Executive Summary / Key Takeaways

• Dual-Engine Growth Strategy: XTI Aerospace (XTIA) is a unique aerospace play, combining the long-term, high-potential development of its revolutionary TriFan 600 xVTOL aircraft with a revenue-generating Industrial IoT (RTLS) business, strategically positioning itself to capitalize on the emerging "Vertical Economy."
• Differentiated xVTOL Technology: The TriFan 600 offers a compelling blend of helicopter-like vertical takeoff and landing with fixed-wing aircraft speed, range, and altitude, leveraging proven systems and a phased sustainability approach to de-risk development and target a $1 trillion addressable market.
• Significant Pre-Order Validation & Development Momentum: With over $3 billion in conditional pre-orders and substantial engineering milestones achieved in H1 2025, the TriFan 600 program demonstrates tangible progress towards its ambitious 2030 FAA certification and delivery target.
• Strengthened Financial Foundation: Recent capital raises totaling over $44 million in H1 2025, coupled with aggressive debt reduction and the elimination of restrictive preferred stock, have significantly bolstered XTIA's balance sheet and liquidity, providing crucial runway for its capital-intensive aircraft development.
• Mitigated Risks, Long-Term Horizon: While significant R&D costs, ongoing litigation, and a long path to aircraft commercialization remain, XTIA's strategic financial restructuring and a clear technological roadmap aim to mitigate these challenges, offering a compelling, albeit patient, investment opportunity in the future of air mobility.

The Dawn of the Vertical Economy: XTI Aerospace's Ambitious Flight Plan

XTI Aerospace (NASDAQ:XTIA) stands at the confluence of two transformative technological currents: advanced air mobility and industrial digitalization. The company's overarching strategy is to power what it terms the "Vertical Economy," a broad vision encompassing manned and unmanned aircraft, power technology, airspace management, artificial intelligence, and next-gen manufacturing. This ambitious goal is anchored by its flagship TriFan 600 xVTOL aircraft and complemented by its established Industrial IoT (RTLS) solutions. XTIA's journey to this dual focus is a story of strategic evolution, born from the 2024 merger of XTI Aircraft Company, a pioneer in VTOL development since 2013, and Legacy Inpixon, a recognized leader in real-time location systems.

The TriFan 600 is not merely another eVTOL concept; it is a category-defining "vertical lift crossover airplane" (VLCA). Designed for seven occupants, it promises point-to-point air travel over distances exceeding 1,000 miles, at speeds of up to 350 miles per hour, and cruising altitudes of up to 25,000 feet. This performance profile allows it to fly at twice the speed and three times the range of competing helicopters. Crucially, the TriFan 600 is engineered to utilize existing airport runways or helipads, as well as non-traditional landing areas, circumventing the need for new, costly infrastructure that many pure-play eVTOLs require. This adaptability is a significant differentiator, enabling rapid deployment and market penetration.

Technologically, the TriFan 600 leverages advanced computational fluid dynamics (CFD) for aerodynamic design, optimizing performance across hover, transition, and cruise flight. Its vertical lift capability is aided by a rear fan, whose doors open during vertical operations and close for efficient cruise. The aircraft will incorporate fly-by-wire controls to assist pilots, ensuring safe and stable operation. XTIA's commitment to sustainability is evident in its phased propulsion approach: initially certifying with two proven turboshaft engines capable of running on 100% sustainable aviation fuel (SAF), which can reduce life cycle CO2 emissions by approximately 80%. This pragmatic strategy de-risks the program by avoiding the immaturity of current battery or hydrogen technologies for its regional mission requirements, with plans to transition to hybrid-electric and then all-electric propulsion as these technologies and supporting infrastructure mature.

Recent engineering milestones underscore the program's momentum. In Q1 2025, XTIA finalized the Global Finite Element Model (GFEM) for its latest configuration (C211.2.00), a foundational step for structural performance validation. It also completed the design of the TriFan 600 flight deck mockup and successfully updated its engine air inlet and exhaust system design. Building on this, Q2 2025 saw the selection of key drivetrain supplier-partners, including Triumph Group Inc. (TGI)'s gear systems, Kamatics Corporation, and Formsprag LLC's Formsprag Clutch products. The FAA formally assigned the Fort Worth Certification Branch Office (CBO) to oversee certification activities, and a Prototyping Innovation Lab was opened in North Dakota to test subscale models and advance flight control systems. The company also entered a non-binding MOU with VerdeGo Aero to explore hybrid-electric propulsion solutions for future aircraft variants, further solidifying its long-term technological roadmap.

Competitive Landscape and Strategic Positioning

In the burgeoning advanced air mobility sector, XTIA occupies a distinct position, differentiating itself from both traditional aviation and the crowded electric vertical takeoff and landing (eVTOL) market. Its TriFan 600 is designed for a broader use case than most eVTOL aircraft, which are primarily air taxis focused on short distances, typically under 100 miles. Competitors like Joby Aviation (JOBY), Archer Aviation (ACHR), and Lilium N.V. (LILM) are aggressively pursuing fully electric models, emphasizing quieter urban operations and new infrastructure development.

XTIA's hybrid-electric approach, even in its initial turboshaft configuration, offers a compelling advantage in range, speed, and payload capacity, which are critical for regional intercity travel and specialized missions like medevac. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the TriFan's ability to operate from existing helipads and airports provides a significant operational and cost advantage over eVTOLs that require an entirely new, widespread battery charging network and vertiport infrastructure. This strategic choice allows XTIA to bypass many of the regulatory and infrastructure challenges currently faced by pure-play eVTOLs, which are constrained by the nascent technical readiness of battery and hydrogen power sources.

Comparing XTIA to its direct VTOL competitor, the Leonardo AW609 tilt-rotor, XTIA believes it holds significant advantages in both acquisition and operating costs. While the AW609 is projecting certification in the near future, XTIA's TriFan 600 aims to offer a more cost-effective solution for similar performance. In the broader market, XTIA's xVTOL technology directly competes with traditional business aircraft (e.g., King Air turboprops, Cessna, Pilatus) and helicopters, offering a "one airplane able to perform the role of two" versatility. This expands its addressable market significantly, estimated to be in excess of $1 trillion.

Beyond aviation, XTIA's Industrial IoT (RTLS) segment, inherited from Legacy Inpixon, maintains a strong competitive edge. Recognized by Gartner as a leader in the 2023 Magic Quadrant for Indoor Location Services for the fifth consecutive year, the RTLS business boasts a technology-agnostic platform that integrates a wide variety of RF technologies (ultra-wideband, Chirp, WiFi, BLE, GPS, LiDAR, RFID). This enables it to solve more use cases with greater accuracy than many competitors, providing real-time tracking and actionable intelligence for industrial environments. The RTLS market itself is a substantial and growing segment, projected to reach $12.7 billion by 2026.

XTIA's strategic response to competitive forces involves expanding its corporate advisory board with seasoned experts from AI, defense, and aerospace, including Charlie Burgoyne, Steve Griessel, Dr. Alex Williams, Preston Dunlap, and Archduke Sandor Habsburg-Lothringen. These additions are aimed at accelerating defense and unmanned aircraft systems strategies, driving customer-centric innovation, and establishing a global presence, positioning XTIA to capitalize on both commercial and military applications of its xVTOL technology.

Financial Performance and Liquidity: Fueling Future Growth

XTI Aerospace's financial performance in the first half of 2025 reflects a company in a critical development phase, heavily investing in its future while strategically restructuring its balance sheet. For the three months ended June 30, 2025, the company reported total revenues of $600,000, a decrease from $1.031 million in the comparable prior-year period. For the six months ended June 30, 2025, revenues were $1.084 million, down from $1.251 million year-over-year. This decline in the Industrial IoT segment's revenue was primarily attributed to supply chain disruptions caused by regional conflict in the Middle East, impacting Israeli suppliers and delaying hardware product deliveries.

Despite the revenue decline, the Industrial IoT segment demonstrated an impressive gross margin improvement, reaching 80.5% for the three months ended June 30, 2025, up from 64.2% in the prior year. This was primarily due to a strategic shift in sales mix towards higher-margin software solutions. Consolidated gross profit for the six months remained consistent at $818,000 compared to $803,000 in the prior year, reflecting this margin expansion.

Operating expenses for the three months ended June 30, 2025, decreased by $3.0 million year-over-year to $11.613 million. However, excluding nonrecurring expenses from the prior year (merger-related transaction costs, transaction bonuses, advisory compensation, and professional fees), operating expenses actually increased by $5.6 million. This increase was driven by a $0.7 million rise in sales and marketing expenses and a $0.8 million increase in research and development, primarily focused on advancing the TriFan 600. Notably, the Industrial IoT segment also recognized a goodwill impairment of $4.05 million during the six months ended June 30, 2025, triggered by operating losses and missed revenue targets due to sales cycle and supply chain issues.

The company reported a net loss of $20.858 million for the three months ended June 30, 2025, and $33.730 million for the six months. Other expense income contributed significantly to these losses, with a $9.7 million loss in Q2 2025, primarily from a $5.9 million loss related to the change in fair value of a warrant liability and $3.8 million in financing costs from warrant issuance. For the six months, this loss totaled $12.204 million, including $5.8 million in financing costs, a $5.4 million loss from warrant liability changes, and a $0.4 million loss on debt extinguishment.

Liquidity, however, has seen substantial improvement. As of June 30, 2025, XTIA held $20.046 million in cash and cash equivalents, a significant increase from $4.105 million at December 31, 2024.

Working capital stood at $2.375 million, or $16.9 million when excluding derivative warrant liabilities. This favorable position was largely due to approximately $41.8 million raised through equity offerings and warrant exercises in the first six months of 2025. Post-Q2, an additional $2.5 million in net proceeds was raised. These funds enabled the repayment of outstanding secured promissory notes and the redemption of all Series 9.00 Preferred Stock, which had previously restricted capital raising. As of June 30, 2025, the company had less than $0.1 million of interest-bearing debt outstanding, maturing in 2050.

These actions have significantly strengthened the balance sheet, providing crucial financial flexibility for the capital-intensive TriFan 600 development.

Outlook and Key Risks

XTIA's outlook is defined by its long-term vision for the TriFan 600 and the continued evolution of its RTLS business. The company does not expect to obtain FAA type certification and commence deliveries of the TriFan 600 until 2030 at the earliest, signaling a patient, long-term investment horizon. This timeline underscores the significant capital requirements, which XTIA plans to meet through ongoing equity and/or debt financings until sustainable commercial operations begin. The potential market is vast, with Morgan Stanley (MS) projecting the broader market to reach $9 trillion by 2050, and XTIA already boasts over $3 billion in conditional pre-orders and reservations for the TriFan 600, based on a $10 million per aircraft list price.

For the Industrial IoT segment, the focus will continue to shift towards higher-margin software solutions and a "location-as-a-service" (LaaS) business model to drive recurring revenue. This strategic pivot, combined with cost-cutting measures, is expected to reduce operating expenses by approximately 50% over the coming quarters, accelerating the path to profitability for this segment.

However, XTIA faces substantial risks. The long development and certification timeline for the TriFan 600 means revenue generation from aircraft sales is years away, requiring continuous, significant capital raises that could lead to further shareholder dilution. The company has a history of recurring losses and negative operating cash flows, with no assurances of future profitability.

Litigation also poses a material risk. The ongoing Xeriant (XERI) matter involves claims of breach of contract, fraud, and misappropriation, with Xeriant seeking damages exceeding $500 million. Legacy XTI has counterclaimed for Xeriant's failure to make required capital contributions of approximately $4.6 million. Separately, Auctus Fund, LLC has filed a lawsuit asserting XTIA may have assumed Xeriant's obligations under a promissory note, seeking nearly $9.0 million. While XTIA believes these claims are without merit and intends to vigorously defend itself, these legal proceedings can divert significant resources and management attention, incur substantial expenses, and potentially result in adverse judgments or damage to reputation. The $1.0 million deferred consulting fee commitment to Nadir Ali, payable in two installments by year-end 2025, also represents a near-term cash outflow.

Conclusion

XTI Aerospace is charting an ambitious course, aiming to redefine air mobility through its TriFan 600 xVTOL aircraft while leveraging its established Industrial IoT expertise. The company's strategic transformation, marked by significant capital raises and balance sheet improvements in H1 2025, provides a more stable foundation for its capital-intensive development programs. The TriFan 600's differentiated technology, offering superior range, speed, and operational flexibility by utilizing existing infrastructure, positions XTIA uniquely against both traditional aviation and emerging eVTOL competitors.

Despite a long runway to commercialization and the inherent risks associated with pioneering aerospace development and ongoing litigation, XTIA's clear technological roadmap, validated pre-orders, and strengthened financial position present a compelling, albeit speculative, long-term investment thesis. The company's ability to execute on its 2030 certification target and successfully transition its RTLS business to a higher-margin software focus will be critical determinants of its future success. For investors with a high tolerance for risk and a long-term perspective, XTIA offers exposure to a potentially transformative player in the evolving landscape of the Vertical Economy.