Fair Value Measurements and Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2024

Fair Value Measurements and Fair Value of Financial Instruments [Abstract]

Fair Value Measurements and Fair Value of Financial Instruments

Note 16 - Fair Value Measurements and Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, warrant asset, accounts payable, warrant liability, convertible notes, and the loan conversion derivative. Cash and cash equivalents, accounts receivable and accounts payable are stated at their respective carrying amounts, which approximate fair value due to their short-term nature.

The changes in fair value of the warrant liability, convertible notes, and warrant asset are presented within ‘Change in fair value of warrant liability’, ‘Change in fair value of convertible notes’, and ‘Other expense’, respectively, in the condensed consolidated statements of operations.

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

Investment in Equity Securities

On October 23, 2023, a Business Combination Agreement (the “Damon Business Combination Agreement”) was entered into by and among XTI, Grafiti Holding Inc., 1444842 B.C. LTD (“Amalco Sub”), and Damon Motors Inc. (“Damon”), pursuant to which Damon combined and merged with Amalco Sub, a British Columbia corporation and a wholly-owned subsidiary of Grafiti Holding, Inc., with Damon continuing as the surviving entity and a wholly-owned subsidiary of Grafiti Holding, Inc. (the “Grafiti Holding Transaction”). The Damon Business Combination closed in November 2024.

On October 26, 2023, Legacy Inpixon purchased a convertible note through a private placement in aggregate principal amount of $3.0 million for a purchase price of $3.0 million paid in cash from Damon. Interest on the convertible note accrues at 12% per annum. The note was subsequently amended in November 2024. As amended, the note was set to mature on November 30, 2024. The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the securities purchase agreement. The note was required to convert upon Damon Motors Inc.’s completion of the public company event. The convertible note receivable is not traded in active markets and its fair value was determined using a present value technique. The convertible note receivable is accounted for as an available-for-sale debt security based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income (loss).

On November 18, 2024, Damon completed the Grafiti Holding Transaction which converted the Company’s note receivable into 402,338 shares of Damon’s common stock. The carrying value of the note receivable at conversion was approximately $3.7 million. The fair value of the shares received was approximately $1.0 million at the time of conversion and the shares received are accounted for as a marketable equity security and measured at fair value. This equity investment is included in Other assets on the consolidated balance sheets. As a result of the automatic conversion, the Company recognized a loss of approximately $2.6 million in the consolidated statements of operations, which includes the $59,000 unrealized gain in other comprehensive income reclassified to earnings.

Damon common stock is traded in active markets, as the security is trading under “DMN” on the Nasdaq Exchange.  The Damon common stock is accounted for as marketable equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings.  The fair value was determined by the closing trading price of the security as of December 31, 2024.  The Company recognized an unrealized loss on Damon common stock of approximately $0.6 million which is included in the consolidated statements of operations for the year ended December 31, 2024. 

The Company’s assets and liabilities measured at fair value consisted of the following at the periods indicated:

	Fair Value at December 31, 2024
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment – Damon Motors, Inc.		342		342		—		—
Total assets	$	342	$	342	$	—	$	—

	Fair Value at December 31, 2023
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant Liability	$	497	$	—	$	—	$	497
Convertible notes, at fair value		16,804		—		—		16,804
Loan conversion derivatives		333		—		—		333
Total liabilities	$	17,634	$	—	$	—	$	17,634

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

	Notes			Warrant			Convertible notes,			Loan conversion
	Receivable			Liability			at fair value			derivatives
Balance at January 1, 2024	$	—		$	497		$	16,804		$	333
Acquired		3,264			920			—			—
Change in fair value		—			281			(12,882	)		—
Exchanged / Conversion to Equity		(968	)		(1,698	)		(3,922	)		(333	)
Loss from note conversion to equity investment		(2,630	)		—			—			—
Accrued interest		221			—			—			—
Debt discount recognition		113			—			—			—
Balance at December 31, 2024	$	—		$	—		$	—		$	—