You will not be able to do that with a single formula... you will need two separate formulas, but I do not see why that should be a problem. Put this formula in cell B2 and copy it across...
=SUBSTITUTE(MID($A$2,COLUMN(A1),1)," ","x")
Put this formula in cell B3 and copy it down...
=SUBSTITUTE(MID($B$1,ROW(A1),1)," ","x")





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