerds, to inform acquisition
targeting decisions. There can be no assurance that suitable acquisition targets will be identified, that acquisitions will be completed
on acceptable terms, or that acquired businesses will be successfully integrated.
The Company is also seeking to expand
its customer base in government, defense, and public safety markets. Procurement in these markets is subject to requirements around platform
compliance, cybersecurity and domestic sourcing, which the Company believes may favor distributors with established compliance capabilities.
XTI believes it is well positioned to leverage its supply-side expertise and enterprise platform to serve these growing markets; however,
government procurement decisions are subject to budgetary, regulatory and political factors outside the Company’s control.
3. Expand Domestic Manufacturing
and Technology Capability
XTI intends to develop U.S.-based manufacturing
and advanced technology capabilities for unmanned systems through partnerships, joint ventures, and selective investments. These initiatives
are designed to address demand from government and enterprise customers for domestically manufactured platforms, which has been increasing
as regulatory and procurement requirements around foreign-sourced systems have tightened. These development activities are at an early
stage, and there can be no assurance that the Company will be able to execute manufacturing partnerships on acceptable terms or that demand
for domestically manufactured platforms will develop as anticipated.
Business Divisions
Commercial Drone Solutions – XTI Drones (Drone Nerds)
XTI’s commercial drone
solutions business is currently conducted primarily through Drone Nerds, a UAS solutions provider offering hardware distribution, training
and certification, repair and maintenance, fleet sustainment, compliance support, and integrated solutions to enterprise and government
customers. Drone Nerds operates through wholesale distribution, direct sales, and direct-to-consumer retail channels, including a retail
showroom in South Florida and an e-commerce platform. The Company believes Drone Nerds is a significant enterprise-focused UAS distributor
in the United States.
The commercial drone solutions business currently generates substantially
all of the Company’s revenues and provides the customer relationships, operational infrastructure, and market data that support
the Company’s broader acquisition and development strategy.
Autonomous Defense Systems (ADS), formerly XTI Aircraft —
Strategic Context and Organizational Evolution
The ADS division reflects a strategic shift away from the TriFan 600
program and toward nearer-term unmanned systems opportunities. Management determined that continued development of the TriFan 600 program
would require substantial additional time and capital, and the Company therefore redirected resources toward unmanned systems opportunities
that it believes may offer nearer-term commercial applications.
In response, management conducted a structured search for new divisional
leadership with a mandate to reorient the business around nearer-term, capital-efficient opportunities. That search concluded with the
appointment of Steve Zohrabian, whose background in advanced manufacturing and defense product development is relevant to the operational
and contractual realities of serving government and defense customers.
The acquisition of Drone Nerds
in November 2025 served as the second anchor point around which the division’s updated strategy was set. Together, Zohrabian’s
appointment and the Drone Nerds acquisition defined the strategic perimeter of the division and marked the beginning of a transformation
in staffing, focus, and organizational priorities — a transformation substantially completed in Q1 2026.
The ADS team is now building a core capability around the design, development,
and production of unmanned platforms, with an emphasis on serving defense customers and supporting domestic procurement initiatives aligned
with U.S. national security priorities. The Company believes the unmanned systems market — particularly in defense and government
procurement — presents a more actionable near-term revenue opportunity than continued TriFan 600 development at this stage of the
Company’s evolution.
2
TriFan 600 Program Status
The TriFan 600 program has
been paused. The underlying intellectual property and engineering work product are being preserved.
Whether and when development may
resume will depend on a number of factors, including capital availability, market conditions for advanced air mobility, further maturation
of core technologies of the TriFan 600, such as full autonomy capabilities, and the Company’s overall strategic priorities at the
relevant time.
Autonomous Defense Systems (ADS)
The Company refers to this
division as Autonomous Defense Systems, or ADS, a provisional designation. The division’s official name and branding have not yet been
finalized and will be disclosed in a subsequent filing upon determination.
The ADS division is focused on
the design, development, and production of unmanned platforms for defense and commercial applications, drawing on the engineering expertise
and intellectual property developed through the Company’s prior aerospace program. The division’s capabilities span autonomous
systems design, advanced propulsion, and airframe engineering. ADS pursues opportunities through internal development, strategic partnerships,
and co-development arrangements, with an emphasis on defense procurement programs and domestic unmanned systems initiatives aligned with
U.S. national security priorities.
As described above, the division
substantially completed its organizational transformation in Q1 2026 following the appointment of new leadership and the acquisition of
Drone Nerds. Additional information regarding the division’s official name, organizational structure, and specific strategic initiatives
will be provided as those matters are finalized.
The
ADS division has not yet generated any revenues. Its ability to generate revenues will depend on success in securing development
contracts, partnerships, or procurement awards, all of which are subject to significant uncertainty. We
are currently pursuing participation in five identified program opportunities with a combined potential R&D program value of
approximately $147 million. If these development programs advance to production phases — which is subject to government
procurement decisions, budgetary constraints, shifting defense priorities, program cancellations, competitive selection processes
and other factors outside our control, and as to which there can be no assurance — and if we are able to develop the
manufacturing capabilities necessary to meet resulting demand, we estimate the associated manufacturing opportunity could reach
approximately $1.5 billion in the aggregate. These programs span potential customer agencies that include the U.S. Marine Corps,
U.S. Army, U.S. Special Operations Command (SOCOM), U.S. Air Force, U.S. Navy, the Defense Advanced Research Projects Agency
(DARPA), and the Air Force Research Laboratory (AFRL). See “Risk Factors — Risks Related to Our Business and
Industries” for a discussion of the material risks associated with this division.
Advanced Technology and Manufacturing (ATM)
The Company refers to this
division as Advanced Technology and Manufacturing, or ATM, a provisional designation. The division’s official name, organizational structure,
and branding have not yet been finalized and will be disclosed in a subsequent filing upon determination.
The Advanced Technology and Manufacturing (ATM) division is expected
to be led by Alex Williams, Ph.D., and is expected to be focused on developing and scaling U.S.-based production capabilities for unmanned
systems, components, and related technologies. The division’s mandate will be to build a domestically sourced supply chain designed
to support compliance with applicable federal procurement and sourcing requirements, including Section 848 of the National Defense Authorization
Act for unmanned aerial systems — addressing the growing demand from federal agencies, defense contractors, and enterprise customers
for drone platforms and components that meet Section 848 of the National Defense Authorization Act and satisfy applicable government procurement
requirements for compliant UAS platforms and components.
3
Demand for compliant, domestically
manufactured unmanned systems has accelerated as regulatory and procurement requirements around foreign-manufactured components have tightened.
The Company believes this environment creates an opportunity to develop manufacturing relationships and capabilities that may support
government and enterprise demand for compliant UAS platforms and components.
The division plans to pursue growth
through manufacturing partnerships, co-development arrangements, targeted acquisitions of domestic production capacity, and strategic
investments in U.S.-based technology and component suppliers.
The Company’s position as
a distributor and aggregator of market intelligence across the unmanned systems industry is expected to provide the ATM division with
an operational insight base that may support identifying manufacturing gaps, qualifying suppliers, and structuring partnerships that address
the specific procurement and compliance requirements of defense and government customers.
The ATM division has not yet generated
any revenues, and its activities are at an early stage of development. The division’s ability to generate revenues will depend on
its success in establishing manufacturing partnerships on acceptable terms, securing National Defense Authorization Act (“NDAA”)
-compliant production capacity, and converting that capacity into defensible customer relationships and contract awards — each of
which is subject to significant uncertainty. There can be no assurance that manufacturing contracts and/or partnerships will be established
on acceptable terms or that the division will generate revenues within the timeframe the Company anticipates.
Capital Strategy
XTI is executing a capital strategy designed to support disciplined
growth, fund targeted acquisitions, and accelerate the development of its three operating divisions. The Company is working with its financial
advisors to evaluate financing alternatives that optimize flexibility and preserve shareholder value.
Market
The commercial UAS market
has experienced growth in recent years, driven by increasing adoption across enterprise verticals including agriculture, construction,
infrastructure inspection, mining, insurance, energy and utilities, and public safety. Defense and government applications represent an
additional and growing end market. The overall market remains fragmented, with no single provider holding a dominant position across all
verticals and use cases.
The Company believes that consolidation among UAS distributors and
solutions providers is likely as customers increasingly prefer vendors capable of providing integrated, multi-manufacturer solutions alongside
training, maintenance, and lifecycle support. The Company’s strategy is designed to position the Company to participate in this
trend, both through organic growth and through acquisitions. However, the pace and direction of industry consolidation are uncertain,
and larger, better-capitalized competitors may consolidate more quickly or effectively than the Company.
Regulatory and procurement
trends have generally been favorable for domestic UAS distributors and manufacturers. Restrictions on foreign-manufactured platforms in
certain government procurement contexts, actions by the FAA and FCC relating to UAS operations and equipment authorization, and growing
national security scrutiny of foreign-sourced unmanned systems, have all contributed to demand for compliant, U.S.-based solutions. These
trends may benefit the Company, though regulatory requirements are subject to change and may also impose compliance costs or operational
constraints on the Company and its customers.
4
The advanced air mobility market — the market the TriFan 600
program was originally designed to address — remains at an early stage of development. The Company does not generate revenues from
advanced air mobility and has paused the active development of the TriFan 600 program. If the Company were to resume that program, its
prospects would depend in part on the development of regulatory frameworks, infrastructure, and customer demand for advanced air mobility,
none of which can be predicted with certainty.
The Company competes with
other UAS distributors, value-added resellers, and solutions integrators, as well as directly with OEM manufacturers that sell through
direct channels. Certain competitors are larger and have greater financial, technical, and marketing resources than the Company. There
can be no assurance that the Company will be able to compete successfully.
Products and Services
XTI delivers UAS solutions through its three operating divisions. The
commercial drone solutions business is currently the primary operating division and source of revenues. The advanced systems and defense
division and domestic manufacturing and technology division are in development and have not generated any revenues to date. Together,
these divisions are designed to serve customers across the full UAS lifecycle — from initial platform selection and procurement
through training, deployment, maintenance, fleet sustainment, and integrated mission solutions.
Commercial Drone Solutions – XTI Drones
(Drone Nerds)
The Company’s commercial
drone solutions business is conducted primarily through Drone Nerds. Drone Nerds provides UAS solutions through a combination of hardware
distribution and service offerings, supporting a broad ecosystem of UAS manufacturers, payload and sensor providers, and software vendors.
The Company delivers solutions
through wholesale distribution, direct sales, and direct-to-consumer retail channels. Wholesale revenue represents sales through resellers
and channel partners serving enterprise, commercial, and governmental end customers. Direct sales represent sales to enterprise, commercial,
and governmental customers that utilize drones as part of their operations. Retail revenue represents sales to consumer end users, including
transactions at a retail showroom in South Florida and through an e-commerce platform. Enterprise, commercial, and governmental customers
may also purchase through the e-commerce platform; such transactions are classified as direct sales based on customer type.
The Company serves customers
across multiple end markets, including agriculture, construction, inspection, mining, insurance, security, energy and utilities, and public
safety.
The Company’s UAS offerings
generally fall into the following categories:
Hardware and Related Products.
The Company distributes UAS platforms, payloads, sensors, batteries, accessories, and related equipment from third-party manufacturers.
The Company assists customers in evaluating and selecting platforms and payload configurations suited to their operational requirements,
including inspection, mapping, surveying, public safety response, security monitoring, and other applications. The Company’s ability
to offer and support specific platforms is subject to OEM product availability, dealer program terms, regulatory authorizations, and supply
chain conditions. Revenue from hardware sales is generally recognized upon shipment or delivery.
Training and Program Enablement.
The Company provides training services designed to help customers establish and operate drone programs and navigate applicable regulatory
requirements. Training may include platform operation, mission planning, payload use, safety procedures, and other operational topics.
The Company also provides program implementation support through operational best practices, documentation support, and workflow integration
guidance. Customer adoption may be affected by evolving regulatory requirements, including FAA operational rules, waivers, and related
approvals.
5
Service, Repair, and Lifecycle Support.
The Company provides repair, maintenance, and lifecycle support services to maintain fleet readiness and reduce downtime. Services include
diagnostics, repair, routine maintenance, and fleet sustainment programs. The Company also supports manufacturer warranty processes and,
in certain cases, performs warranty services in accordance with OEM requirements. Service revenue includes time-and-materials work, warranty-related
services, and service contracts.
Fleet Support, Software Enablement,
and Operational Services. The Company supports enterprise and public sector customers with fleet management tools, software integration,
and operational workflow support. The ability to deliver these services depends in part on access to third-party software platforms, OEM
system interfaces, and internal and third-party cloud-based systems.
Sales Support and Financing.
The Company provides procurement support and, in certain cases, financing arrangements to facilitate customer adoption. Financing arrangements
involve third-party financing providers and are subject to applicable credit approvals, contractual terms, and other conditions.
Advanced Systems and Defense Division
XTI’s advanced systems and
defense division is focused on the design, development, and productization of unmanned platforms for defense and commercial customers,
drawing on the engineering expertise developed through the Company’s prior TriFan 600 program. The division is building capabilities
in unmanned systems design, systems integration, and autonomous platform development, with an emphasis on defense procurement requirements
and domestic platform programs. The division pursues opportunities through internal development, strategic partnerships, and co-development
arrangements.
The division has not yet generated
any revenues. Additional information regarding this division’s organizational structure, products under development, and strategic
initiatives will be provided as those matters are finalized.
Domestic Manufacturing and Technology Division
XTI’s domestic manufacturing
and technology division is focused on developing and scaling U.S.-based production capabilities for unmanned systems and related technologies.
The division pursues manufacturing partnerships, joint ventures, co-development arrangements, and targeted investments in domestic production
capacity. The division has not yet generated any revenues. Additional information regarding this division’s organizational structure
and strategic initiatives will be provided as those matters are finalized.
Research and Development
The Company’s research
and development activities are organized across its operating divisions and are focused on advancing unmanned systems capabilities, improving
operational performance, supporting regulatory compliance, and enabling future commercialization. The Company expenses research and development
costs as incurred. The Company’s research and development efforts require significant engineering, technical, and operational expertise
and may involve the use of third-party contractors, consultants, suppliers, and testing partners.
Research and Development Expenses
Research and development expenses
consist primarily of personnel-related costs, engineering and technical consulting fees, prototype and testing costs, software and tooling
expenses, and other costs incurred in connection with product and technology development activities.
R&D activity within the
XTI commercial drone solutions business is focused on solution enablement, including platform evaluation, integration support, and the
development of training and service capabilities that support enterprise and public sector customers.
R&D activity within the
Company’s advanced systems and defense division is focused on the design, development, and productization of unmanned platforms,
including systems integration, autonomy development, and the application of the Company’s aerospace engineering capabilities to defense
and commercial unmanned systems programs.
6
R&D activity within the
domestic manufacturing and technology division is focused on the development of production processes, manufacturing partnerships, and
technology integration capabilities that support scalable domestic UAS production.
XTI expects R&D expenses
to fluctuate from period to period based on the timing and scope of development activities, technical milestones, testing requirements,
and the progression of programs across our operating divisions.
UAS Operations — Development Activities
The XTI commercial drone solutions
business is primarily oriented toward distribution, integration, training, and lifecycle services. It devotes resources to technical evaluation,
solution enablement, and service capability development in support of enterprise and public sector customer requirements. These activities
generally include:
Platform and payload evaluation.
The Company assesses new UAS platforms, payloads, sensors, batteries, communications systems, and related equipment to determine suitability
for customer mission profiles and operational requirements.
Solution integration and enablement.
The Company supports customers in deploying UAS solutions that may involve interoperability between platforms, payloads, software applications,
fleet management systems, data processing tools, and customer workflows.
Training and program methodology
development. The Company continuously refines training content and program enablement procedures to reflect evolving customer needs,
safety practices, and regulatory requirements.
Service, repair, and sustainment
capability development. The Company invests in improving diagnostics, repair procedures, maintenance workflows, parts logistics, and
technician training to expand service offerings and reduce customer downtime.
Operational procedures and compliance
support. XTI develops internal processes and operational playbooks designed to support enterprise deployment, including customer onboarding,
fleet sustainment programs, and compliance management support.
The Company’s development
efforts across all divisions are influenced by third-party product roadmaps, regulatory frameworks, certification requirements, and the
commercial practices of OEM partners and software providers. Its ability to support certain solutions or expand related services may depend
on the availability of products and continued cooperation from third parties.
Intellectual Property
The Company’s primary
intellectual property assets prior to the Drone Nerds acquisition were developed through its former TriFan 600 manned VTOL aircraft program.
The engineering work, design concepts, and technical development undertaken through that program generated a body of intellectual property,
including proprietary aircraft design concepts, engineering work product, trade secrets, and other assets associated with VTOL and autonomous
systems development. The Company seeks to protect these assets through a combination of patent filings, trade secret protections, confidentiality
agreements, and internal information security controls. Patent protection, where pursued, may cover certain design elements, systems,
or methods; however, the scope and duration of such protection are subject to examination and applicable law, and there can be no assurance
that patent protection will be obtained or maintained.
XTI’s UAS distribution
and services business relies primarily on brand assets, customer relationships, proprietary training materials, operational processes,
repair methodologies, technical know-how, and service capabilities. The Company protects these assets through confidentiality agreements,
intellectual property assignment provisions with employees and certain third parties, and contractual arrangements with suppliers and
customers.
7
Because the XTI UAS business
model is largely distribution, integration, training, and services-based, it does not rely primarily on owned patents for competitive
differentiation. Instead, the Company’s competitive position depends on operational expertise, brand reputation, service infrastructure,
and relationships with OEMs and customers. It also relies on intellectual property owned by third-party OEMs and software providers whose
products the Company distributes or supports, and the Company’s ability to sell and service such products is subject to the terms
of applicable distribution, dealer, and licensing agreements.
As described above under “Business Divisions — TriFan 600
Strategic Context and Organizational Evolution,” the Company paused the TriFan 600 program in 2026 and redirected the division’s
resources toward unmanned systems development. The intellectual property developed through the TriFan 600 program remains an asset of
the Company and is being preserved. The Company believes that certain underlying technologies — including work related to autonomous
flight systems, advanced propulsion, and airframe design — are applicable to the unmanned systems development work now underway
within the ADS division. As of the date of this filing, all expenditures associated with the former aircraft division are directed toward
unmanned systems development and manufacturing programs.
Government Regulation
The XTI business is subject
to a broad range of federal, state, local, and, in certain cases, international laws and regulations that affect the products it distributes,
the services it provides, customer procurement decisions, and the ability of customers to deploy UAS platforms. Key regulatory and compliance
areas include:
Federal Aviation Administration (“FAA”)
regulation of UAS operations. UAS operations in the United States are subject to FAA rules governing operator certification, operational limitations,
waiver processes — including for beyond visual line of sight (“BVLOS”) operations — remote identification requirements,
and related safety and operational standards. The ongoing evolution of FAA rulemaking, particularly with respect to BVLOS operations and
advanced air mobility, represents a material compliance consideration and may affect the timing and scope of broader enterprise and government
deployment as expanded operational authorizations enable such deployment. In addition, if the Company were to resume development of the
TriFan 600 or other manned or semi-autonomous aircraft, such programs would be subject to additional FAA certification requirements, which
are complex, time-consuming, and uncertain.
Federal Communications Commission
(“FCC”) equipment authorization and communications requirements. Certain UAS platforms, payloads, and related communications equipment
are subject to FCC equipment authorization and related technical requirements. Recent FCC actions related to national security concerns
involving certain foreign-manufactured unmanned aircraft systems may affect the availability, eligibility, or timing of new product introductions
into the U.S. market. In December 2025, the FCC added foreign-produced UAS and UAS critical components, on a going-forward basis, to the
Covered List, which restricts new equipment authorizations for those systems in the United States and may accelerate customer demand for
compliant domestic alternatives.
Government procurement, sourcing,
and supply chain security requirements. Public sector customers may be subject to procurement restrictions, sourcing requirements,
and supply chain security rules that affect platform eligibility, vendor qualification, and procurement timing. These requirements may
evolve based on national security, cybersecurity, and data protection considerations. XTI’s OEM-agnostic, compliance-oriented distribution
model is designed to support customers in navigating these requirements.
8
Export controls, sanctions, and trade
compliance. Certain products, technologies, and customers may be subject to U.S. export controls, sanctions, and related trade compliance
requirements, which may impose restrictions on sales activities, shipment destinations, end users, and product configurations.
Privacy, surveillance, and data regulation.
UAS deployments may involve the collection, processing, storage, or transmission of imagery and other data. Customers and operators may
be subject to privacy, surveillance, and data protection laws and regulations that influence adoption, operational policies, and compliance
requirements.
The regulatory environment
applicable to UAS distribution, operations, data use, and unmanned systems development continues to evolve. We monitor regulatory developments
and adjust our compliance processes, supplier relationships, and customer support practices as appropriate to align with applicable requirements
and procurement standards.
See Item 1C for information regarding the Company
cybersecurity risk management, strategy, and governance.
Employees
The Company’s employees
support UAS sales, marketing, repair and maintenance operations, training, customer support, and corporate functions, as well as engineering
and program development activities within the advanced systems and domestic manufacturing divisions.
The Company initiated a workforce transition reflecting two developments:
the 2025 acquisition of Drone Nerds, which added 82 employees to the Company’s headcount, and the 2026 strategic reorientation of
the former XTI Aircraft division toward unmanned systems development. As part of that reorientation, the division’s workforce was
restructured and new leadership and technical personnel were hired with experience in unmanned platform development, defense programs,
and advanced manufacturing. These changes were partially offset by the transfer of 22 employees in connection with the divestiture of
the Inpixon real-time location systems business.
As of March 31, 2026, the
Company had 105 employees, consisting of 96 full-time employees and 9 part-time employees. None of the Company’s employees are represented
by a labor union or are party to a collective bargaining agreement. The Company has not experienced any work stoppages and considers its
employee relations to be satisfactory.
Acquisition of Drone Nerds and Disposition of Inpixon Business
In November 2025, we completed the acquisition of Drone Nerds, LLC
and Anzu Robotics, LLC (“Anzu”). Prior to the acquisition, Anzu was affiliated with Drone Nerds, LLC (then known as Drone
Nerds, Inc.) through common ownership and its financial results were included in the historical audited financial statements of the Drone
Nerds business. The acquisition represented a strategic shift in our operating focus toward enterprise and public sector UAS solutions.
Prior to the acquisition,
Drone Nerds, LLC operated as a U.S.-based enterprise drone solutions provider offering hardware distribution, training, service and repair,
and fleet support across multiple commercial and public sector verticals. Anzu operated within the broader Drone Nerds ecosystem and contributed
additional UAS platform and product capabilities.
9
The transaction was structured
as a purchase of the equity interests of Drone Nerds, LLC and Anzu. Consideration consisted of a combination of cash, promissory notes
and equity, as further described in the notes to our consolidated financial statements included in this Annual Report. The acquisition
was accounted for under the acquisition method of accounting in accordance with U.S. GAAP, and the results of Drone Nerds have been included
in our consolidated financial statements from the acquisition date.
We pursued the acquisition
to establish a revenue-generating operating platform in the UAS market and diversify beyond development-stage aircraft activities.
Prior to the acquisition,
our primary focus was the Inpixon Business and the development of the TriFan 600 VTOL aircraft program. Following the acquisition, our
ongoing operations are centered primarily on UAS solutions and services.
Drone Nerds maintains enterprise
sales capabilities, service and repair infrastructure, training programs, and logistics operations that enable end-to-end customer support.
We believe this infrastructure provides a foundation for expansion into additional verticals and public sector channels.
Following closing, Drone Nerds,
LLC and Anzu became our primary operating subsidiaries for UAS activities. We retained key operational leadership and began aligning reporting
structures, corporate functions, and compliance processes across the combined organization.
The acquisition materially
changed the composition of our business and revenue base. During December 2025, we actively explored strategic alternatives for the Inpixon
Business, including engaging with potential buyers and evaluating a potential sale of the business. In February 2026, we completed the
disposition of the Inpixon Business through the sale of all of the shares of Inpixon GmbH to an unrelated party. Our current operations
are focused on UAS solutions and aerospace development.
Corporate History and Information
XTI Aerospace, Inc. is a Nevada
corporation incorporated in 1999, formerly known as Inpixon, which completed a business combination with XTI Aircraft Company in March
2024. The Company recently moved its principal executive offices, which are now located at:
15505 Wright Brothers Dr.
Addison, TX 75001
Telephone: (800) 680-7412
XTI common stock trades on
the Nasdaq Capital Market under the symbol “XTIA.”
The Company conducts its operations primarily through its majority
owned subsidiary, XTI Drones Holdings, LLC, which owns Drone Nerds, LLC and Anzu Robotics, LLC and its wholly owned subsidiary, XTI Aircraft
Company.
The Company website address
is www.xtiaerospace.com. The information contained on, or accessible through, the website is not incorporated by reference into this
Annual Report, and you should not rely on any such information in making any investment decision relating to the Company’s securities.
ITEM 1A: RISK FACTORS
We are subject to various
risks and uncertainties that may materially harm our business, prospects, financial condition and results of operations. An investment
in our common stock and other securities is speculative and involves a high degree of risk. In evaluating an investment in our securities,
you should carefully consider the risks described below, together with the other information included in this Annual Report.
If any of the events described
in the following risk factors actually occurs, or if additional risks and uncertainties later materialize, that are not presently known
to us or that we currently deem immaterial, then our business, prospects, results of operations and financial condition could be materially
adversely affected. In that event, the trading price of our common stock could decline, and investors in our securities may lose all
or part of their investment. The risks discussed below include forward-looking statements, and our actual results may differ substantially
from those discussed in these forward-looking statements. Moreover, these disclosures reflect the Company’s beliefs and opinions
as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are