XTI Aerospace Inc.

10/20/2026 | Press release | Distributed by Public on 10/20/2026 15:18

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2025, 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 BUSINESS
XTI Aerospace, Inc. is a U.S.-based aerospace company focused on unmanned aircraft systems and related services. The Company provides UAS solutions through a combination of product distribution and service offerings, including the sale and support of UAS platforms and related equipment, as well as operator training, program enablement, repair and maintenance, and other fleet lifecycle support for enterprise, public safety, and government-related customers.
RECENT DEVELOPMENTS
Recent Leadership Changes
On August 17, 2026, Scott Pomeroy resigned effective immediately as the Chairman and Chief Executive Officer and director of the Company and his resignation was accepted by the Company's board of directors. On August 17, 2026, the Company's board of directors elected current director Jonathan Ornstein as the Interim Chairman of the Board. Additionally, the Company's board of directors appointed Jeremy Schneiderman as Interim Chief Executive Officer.
Effective October 14, 2026, the Company appointed Dr. Allan Evans as a Class I director, for a term expiring at the Company's 2027 annual meeting of stockholders, to fill an existing vacancy on the Board. The Board also appointed Dr. Evans to serve as Chairman of the Board. In connection with Dr. Evans' appointment as Chairman, the Board designated Jonathan G. Ornstein, who previously served as Interim Chairman of the Board, as Vice Chairman of the Board.
In July 2026, a committee of independent directors of our Board of Directors, represented by independent counsel, initiated an internal review of matters relating to our former Chief Executive Officer and related corporate governance matters. The committee completed its review in October 2026, and the review did not identify any misstatement of our financial statements.
Recent Strategic Transactions and Operating Profile
During the six months ended June 30, 2026, the Company continued executing its strategy to build a more focused and financially disciplined business, reducing its cost structure and concentrating resources on its commercial and enterprise drone solutions platform. The Company also ceased investment in its vertical take-off and landing aircraft development activities and took steps to wind down its Advanced Defense Systems ("ADS") division as it shifts capital and management attention towards its revenue-generating UAS business. The Company launched its UAS platform following the November 2025 acquisition of Drone Nerds, and since then the UAS business has served as the Company's primary source of revenue.
During the first quarter of 2026, the Company completed the sale of its Inpixon Business, refer to Note 17-Discontinued Operations to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report. During the second quarter of 2026, the Company reduced the headcount of and ceased investment in the ADS business, which included the legacy TriFan 600 and advanced defense systems development programs. Management did not foresee near term revenue-generating opportunities from the ADS business and concluded that a concentration of resources on the UAS platform would create a better foundation for success.
As a result of this evolution, our current operating profile differs materially from prior periods, and historical results may not be fully comparable. Accordingly, in addition to reviewing our GAAP results, management evaluates performance and allocates capital with an emphasis on:
•Revenue growth and channel mix within the UAS platform.
•Gross margin expansion through service attachment and lifecycle support.
•Working capital efficiency and liquidity management.
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UAS Solutions Platform
Through Drone Nerds, we operate an established enterprise-focused UAS solutions platform in the United States. Our operating model is designed to provide end-to-end UAS lifecycle capabilities across hardware distribution, operator training, compliance management support, repair and maintenance, fleet sustainment, and related support services.
We operate an OEM-agnostic, multi-vendor ecosystem supporting more than 50 hardware and software manufacturers. This positioning enables us to serve enterprise and public sector customers navigating evolving regulatory requirements, supply chain considerations, and procurement restrictions.
We believe the UAS market is undergoing structural evolution driven by:
•Increasing enterprise adoption of drones for inspection, safety, and operational efficiency
•Regulatory developments affecting fleet eligibility and operational approvals
•Growing emphasis on secure and compliant procurement in government and defense channels
•Customer demand for integrated lifecycle solutions rather than standalone hardware transactions
Our integrated model is designed to address these trends by positioning us as a long-term solutions partner rather than a transactional reseller.
Advanced Technology and Manufacturing (ATM)
In addition to its UAS business, the Company is in the early stages of developing a domestic manufacturing and technology division (referred to as the ATM division) focused on facilitating partnerships with domestic manufacturers to increase access to NDAA-compliant products. The division's goal is to develop and expand a domestically sourced supply chain designed to support compliance with applicable federal procurement and sourcing requirements, including Section 848 of the NDAA for unmanned aerial systems, addressing the growing demand from federal agencies, defense contractors, and enterprise customers for platforms and components that meet applicable government procurement requirements. The ATM division does not currently meet the criteria for a reportable segment under ASC 280 as it is in a pre-operational stage and has no discrete financial information reviewed by the CODM for purposes of resource allocation.
The ATM division has not yet generated any revenues, and the division's ability to generate revenues will depend on its success in establishing manufacturing partnerships on acceptable terms, securing NDAA-compliant production capacity, and converting that capacity into customer relationships and contract awards, each of which is subject to significant uncertainty. There can be no assurance that manufacturing partnerships will be established on acceptable terms or that the division will generate revenues within the timeframe the Company anticipates, or at all.
Growth Strategy and Potential Acquisitions
As part of our growth strategy, we continue to evaluate potential acquisitions and strategic transactions that we believe could complement or expand our UAS solutions platform. We may from time to time engage in preliminary discussions or negotiations with potential acquisition targets or their representatives, conduct due diligence, and explore various transaction structures. There can be no assurance that any such discussions will result in a definitive agreement or a completed transaction.
We expect to fund potential acquisitions through a combination of debt financing (which may include borrowings under our existing or new credit facilities, term loans or other debt instruments), seller financing, the issuance of our common stock or other equity or equity-linked securities, including equity interests in our subsidiaries. The specific terms and financing structure of any potential acquisition would depend on the size, nature, and strategic fit of the target, as well as prevailing market conditions at the time of any such transaction. Any acquisition financed in whole or in part with equity securities could result in dilution to our existing stockholders.
We may incur costs related to potential acquisitions, including legal, financial advisory, accounting, and due diligence expenses, regardless of whether any such transaction is ultimately consummated. Such costs could be material in the periods in which they are incurred.
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 condensed 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 condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in
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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, 2025. There have been no significant changes to the Company's critical accounting policies and estimates.
RESULTS OF OPERATIONS
Overview and Comparability Considerations
The Company's results of operations for the three and six months ended June 30, 2026 reflect the full period of operations from its UAS platform following the acquisition of Drone Nerds in November 2025, the ADS division, as well as the absence of the Inpixon Business following its disposition in February 2026. As a result, the Company's results from continuing operations for the three and six months ended June 30, 2025 do not reflect the current scale of the Company's UAS operations, and period-to-period comparisons may not be indicative of future performance. The results of the Inpixon Business have been presented as discontinued operations for all periods presented.
Key Drivers of Operating Results
The Company's operating results are primarily driven by the performance of its UAS platform, including revenue growth, product and channel mix, service attachment rates, and inventory availability.
Gross margins are influenced by product mix, pricing, vendor costs, and the relative contribution of higher-margin service offerings. The Company continues to focus on expanding service-based revenue and improving margin consistency.
Operating expenses reflect investments in scaling the UAS platform, as well as development costs associated with the now discontinued ADS program. General and administrative expenses also include public company costs and stock-based compensation, which may vary period to period.
Other income (expense) may be impacted by changes in the fair value of certain financial instruments, interest expense, and other non-operating items, which can introduce variability that is not directly related to core operating performance.
Three Months Ended June 30, 2026 compared to the Three Months Ended June 30, 2025
The following table sets forth selected consolidated financial data and as a percentage of period-over-period change:
Three Months Ended June 30,
2026 2025 $ %
(in thousands, except percentages) Amount Amount Change Change*
Revenues $ 32,449 $ - $ 32,449 **
Cost of revenues 26,806 - 26,806 **
Gross profit 5,643 - 5,643 **
Operating expenses 14,725 5,796 8,929 154 %
Loss from operations (9,082) (5,796) (3,286) 57 %
Other income (expense), net 8,232 (9,719) 17,951 **
Provision for income taxes - (9) 9 **
Net loss from continuing operations $ (850) $ (15,524) $ 14,674 (95 %)
* Comparisons between positive and negative numbers and with a zero are not meaningful.
Revenues
Revenues for the three months ended June 30, 2026 were $32.4 million, reflecting revenue generated by our UAS solutions platform following the acquisition of Drone Nerds in November 2025.
There were no revenues for the three months ended June 30, 2025.
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended June 30, 2026 were $26.8 million, resulting in gross profit of $5.6 million and a gross margin of approximately 17%. The gross margin reflects the product mix and operating model of the UAS distribution and services business, which includes hardware sales, accessories, and related support services.
There were no revenues or cost of revenues for the three months ended June 30, 2025.
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Future gross margin performance will be influenced by product mix, service attachment rates, pricing discipline, vendor cost dynamics, and channel mix.
Operating Expenses
Operating expenses for the three months ended June 30, 2026 were $14.7 million, an increase of $8.9 million, or 154%, compared to $5.8 million for the comparable period ended June 30, 2025. Operating expenses for the three months ended June 30, 2026 and 2025 include $3.8 million and $0.7 million of stock-based compensation, respectively.
This increase was due primarily to increased personnel-related expenses, including stock-based compensation, and operating expenses incurred at the Drone Nerds business which was acquired in the fourth quarter of 2025 and therefore has no activity reflected in the three months ended June 30, 2025. Operating expenses for the three months ended June 30, 2026 and 2025 include $1.0 million and $1.8 million, respectively, related to the ADS and Commercial Aviation operating segments which were wound down during the three months ended June 30, 2026. The Company expects future expenses related to ADS to be immaterial.
Other Income (Expense), net
The Company recognized other income, net of $8.2 million for the three months ended June 30, 2026, compared to other expense, net of $9.7 million for the three months ended June 30, 2025. Other income (expense), net is primarily comprised of the change in fair value of the warrant liability, for which the Company recorded a gain of $8.4 million for the three months ended June 30, 2026 compared to a loss of $5.9 million for the three months ended June 30, 2025. Other expense, net for the three months ended June 30, 2025 also included $3.8 million of warrant issue expense, compared to $0 in the current period.
Provision for Income Taxes
The provision for income tax for the three months ended June 30, 2026 and 2025 was immaterial. As the Company has a history of recognizing a net taxable loss, the Company records a valuation allowance against substantially all deferred tax assets.
Six Months Ended June 30, 2026 compared to the Six Months Ended June 30, 2025
The following table sets forth selected consolidated financial data and as a percentage of period-over-period change:
Six Months Ended June 30,
2026 2025 $ %
(in thousands, except percentages) Amount Amount Change Change*
Revenues $ 60,145 $ - $ 60,145 **
Cost of revenues 49,356 - 49,356 **
Gross profit 10,789 - 10,789 **
Operating expenses 30,261 13,999 16,262 116 %
Loss from operations (19,472) (13,999) (5,473) 39 %
Other expense, net (13,124) (12,214) (910) 7 %
Income tax benefit - 6 (6) **
Net loss from continuing operations $ (32,596) $ (26,207) $ (6,389) 24 %
* Comparisons between positive and negative numbers and with a zero are not meaningful.
Revenues
Revenues for the six months ended June 30, 2026 were $60.1 million, reflecting revenue generated by our UAS solutions platform following the acquisition of Drone Nerds in November 2025.
There were no revenues for the six months ended June 30, 2025.
Cost of Revenues and Gross Profit
Cost of revenues for the six months ended June 30, 2026 were $49.4 million, resulting in gross profit of $10.8 million and a gross margin of approximately 18%. The gross margin reflects the product mix and operating model of the UAS distribution and services business, which includes hardware sales, accessories, and related support services.
There were no revenues or cost of revenues for the six months ended June 30, 2025.
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Future gross margin performance will be influenced by product mix, service attachment rates, pricing discipline, vendor cost dynamics, and channel mix.
Operating Expenses
Operating expenses for the six months ended June 30, 2026 were $30.3 million, an increase of $16.3 million, or 116%, compared to $14.0 million for the comparable period ended June 30, 2025. Operating expenses for the six months ended June 30, 2026 and 2025 include $8.4 million and $1.1 million of stock-based compensation, respectively.
This increase was due primarily to increased personnel-related expenses, including stock-based compensation, and operating expenses incurred at the Drone Nerds business which was acquired in the fourth quarter of 2025 and therefore has no activity reflected in the three months ended June 30, 2025. Operating expenses for the six months ended June 30, 2026 and 2025 include $2.7 million and $3.5 million, respectively, related to the ADS and Commercial Aviation operating segments which were wound down during the three months ended June 30, 2026. The Company expects future expenses related to ADS to be immaterial.
Other Expense, net
The Company recognized other expense, net of $13.1 million for the six months ended June 30, 2026, compared to $12.2 million for the six months ended June 30, 2025. Other expense, net is primarily comprised of the change in fair value of the warrant liability, for which the Company recorded a loss of $13.0 million and $5.4 million for the six months ended June 30, 2026 and 2025, respectively. Other expense, net for the six months ended June 30, 2025 also included $5.8 million of warrant issue expense, compared to $0 in the current period.
Income Tax Benefit
The income tax benefit for the three and six months ended June 30, 2026 and 2025 was immaterial. As the Company has a history of recognizing a net taxable loss, the Company records a valuation allowance against substantially all deferred tax assets.
Discontinued Operations
During December 2025, the Company committed to a plan to dispose of its Inpixon Business and initiated a process to identify a buyer. The Company completed the sale of its Inpixon Business on February 3, 2026 for total consideration of approximately $5.5 million. The Inpixon Business is presented as discontinued operations for all periods presented.
Loss from discontinued operations was $1.6 million and $5.3 million for the three months ended June 30, 2026 and 2025, respectively. Loss from discontinued operations was $4.9 million and $7.5 million for the six months ended June 30, 2026 and 2025, respectively. Loss from discontinued operations for the six months ended June 30, 2026 includes a loss on sale of discontinued component of $2.4 million and $1.2 million in income tax expense related to estimated taxes due in foreign jurisdictions as a result of the sale.
The disposition of the Inpixon Business represents a strategic shift that allows the Company to focus its resources on its core UAS and aerospace development operations.
Unaudited Pro Forma Financial Information (Supplemental)
The Company completed its acquisition of a controlling interest in Drone Nerds on November 10, 2025, as such the consolidated results for the three and six months ended June 30, 2025 do not include the results of operations. The following unaudited pro forma combined financials present the combined results of operations of the Company and the acquired business as if the acquisition had occurred on January 1, 2025, the beginning of the earliest period presented. The pro forma financial information has been prepared for comparative purposes only and does not necessarily reflect the results of operations that would have occurred had the acquisition been completed on that date, nor is it indicative of future operating results of operations.
The pro forma results reflect adjustments that are directly attributable to the acquisition and are factually supportable, including:
•Incremental amortization expense related to identifiable intangible assets acquired;
•Interest expense associated with acquisition-related indebtedness;
•Conforming accounting policy adjustments, where applicable.
The unaudited pro forma financial information does not include any anticipated cost savings, operating synergies, or other integration effects of the acquisition.
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Pro Forma Non-GAAP Measure
We also present Pro Forma EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Adjusted EBITDA Margin, all non-GAAP measures. Management defines Pro Forma EBITDA as pro forma net loss before interest, income taxes, depreciation and amortization. Pro Forma Adjusted EBITDA is defined as Pro Forma EBITDA further adjusted for certain items including, (i) non-cash stock based compensation expense; (ii) severance and restructuring charges; (iii) changes in fair value of warrant liabilities; and (iv) selected charges that are unusual or non-recurring. Pro Forma Adjusted EBITDA Margin is defined as Pro Form Adjusted EBITDA as a percentage of pro forma revenue.
The Company believes that EBITDA and Adjusted EBITDA financial measures assist our board of directors, management, investors, and lenders in comparing our operating performance and establishing operational goals on a consistent basis across periods by removing the effects of our capital structure and other items that impact the comparability of financial results from period to period. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP.
These non-GAAP financial measures may not be computed in the same manner as similarly titled measures used by other companies. The calculation of Pro Forma EBITDA, Pro Forma Adjusted EBITDA, and Pro Forma Adjusted EBITDA Margin are included in the table below.
The following unaudited pro forma combined financial information presents the combined results of operations of the Company and Drone Nerds as if the acquisition had occurred on January 1, 2025:
Three Months Ended June 30,
(in thousands, except percentages) 2026 2025 $ Change % Change
Revenues $ 32,449 $ 25,130 $ 7,319 29 %
Cost of revenues 26,806 19,083 7,723 40 %
Gross profit 5,643 6,047 (404) (7) %
Operating expenses 14,725 9,209 5,516 60 %
Loss from operations (9,082) (3,162) (5,920) 187 %
Other expense, net 8,232 (10,096) 18,328 (182) %
Income tax expense - (9) 9 (100) %
Pro forma net loss from continuing operations $ (850) $ (13,267) $ 12,417 (94) %
Reconciliation of Pro Forma EBITDA and Pro Forma Adjusted EBITDA
Pro form net loss from continuing operations (850) (13,267)
Interest expense, net 148 418
Income tax expense - 9
Depreciation and amortization 271 262
Pro Forma EBITDA $ (431) $ (12,578) $ 12,147 (97) %
Change in fair value of warrant liability (8,413) 5,934
Severance and restructuring charges 91 -
Stock-based compensation expense 3,774 667
Selected charges that are unusual or non-recurring (1) 90 3,779
Pro Forma Adjusted EBITDA $ (4,889) $ (2,198) $ (2,691) 122 %
Pro forma Margins:
Gross margin 17 % 24 %
Pro Forma Adjusted EBITDA Margin (15) % (9) %
(1)Includes warrant issue expense, change in fair value of investment, loss on extinguishment of debt, and other adjustments that management believes are non-recurring.
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Interpretation of Pro Forma Results
For the three months ended June 30, 2026, revenue was $32.4 million, a 29% increase from pro forma revenue of $25.1 million in the same period of 2025. The increase reflects management's efforts to grow the UAS business. During the three months ended June 30, 2026, the Company saw increased sales to its wholesale customers.
Gross profit for the three months ended June 30, 2026 was $5.6 million, or 17% of revenue, compared to pro forma gross profit of $6.0 million, or 24% of revenue, in the same period of 2025. The decline was primarily due to customer mix; while the Company increased sales to wholesale customers, the gross profit margin on these sales tend to be lower than its direct sales transactions.
Operating expenses for the three months ended June 30, 2026 were $14.7 million, compared to pro forma operating expenses of $9.2 million for the three months ended June 30, 2025. The increase reflects continued investment in personnel and public company costs. Operating expenses primarily consist of stock-based compensation, personnel expenses, professional fees, and public company costs.
The Company recognized a loss from continuing operations of $0.9 million for the three months ended June 30, 2026, compared to a pro forma loss from continuing operations of $13.3 million for the three months ended June 30, 2025. Loss from continuing operations includes stock based compensation expense of $3.8 million and a gain on remeasurement of warrant liabilities of $8.4 million for the three months ended June 30, 2026, compared to stock-based compensation expense of $0.7 million and loss on remeasurement of warrant liabilities of $5.9 million for the three months ended June 30, 2025.
Pro Forma EBITDA was $(0.4) million and $(12.6) million for the three months ended June 30, 2026 and 2025, respectively, and Pro Forma Adjusted EBITDA was $(4.9) million and $(2.2) million for the three months ended June 30, 2026 and 2025. Pro Forma Adjusted EBITDA Margin for the same periods was (15)% and (9)%, respectively. The change in these measures is a result of the above-mentioned factors.
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Six Months Ended June 30,
(in thousands, except percentages) 2026 2025 $ Change Change*
Revenues $ 60,145 $ 55,717 $ 4,428 8 %
Cost of revenues 49,356 42,442 6,914 16 %
Gross profit 10,789 13,275 (2,486) (19) %
Operating expenses 30,261 20,790 9,471 46 %
Loss from operations (19,472) (7,515) (11,957) 159 %
Other expense, net (13,124) (13,023) (101) 1 %
Income tax benefit - 6 (6) (100) %
Pro forma net loss from continuing operations $ (32,596) $ (20,532) $ (12,064) 59 %
Reconciliation of Pro Forma EBITDA and Pro Forma Adjusted EBITDA
Pro form net loss from continuing operations (32,596) (20,532)
Interest expense, net 302 1,081
Income tax benefit - (6)
Depreciation and amortization 550 519
Pro Forma EBITDA $ (31,744) $ (18,938) $ (12,806) 68 %
Change in fair value of warrant liability 13,034 5,431
Severance and restructuring charges 354 -
Stock-based compensation expense 8,449 1,079
Selected charges that are unusual or non-recurring (1) 90 6,560 (1)
Pro Forma Adjusted EBITDA $ (9,817) $ (5,868) $ (3,949) 67 %
Pro forma Margins:
Gross margin 18 % 24 %
Pro Forma Adjusted EBITDA Margin (16) % (11) %
(1) Includes warrant issue expense, change in fair value of investment, loss on extinguishment of debt, and other adjustments that management believes are non-recurring.
Interpretation of Pro Forma Results
For the six months ended June 30, 2026, revenue was $60.1 million, up 8% from pro forma revenue of $55.7 million for the same period of 2025. The increase reflects management's efforts to grow the UAS business. During the six months ended June 30, 2026 the Company recognized an increase in revenue from its wholesale customers.
Gross profit for the six months ended June 30, 2026 was $10.8 million, or 18% of revenue, compared to pro forma gross profit of $13.3 million, or 24% of revenue, in the same period of 2025. The decline was primarily due to unusually strong margins in the first half of 2025, when limited product availability from earlier supply constraints allowed the Company to sell inventory at higher margins and focus on higher-margin sales as products became available.
Operating expenses for the six months ended June 30, 2026 were $30.3 million, compared to pro forma operating expenses of $20.8 million for the six months ended June 30, 2025. The increase reflects continued investment in personnel and public company costs. Approximately 75% of the increase was from stock-based compensation expense.
The Company recognized a loss from continuing operations of $32.6 million for the six months ended June 30, 2026, compared to a pro forma loss from continuing operations of $20.5 million for the six months ended June 30, 2025. Loss from continuing operations includes a $13.0 million loss on the remeasurement of warrant liabilities and stock based compensation expense of $8.4 million for the six months ended June 30, 2026, compared to a loss on the remeasurement of warrant liabilities of $5.4 million and pro forma stock based compensation expense of $1.1 million, as well as warrant issue expense of $5.8 million for the six months ended June 30, 2025.
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Pro Forma EBITDA was $(31.7) million and $(18.9) million for the six months ended June 30, 2026 and 2025, respectively, and Pro Forma Adjusted EBITDA was $(9.8) million and $(5.9) million for the six months ended June 30, 2026 and 2025, respectively. Pro Forma Adjusted EBITDA Margin for the same periods was (16)% and (11)%, respectively. The change in these measures is a result of the above-mentioned factors.
LIQUIDITY AND CAPITAL RESOURCES
Recent Developments
During the six months ended June 30, 2026:
•The Company received approximately $7.4 million in net proceeds from the exercise of warrants
•The Company completed the disposition of the Inpixon Business in February 2026
•The Company entered into a $20.0 million asset-based revolving credit facility, subject to a borrowing base
•The Company wound down the ADS division in June 2026
Overview
As of June 30, 2026 and December 31, 2025, the Company had cash and cash equivalents of approximately $7.2 million and $16.7 million, respectively, and $8.8 million drawn and $9.1 million of remaining availability on the borrowing base under its credit facility (subject to the cross-defaults described below under "Subsequent Defaults"), see Note 8-Debt for further detail on the Company's credit facility. Additionally, as of June 30, 2026 and December 31, 2025, the Company had working capital, excluding cash, warrant liabilities, obligations under the acquisition-related promissory note and revolving credit facility, and current assets and liabilities of discontinued operations, of approximately $23.6 million and $16.1 million as of June 30, 2026 and December 31, 2025, respectively. The primary increases in working capital were due to a $3.7 million increase in inventory and a $1.4 million decrease in accounts payable and other current liabilities. Other changes include increases in accounts receivable and prepaid and other current assets, as well as a decrease in customer deposits.
Cash on hand decreased $9.5 million during the six months ended June 30, 2026, as a result of negative cash flows from operations of $21.0 million offset by cash flows from financing of $12.1 million.
The Company has a history of operating losses and negative cash flows from operations. Additionally, as of June 30, 2026, the Company's obligations include $4.4 million of current debt maturities (See Acquisition-Related Promissory Notes under Note 8 - Debt), operating lease liabilities of approximately $1.5 million, including approximately $0.6 million that is expected to be paid in the next twelve months, and $8.8 million drawn on its credit facility, which matures on February 11, 2029.
The Company continues to focus on improving operating efficiencies in its UAS business, however, its results remain subject to variability in sales volumes, gross margins, inventory turnover, and broader market conditions affecting demand in the enterprise and commercial drone markets, as well as risks associated with the integration of acquired operations. The Company also expects to recognize cost savings from the wind down of the TriFan 600 and ADS development programs. Further, management may continue to pursue a range of potential funding alternatives, including equity or debt financing, strategic partnerships, joint ventures, government incentives and other potential sources of capital in connection with any potential acquisitions.
The Company is likely to require additional liquidity in order to meet these obligations and support ongoing operations over the next year. As a result, management has concluded that substantial doubt exists about the Company's ability to continue as a going concern for a period of one year from the issuance date of these unaudited condensed consolidated financial statements.
Management's plans to address these capital requirements include implementing cost optimization measures, including the wind-down of the ADS division; renegotiating vendor contract terms; restructuring the Seller Notes; seeking a waiver of the cross-defaults and relief from certain borrowing base limitations under the Credit Agreement; and pursuing additional debt or equity financing. There can be no assurance that these plans will be successfully implemented or that they will alleviate the substantial doubt about the Company's ability to continue as a going concern.
Credit Facility
In February 2026, the Company entered into a secured asset-based revolving credit facility providing for borrowings of up to $20.0 million, subject to a borrowing base of eligible accounts receivable and inventory. The facility matures on February 11, 2029 and is intended to support working capital and general corporate purposes.
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As of June 30, 2026, the borrowing base was calculated to be $18.7 million, and the Company had $8.8 million outstanding and a letter of credit in the amount of $0.8 million, with approximately $9.1 million of remaining availability. As described under "Subsequent Defaults" below, our ability to borrow this remaining availability is subject to the lender's discretion while the cross-defaults under the Credit Agreement continue.
The Credit Agreement is subject to a cash dominion arrangement, whereby funds deposited into any depository account of the borrower are swept into a blocked account with the Lender and shall be used to reduce amounts owed under the Credit Facility. Because of the nature of the cash dominion arrangement, borrowings under the Credit Agreement are classified as current liabilities despite a maturity date that is more than twelve months from the balance sheet date.
Subsequent Defaults
On September 30, 2026, XTI Drones Holdings did not make scheduled principal payments under the Seller Notes totaling $1.5 million, together with accrued interest, that were due on September 30, 2026, and events of default occurred under the Seller Notes on October 11, 2026, following the expiration of the ten-day grace period. On October 16, 2026, XTI Drones Holdings entered into Limited Waiver Agreements (the "Waivers") with The Origin Group DN, Inc. and The Origin Group AZ, Inc., the holders of the Seller Notes, entities in which our Interim Chief Executive Officer has an economic interest. Under the Waivers, the Holders agreed, during a waiver period that began on September 30, 2026, not to accelerate the Seller Notes, charge default interest, charge costs of collection or exercise other remedies as a result of the missed payments, and agreed that nonpayment of the balance due at maturity on November 10, 2026 will not constitute an event of default during the waiver period. The waiver period ends on the earliest of (i) the execution of definitive documents restructuring the Seller Notes, (ii) the tenth day after either party notifies the other in writing that it is ending restructuring negotiations and (iii) December 31, 2026. If the waiver period ends without a restructuring, an event of default will be deemed to exist, and the missed installments and the remaining balance of the Seller Notes (approximately $4.5 million of principal in the aggregate), together with accrued interest, which will have accrued at the default rate of 9.25% per annum from October 10, 2026, will become due on the last day of the waiver period. The Waivers do not address the cross-defaults under the credit facility. JP Morgan has not waived the cross-defaults as of the date of this report. While the cross-defaults continue, JP Morgan may decline to make further advances, which would substantially limit our access to liquidity, and may declare the approximately $8.4 million outstanding as of October 16, 2026 immediately due and payable. We are negotiating a restructuring of the Seller Notes with the holders. In addition, on October 5, 2026, we paid $1.9 million to the former owners of Drone Nerds in respect of customs tariff refunds. As of September 30, 2026, we had cash of approximately $5.1 million, on a preliminary basis subject to completion of our quarter-end closing procedures. See Note 18 - Subsequent Events.
Cash Requirements
Contractual Obligations and Commitments
The Company's contractual obligations consist primarily of short-term debt, the acquisition-related promissory notes, operating lease liabilities, and vendor commitments incurred in the ordinary course of business.
As of June 30, 2026, the Company had acquisition-related promissory note obligations of $4.4 million, representing scheduled principal payments due within one year, and $8.8 million drawn on its credit facility, which matures on February 11, 2029. Additionally, as of June 30, 2026, total operating lease liabilities were approximately $1.5 million, of which approximately $0.6 million is expected to be paid in the next twelve months.
The Company also maintains customary vendor purchase commitments associated with inventory procurement and operating agreements within its Drone Nerds distribution business. These commitments are generally short-term in nature and consistent with normal operating requirements.
Customer Deposits
As of June 30, 2026, customer deposits totaled approximately $1.9 million. Customer deposits consist of (i) refundable and conditional deposits received in connection with aircraft pre-orders and (ii) advance payments received in the ordinary course of business from customers of the Drone Nerds distribution operations. If a significant number of customers request refunds, it could adversely impact liquidity.
Deposits received in the Drone Nerds business are typically short-term in nature and relate to standard commercial sales arrangements, including advance payments for inventory orders. These deposits are recognized as revenue upon transfer of control of the related goods.
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Potential Additional Funding Sources
As of June 30, 2026, the Company had approximately 21 million outstanding warrants with an exercise price ranging from $1.36 to $2.19 per share. If fully exercised for cash, these warrants would provide aggregate gross proceeds of approximately $41.9 million; however, exercise is at the discretion of the holders and dependent on market conditions. These amounts exclude prefunded warrants and warrants that management does not expect to be redeemed due to the exercise price. During the six months ended June 30, 2026, certain warrant holders exercised warrants, resulting in net proceeds of approximately $7.4 million. The timing and extent of any future warrant exercises are not within the Company's control.
Historical Cash Flows
The Company's net cash flows used in operating, investing and financing activities for the six months ended June 30, 2026 and 2025 and certain balances as of the end of those periods are as follows (in thousands):
Six Months Ended June 30,
2026 2025
Net cash used in operating activities $ (21,008) $ (21,983)
Net cash used in investing activities (864) (103)
Net cash provided by financing activities 12,134 37,688
Effect of foreign exchange rate changes on cash 33 339
Net (decrease) increase in cash and cash equivalents $ (9,705) $ 15,941
June 30,
2026 		December 31,
2025
Cash and cash equivalents $ 7,214 $ 16,696
Working capital (deficit) $ (38,898) $ 4,220
Adjusted Working Capital (1) $ 23,561 $ 16,093
(1) The Company defines Adjusted Working Capital as current assets, excluding cash and current assets of discontinued operations, minus current liabilities, excluding warrant liabilities, acquisition-related promissory note-related party, asset-based revolving line of credit, and current liabilities of discontinued operations.
Operating Activities for the six months ended June 30, 2026
Net cash used in operating activities was approximately $21.0 million for the six months ended June 30, 2026.
Included in operating cash flows for the six months ended June 30, 2026 is approximately $0.1 million of cash used in operating activities related to discontinued operations (Inpixon Business). Excluding discontinued operations, net cash used in operating activities from continuing operations was approximately $20.9 million. Additional information regarding cash flows from discontinued operations is included in Note 17 - Discontinued Operations.
Cash used in operating activities during the six months ended June 30, 2026 was primarily driven by the Company's consolidated net loss of $37.4 million, off-set by adjustments for non-cash items of approximately $23.2 million and changes in working capital resulting in a net use of cash of approximately $6.8 million. The largest cash operating expenses include costs of goods sold and personnel related costs. The changes in working capital are primarily driven by increases in inventory and prepaid and other current assets, as well as a reduction in accounts payable, and decrease in customer deposits. The quarter's working capital activity reflects the integration of the Drone Nerds acquisition in the fourth quarter.
Management expects that the acquisition of Drone Nerds, a historically EBITDA-profitable business, will contribute positive operating cash flows going forward, although there can be no assurance that it will do so. However, operating cash flows will continue to be influenced by sales volumes, gross margins, inventory turnover, discretionary operating expenditures, and the pace of investment in the development of unmanned platforms for defense and commercial applications.
Operating Activities for the six months ended June 30, 2025
Net cash used in operating activities for the six months ended June 30, 2025 was approximately $22.0 million, primarily driven by the Company's net loss and changes in working capital. Included in operating cash flows for the six months ended June 30, 2025 is approximately $1.9 million of cash used in operating activities related to discontinued operations.
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Excluding discontinued operations, net cash used in operating activities from continuing operations was approximately $20.1 million.
Cash used in operating activities during six months ended June 30, 2025 was primarily driven by the Company's consolidated net loss of $33.7 million, adjustments for non-cash items of approximately $17.7 million and changes in working capital resulting in a net use of cash of approximately $5.9 million. The largest cash operating expenses for the six months ended June 30, 2025 were professional services, personnel related costs, and legal fees. The increase in working capital was primarily driven by a decrease in accrued liabilities, related to transaction and employee bonuses and consulting fees, and accounts payable.
Cash Flows from Investing Activities for the six months ended June 30, 2026 and 2025
Net cash flows used in investing activities during the six months ended June 30, 2026 was approximately $864,000, which included $694,000 of cash used in investing activity from discontinued operations.
Net cash flows used in investing activities during the six months ended June 30, 2025 was approximately $103,000.
Cash Flows from Financing Activities for the six months ended June 30, 2026 and 2025
Net cash flows from financing activities during the six months ended June 30, 2026 was approximately $12.1 million. During the six months ended June 30, 2026, the Company received incoming cash flows of $7.4 million from the exercise of warrants, net of commission and advisory fees, and had net borrowings on its credit facility of $8.8 million, offset by $3.5 million of principal paid on the promissory note entered into in connection with the Drone Nerds Acquisition and $0.6 million of debt issuance costs associated with the credit facility.
Net cash flows from financing activities during the six months ended June 30, 2025 was approximately $37.7 million. During the six months ended June 30, 2025, the Company received incoming cash flows of $36.4 million from the sale of common stock and warrants via two public offerings, $3.8 million from the exercise of warrants, and $1.7 million from the now expired ATM. During the six months ended June 30, 2025, the Company paid $2.7 million to fully settle two outstanding promissory note obligations and $1.4 million to redeem the remaining outstanding Series 9 Preferred Stock.
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 to our condensed consolidated financial statements, which are included in Part I, Item 1 of this report.
XTI Aerospace Inc. published this content on October 20, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 20, 2026 at 21:18 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]