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Item 1. Financial Statements

2020-05-12 compared with 2019-11-05 · 1826 added, 2063 removed, 375 unchanged (91% of the section changed)

accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles

for interim financial information which are the accounting principles that are generally accepted in the United States of America

and in accordance with the instructions for Form 10-Q.

Accordingly, they do not include all of the information and footnotes required

by generally accepted accounting principles for complete financial statements.

the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of

normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the

Company for the interim periods presented.

results for the period ended September 30, 2019 are not necessarily indicative of the results of operations for the full year.

These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes

thereto included in our audited consolidated financial statements for the fiscal years ended December 31, 2018 and 2017 included

in the annual report on Form 10-K filed with the U.S.

Financial Statements

The accompanying condensed

consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial

information which are the accounting principles that are generally accepted in the United States of America and in accordance with

the instructions for Form 10-Q.

Accordingly, they do not include all of the information and footnotes required by generally accepted

accounting principles for complete financial statements.

In the opinion of management,

the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments

necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods

The results for the

period ended March 31, 2020 are not necessarily indicative of the results of operations for the full year.

These financial statements

and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited

consolidated financial statements for the fiscal years ended December 31, 2019 and 2018 included in the annual report on Form 10-K

filed with the U.S.

Securities and Exchange Commission (the “SEC”) on March 3, 2020.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares

and par value data)

September 30,

CONSOLIDATED BALANCE SHEETS

thousands, except number of shares and par value data)

Current Assets

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Intangible assets, net

Loan to related party

Receivable from related party

The accompanying notes are an integral part of these financial

The accompanying notes are an integral part of these financial statements.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares

and par value data)

September 30,

CONSOLIDATED BALANCE SHEETS (CONTINUED)

thousands, except number of shares and par value data)

Liabilities and Stockholders’

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Long Term Liabilities

Long-term debt

Operating lease obligation, noncurrent

5 unchanged sentences

Stockholders’

Preferred Stock - $0.001 par value;

5 mill shares authorized, consisting of Series 4 Convertible Pref

Stock - 10,415 shares authorized;

1 and 1 issued, and 1 and 1 outstanding as of Sept 30, 2019 and Dec 31, 2018, respectively, and

Series 5 Convertible Pref Stock - 12,000 shares authorized;

126 and 0 issued, and 126 and 0 outstanding as of Sept 30, 2019 and

Dec 31, 2018, respectively.

Stock - $0.001 par value;

5,000,000 shares authorized, consisting of Series 4 Convertible Preferred Stock - 10,415 shares

1 and 1 issued, and 1 and 1 outstanding as of March 31, 2020 and December 31, 2019, respectively, Series 5

Convertible Preferred Stock - 12,000 shares authorized;

126 and 126 issued, and 126 and 126 outstanding as of March 31, 2020

and December 31, 2019, respectively.

Common Stock - $0.001 par value;

250,000,000 shares authorized;

50,518,513 and 1,581,893 issued and 50,518,500 and 1,581,880 outstanding as of September 30, 2019 and December 31, 2018, respectively.

7,068,490 and 4,234,923 issued and 7,068,489 and 4,234,922 outstanding as of March 31, 2020 and December 31, 2019, respectively.

Additional paid-in capital

Treasury stock, at cost, 13 shares

Treasury stock, at cost, 1 share

Accumulated other comprehensive income

Accumulated deficit (excluding $2,442 reclassified to additional paid in capital in quasi-reorganization)

deficit (excluding $2,442 reclassified to additional paid in capital in quasi-reorganization)

Stockholders’

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Total Liabilities and Stockholders’

The accompanying notes are an integral part

of these financial statements.

The accompanying notes are an integral part of these financial statements.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

(In thousands, except per share data)

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share data)

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of Revenues

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Other Income (Expense)

Interest expense

Interest expense, net

Loss on exchange of debt for equity

Change in fair value of derivative liability

Gain on the sale of Sysorex Arabia

Other income/(expense)

Total Other Income (Expense)

Net Loss from Continuing Operations, before tax

Loss from Operations, before tax

Income tax benefit

Net Loss from Continuing Operations

Loss from Discontinued Operations, Net of Tax

Net Income/(Loss) Attributable to Non-controlling Interest

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Stockholders of Inpixon

Deemed dividend to preferred stockholders

Deemed dividend for triggering of warrant down round feature

Net Loss Attributable to Common Stockholders

Net Loss Per Basic and Diluted Common Share

Loss from continuing operations

Loss from discontinued operations

Net Loss Per Share - Basic and Diluted

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Basic and Diluted

The accompanying notes are an integral part

of these financial statements.

accompanying notes are an integral part of these financial statements.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

(In thousands)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three Months Ended

For the Nine Months Ended

September 30,

Unrealized foreign exchange gain/(loss) from cumulative translation adjustments

Unrealized foreign exchange loss from cumulative translation adjustments

Comprehensive Loss

The accompanying notes are an integral part

of these financial statements.

The accompanying notes are an integral part of these financial statements.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

30, 2018 AND 2019

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(In thousands, except per share data)

3 Convertible

4 Convertible

5 Convertible

6 Convertible

Other Comprehensive

Stockholders’

Series 4 Convertible

Series 5 Convertible

Accumulated Other

Total Stockholders’

Comprehensive

- January 1, 2020

shares issued for services

options granted to employees for services

shares issued for stock split

and preferred shares issued for net cash proceeds from a public offering

of convertible series 3 preferred stock

(3,694.2752 )

shares issued for extinguishment of debenture liability

of Sysorex Arabia

of accounting standards (Note 2)

options granted to employees and consultants for services

Shares issued for net cash proceeds of a public offering

shares issued for extinguishment of debt

Translation Adjustment

- March 31, 2020

options granted to employees for services

and preferred shares issued for net cash proceeds from a public offering

of convertible series 3 preferred stock

of convertible series 4 preferred stock

(7,796.7067 )

Translation Adjustment

- June 30, 2018

options granted to employees for services

of convertible series 4 preferred stock

(2,311.2933 )

Deconsolidation

of Sysorex as a result of spin-off

Translation Adjustment

- September 30, 2018

The accompanying notes are an integral part of these financial

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED

STATEMENTS OF CHANGES IN STOCKHOLDERS’

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

30, 2018 AND 2019

(In thousands, except per share data)

Series 4 Convertible

Series 5 Convertible

Series 6 Convertible

Other Comprehensive

Stockholders’

Balance - January 1, 2019

Preferred Shares issued for

net cash proceeds of a public offering

Common shares issued for extinguishment

Common shares issued for net

proceeds from warrants exercised

Common shares issued for warrants

Redemption of convertible

Series 5 Preferred Stock

Common shares issued for extinguishment

Common shares issued for services

Stock options granted to employees

and consultants for services

Cumulative Translation Adjustment

Balance - March 31, 2019

Common shares issued for extinguishment

Common shares issued for warrants

Redemption of convertible

Series 5 Preferred Stock

Stock options granted to employees

and consultants for services

Issuance of Locality Acquisition Shares

Issuance of GTX Acquisition Shares

Cumulative Translation Adjustment

Balance - June 30, 2019

Common shares issued for extinguishment

Common shares issued for warrants

Stock options granted to employees

and consultants for services

Issuance of Jibestream Acquisition Shares

Common and Preferred Shares

issued for net cash proceeds of a public offering

Redemption of convertible

Series 6 Preferred Stock

Cumulative Translation Adjustment

Balance - September 30,

The accompanying notes are an integral part of these financial

Accumulated Other

Total Stockholders’

Comprehensive

- January 1, 2019

Shares issued for net cash proceeds of a public offering

shares issued for extinguishment of debt

shares issued for net proceeds from warrants exercised

shares issued for warrants exercised

of convertible Series 5 Preferred Stock

shares issued for extinguishment of liability

shares issued for services

options granted to employees and consultants for services

Translation Adjustment

- March 31, 2019

The accompanying notes are an integral part of these financial statements.

INPIXON AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

(In thousands)

For the Nine Months Ended

September 30,

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

As of March 31,

Cash Flows (Used In) from Operating Activities

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Loss on exchange of debt for equity

Change in fair value of derivative liability

Amortization of debt discount

Accrued interest income, related party

Provision for doubtful accounts

Gain on earnout

Gain on the settlement of liabilities

Gain on the sale of Sysorex Arabia

Income tax benefit

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Other current assets

Prepaid licenses and maintenance contracts

Accounts payable

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Deferred revenue

Operating lease liabilities

Other liabilities

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Investment in capitalized software

Investment in Athentek

Cash spun off as a result of de-consolidation

Cash paid for acquisition of GTX

Cash paid for acquisition of Locality

Cash paid for acquisition of Jibestream

Net Cash Flows Used in Investing Activities

Cash Flows From (Used in) Financing Activities

Net proceeds (repayments) to bank facility

Cash Flows From Financing Activities

Net repayments to bank facility

Net proceeds from issuance of common stock, preferred stock and warrants

Repayment of notes payable

Net proceeds from issuance of common stock

Net proceeds from notes payable

Loans to related party

Repayments from related party

Advances to related party

Loan to Jibestream

Net proceeds from promissory notes

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Effect of Foreign Exchange Rate on Changes on Cash

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

Net Increase in Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash - Beginning of period

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Non-cash investing and financing activities

Common shares issued for extinguishment of debenture liability

Adjustment to opening retained earnings for the adoption of ASC 606

Deconsolidation of Sysorex as a result of spin-off

Common shares issued for extinguishment of liability

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Right of use asset obtained in exchange for lease liability

Common shares issued for GTX acquisition

Common shares issued for Locality acquisition

Common shares issued for Jibestream acquisition

The accompanying notes are an integral part of these financial

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2019 AND 2018

Note 1 - Organization and Nature of Business and Going Concern

Inpixon, and its wholly-owned subsidiaries, Inpixon Canada, Inc.

(“Inpixon Canada”) and Jibestream,

(“Jibestream”), and its majority-owned subsidiary Inpixon India Limited (“Inpixon India”) (unless

otherwise stated or the context otherwise requires, the terms “Inpixon”

The accompanying notes are an integral part of these financial statements.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

1 - Organization and Nature of Business and Going Concern

Inpixon, and its wholly-owned subsidiary,

Inpixon Canada, Inc.

(“Inpixon Canada”), and its majority-owned subsidiary Inpixon India Limited (“Inpixon India”)

(unless otherwise stated or the context otherwise requires, the terms “Inpixon”

“we,”

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and the “Company”

refer collectively to Inpixon and the aforementioned subsidiaries), provide Big Data analytics and

location based products and related services.

The Company is headquartered in California, and has subsidiary offices in Coquitlam,

Canada, Vancouver, Canada, Toronto, Canada and Hyderabad, India.

On August 31, 2018, the Company completed

the spin-off of its value-added reseller business from its indoor positioning analytics business by way of a distribution

of all the shares of common stock of its wholly-owned subsidiary, Sysorex, Inc.

(“Sysorex”), to its stockholders of

record as of August 21, 2018 and certain warrant holders.

On May 21, 2019, the Company acquired Locality

(“Locality”), a technology company based near Vancouver, Canada, specializing in wireless device positioning

and radio frequency augmentation of video surveillance systems (See Note 4).

On June 27, 2019, the Company acquired certain global

positioning system (“GPS”) products, software, technologies, and intellectual property from GTX Corp (“GTX”),

based company specializing in GPS technologies (See Note 5).

These transactions expanded our patent portfolio and included

certain granted or licensed patents and GPS and radio frequency (“RF”) technologies.

Additionally, on August 15, 2019,

the Company acquired Jibestream, a provider of indoor mapping and location technology based in Toronto, Canada (See Note 6).

Going Concern and Management’s

As of September 30, 2019, the Company

has a working capital deficiency of approximately $11.5 million.

For the three and nine months ended September 30, 2019, the Company

incurred a net loss of approximately $6.3 million and $16.7 million, respectively.

The aforementioned factors raise substantial

doubt about the Company’s ability to continue as a going concern.

The accompanying condensed consolidated financial statements

have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities

in the normal course of business.

refer collectively to Inpixon and the aforementioned subsidiaries), are an indoor

intelligence company.

Our business and government customers use our solutions to secure, digitize and optimize their indoor spaces

with our positioning, mapping and analytics products.

Our indoor intelligence platform uses sensor technology to detect accessible

cellular, Wi-Fi, Bluetooth, ultra-wide band “UWB”

and radio frequency identification “RFID”

signals emitted

from devices within a venue providing positional information similar to what global positioning system (“GPS”) satellite

systems provide for the outdoors.

Combining this positional data with our dynamic and interactive mapping solution and a high-performance

analytics engine, yields near real time insights to our customers providing them with visibility, security and business intelligence

within their indoor spaces.

Our highly configurable platform can also ingest data from our customers’

and other third party

sensors, Wi-Fi access points, Bluetooth beacons, video cameras, and big data sources, among others to maximize indoor intelligence.

The Company also offers digital tear-sheets with optional invoice integration, digital ad delivery, and an e-edition designed

for reader engagement for the media, publishing and entertainment industry.

Our Indoor Intelligence products secure, digitize

and optimize the interior of any premises with indoor positioning and data analytics that provide rich positional information,

similar to a GPS, and browser-like intelligence for the indoors.

The Company is headquartered in Palo Alto, California, and

has subsidiary offices in Coquitlam, Canada, New Westminster, Canada, Toronto, Canada and Hyderabad, India.

Concern and Management’s Plans

of March 31, 2020, the Company has a working capital deficiency of approximately $6.2 million.

For the three months ended March

31, 2020, the Company incurred a net loss of approximately $6.2 million.

The aforementioned factors raise substantial doubt about

the Company’s ability to continue as a going concern.

The accompanying condensed consolidated financial statements have

been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the

normal course of business.

The financial statements do not include any adjustments relating to the recoverability and classification

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concern within one year after the date the financial statements are issued.

On January 15, 2019, the Company completed

a rights offering whereby it sold 12,000 units at a price to the public of $1,000 per unit for aggregate net proceeds of approximately

$10.77 million after commissions and expenses.

On August 12, 2019, the Company completed a capital raise whereby the Company sold

an aggregate of (i) 6,497,410 shares of our common stock, (ii) 2,997 shares of our Series 6 Convertible Preferred Stock, and

(iii) Series A warrants to purchase up to an aggregate of 17,297,410 shares of common stock at an exercise price per share of $0.2775,

resulting in net proceeds of approximately $4 million after deducting the underwriting discounts and offering expenses.

also raised approximately $3 million, $1.5 million, $1.5 million and $750,000 in net proceeds from the sale of promissory notes

on May 3, 2019, June 26, 2019, August 8, 2019 and September 17, 2019, respectively.

The Company does not expect its

capital resources as of September 30, 2019, availability on the Payplant facility to finance purchase orders and invoices in

an amount equal to 80% of the face value of purchase orders received (as described in Note 7), and funds from revenue

to be sufficient to fund planned operations for the next twelve months from the

date the financial statements are issued.

In addition, the Company is pursuing possible strategic transactions and

may raise such additional capital as needed, through the issuance of equity, equity-linked or debt securities.

this regard, on October 10, 2019, the Company entered into an equity distribution agreement with Maxim Group LLC as

its exclusive sales agent, under which the Company may offer and sell shares of its common stock having an aggregate

offering price of up to $6,500,000 from time to time.

The Company’s condensed consolidated

financial statements as of September 30, 2019 have been prepared under the assumption that the Company will continue as a going

concern for the next twelve months from the date the financial statements are issued.

Management’s plans and assessment of

the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s ability to continue

as a going concern is dependent upon the ability to attain further operating efficiency, reduce expenditures, and, ultimately,

to generate sufficient levels of revenue.

The Company’s condensed consolidated financial statements as of September 30, 2019

do not include any adjustments that might result from the outcome of this uncertainty.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 2 - Basis of Presentation

On March 3, 2020, the Company entered into

an Equity Distribution Agreement with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of

our common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up

to $50 million.

The Company issued 937,010 shares of common stock during the quarter ended March 31, 2020 in connection with the

ATM resulting in net proceeds to the Company of approximately $1.3 million.

Subsequent to the quarter ended March 31, 2020, the

Company issued an additional 9,551,636 shares of common stock in connection with the ATM, resulting in net proceeds to the Company

of approximately $10.6 million.

While the Company believes that its recent debt financing, access

to capital in connection with the sale of its securities under the ATM, availability on the Payplant facility to finance purchase

orders and invoices in an amount equal to 80% of the face value of purchase orders received (as described in Note 9), and

funds from revenue may be sufficient to fund planned operations for the next 12 months from the date the financial statements are

issued, the impact of the COVID-19 pandemic on our business and results of operations is uncertain at this time.

While the Company

has been able to continue operations remotely and has not seen a significant impact in the demand for certain products including

our SaaS or subscription based services and products, certain projects and customer requests have had to be delayed either because

they require onsite services, which could not be performed while shelter in place orders have been in effect or because of the

uncertainty of the customer’s financial position and ability to invest in our technology.

However, the Company has also seen

an increase in interest in our indoor intelligence solutions for workplace readiness, which is directed at enterprise organizations

and government agencies to assist them in optimizing the use of their facilities as well as in developing and monitoring compliance

with corporate policies and government regulations for physical distancing, exposure notification, and the identification of high

traffic areas for sanitizing and cleaning in order to keep their employees healthier and safer within the workplace.

If the Company

is successful in expanding the adoption of our products and services for this solution, the Company may be able to offset any revenue

loss that may be experienced, however, there are no assurances that the Company will be successful or that the Company will be

able to offset any losses, if realized.

In addition, if general economic or other conditions resulting from COVID 19 or other events

materially impact the liquidity of our common stock or ability to access capital from the ATM in addition to our ability to generate

revenue from the sales of our products and services, the Company may not have sufficient funds to support our operations

for the next 12 months.

The Company is also pursuing possible strategic transactions and may raise such additional capital as needed, using

our equity securities, an assignment of our note receivable from Sysorex Inc.

(“Sysorex”) and/or cash and debt financings

in combinations appropriate for each acquisition.

Company’s condensed consolidated financial statements as of March 31, 2020 have been prepared under the assumption that

the Company will continue as a going concern for the next twelve months from the date the financial statements are issued.

Management’s

plans and assessment of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s

ability to continue as a going concern is dependent upon the ability to attain further operating efficiency, reduce expenditures,

and, ultimately, to generate sufficient levels of revenue.

The Company’s condensed consolidated financial statements as

of March 31, 2020 do not include any adjustments that might result from the outcome of this uncertainty.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

2 - Basis of Presentation

The accompanying unaudited condensed consolidated

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(consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The results of the Company’s

operations for the nine-month period ended September 30, 2019 are not necessarily indicative of the results to be expected for

the year ending December 31, 2019.

These interim unaudited condensed consolidated financial statements should be read in

conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2018

and 2017 included in the Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission on March 28, 2019.

Note 3 - Summary of Significant Accounting

The Company’s complete accounting

policies are described in Note 2 to the Company’s audited consolidated financial statements and notes for the years ended

December 31, 2018 and 2017.

Use of Estimates

The preparation of financial statements

in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

The results of the

Company’s operations for the three-month period ended March 31, 2020 are not necessarily indicative of the results to be

expected for the year ending December 31, 2020.

These interim unaudited condensed consolidated financial statements should

be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December

31, 2019 and 2018 included in the Annual Report on Form 10-K filed with the SEC on March 3, 2020.

3 - Summary of Significant Accounting Policies

Company’s complete accounting policies are described in Note 2 to the Company’s audited consolidated financial statements

and notes for the years ended December 31, 2019 and 2018.

The preparation of financial statements in

conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues

3 unchanged sentences

estimates consist of:

the valuation of

stock-based compensation;

the valuation of

the assets and liabilities acquired of Locality, GTX and Jibestream as described in Notes 4, 5 and 6, respectively, as well

as the valuation of the Company’s common shares issued in the transaction;

the allowance for

doubtful accounts;

the valuation allowance

for the deferred tax asset;

impairment of long-lived

assets and goodwill.

Restricted Cash

In connection with certain transactions,

the Company may be required to deposit assets, including cash or investment shares, in escrow accounts.

The assets held in escrow

are subject to various contingencies that may exist with respect to such transactions.

Upon resolution of those contingencies

or the expiration of the escrow period, some or all the escrow amounts may be used and the balance released to the Company.

of September 30, 2019, the Company had $71,000 deposited in escrow as restricted cash for the Shoom acquisition, of which any

amounts not subject to claims shall be released to the pre-acquisition stockholders of Shoom, on a pro-rata basis, on the next

anniversary date of the closing date of the Shoom acquisition which is current and included in Prepaid Assets and Other Current

Assets on the condensed consolidated balance sheet.

As of September 30, 2018, the Company had $140,000 deposited in escrow as

restricted cash for the Shoom acquisition, of which any amounts not subject to claims would be released to the pre-acquisition

stockholders of Shoom, on a pro-rata basis, on each of the next (2) anniversary dates of the closing date of the Shoom acquisition.

$70,000 of that amount is current and included in Prepaid Assets and Other Current Assets and $70,000 is non-current and included

in Other Assets on the condensed consolidated balance sheet as of September 30, 2018.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 3 - Summary of Significant Accounting

Policies (continued)

Restricted Cash (continued)

valuation of stock-based compensation;

valuation of the assets and liabilities acquired in connection with certain recent acquisitions as described in Notes 4, 5 and

6, respectively, as well as the valuation of the Company’s common stock issued in the transaction;

allowance for doubtful accounts;

valuation of loans receivable;

valuation allowance for deferred tax assets;

of long-lived assets and goodwill.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3 - Summary of Significant Accounting Policies (continued)

In connection with certain transactions, the

Company may be required to deposit assets, including cash or shares, in escrow accounts.

The assets held in escrow are subject

to various contingencies that may exist with respect to such transactions.

Upon resolution of those contingencies or the expiration

of the escrow period, some or all the escrow amounts may be used and the balance released to the Company.

As of March 31, 2020

and 2019, the Company had $71,000 and $140,000, respectively, deposited in escrow as restricted cash for the Shoom acquisition,

of which any amounts not subject to claims shall be released to the pre-acquisition stockholders of Shoom pro-rata on the next

anniversary dates of the closing date of the Shoom acquisition.

As of March 31, 2020 and 2019, $71,000 and $70,000, respectively,

were current and included in Prepaid Assets and Other Current Assets on the condensed consolidated balance sheets.

31, 2020 and 2019, $0 and $70,000 were non-current and included in Other Assets on the condensed consolidated balance sheets.

The following table provides a reconciliation

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the statement of cash flows.

Nine Months Ended

September 30,

As of March 31,

(in thousands)

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Restricted cash,

Restricted cash included in other assets, noncurrent

Total cash, cash equivalents, and restricted cash in the balance sheet

Revenue Recognition

The Company records revenue according

to “Revenue from Contracts with Customers (Topic 606)”, or ASU 2016-12, which requires revenue to be recognized either

at a “point in time”

or “over time”, depending on the facts and circumstances of the arrangement, and

is evaluated using a five-step model.

Software As A Service Revenue Recognition

With respect to sales of our maintenance,

consulting and other service agreements, including our digital advertising and electronic services, customers pay fixed monthly

fees in exchange for the Company’s service.

current included in prepaid assets and other current assets

Restricted cash,

non-current included in other assets

Total cash, cash equivalents, and restricted cash in the balance sheets

Company reports revenues under ASC 606, “Revenue from Contracts with Customers”

and all the related amendments (Topic

The company recognizes revenue after applying the following five steps:

1) identification of the contract, or contracts,

with a customer;

2) identification of the performance obligations

in the contract, including whether they are distinct within the context of the contract;

3) determination of the transaction price,

including the constraint on variable consideration;

4) allocation of the transaction price

to the performance obligations in the contract;

5) recognition of revenue when, or as,

performance obligations are satisfied.

As A Service Revenue Recognition

With respect to sales of the Company’s

maintenance, consulting and other service agreements including the Company’s digital tear-sheets, customers pay fixed monthly

fees in exchange for the Company’s services.

The Company’s performance obligation is satisfied over time as the digital

advertising and electronic services are provided continuously throughout the service period.

The Company recognizes revenue evenly

over the service period using a time-based measure because the Company is providing continuous access to its service.

Professional Services Revenue Recognition

The Company’s professional services

include fixed fee and time and materials contracts.

Fixed fees are paid monthly, in phases, or upon acceptance of deliverables.

The Company’s time and materials contracts are paid weekly or monthly based on hours worked.

Revenue on time and materials

contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other specified direct

costs, are reimbursed as actual costs and may include markup.

The Company has elected the practical expedient to recognize revenue

for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer

of the performance completed to date.

For fixed fee contracts including maintenance service provided by in-house personnel, the

Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous

Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical

expedient in Accounting Standards Codification (“ASC”) 606-10-50-14(a) to not disclose information about its remaining

performance obligations.

tear-sheets are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period

using a time-based measure because the Company is providing continuous access to its services.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3 - Summary of Significant Accounting Policies (continued)

Recognition (continued)

Services Revenue Recognition

services revenue is accounted for using the percentage of completion method.

As soon as the outcome of a contract can be

estimated reliably, contract revenue is recognized in the condensed consolidated statement of operations in proportion to the

stage of completion of the contract.

Contract costs are expensed as incurred.

Contract costs include all amounts that relate

directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer

under the terms of the contract.

Services Revenue Recognition

Company’s professional services include fixed fee and time and materials contracts.

Fixed fees are paid monthly, in phases,

or upon acceptance of deliverables.

The Company’s time and materials contracts are paid weekly or monthly based on hours

Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other specified direct costs, are reimbursed as actual costs and may include markup.

The Company has elected the

practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds

directly with the value to the customer of the performance completed to date.

For fixed fee contracts including maintenance service

provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because

the Company is providing continuous service.

Because the Company’s contracts have an expected duration of one year or less,

the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance

Anticipated losses are recognized as soon as they become known.

For the three and nine months ended September

30, 2019 and 2018, the Company did not incur any such losses.

For the three months ended March 31, 2020 and 2019,

the Company did not incur any such losses.

These amounts are based on known and estimated factors.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 3 - Summary of Significant Accounting

Policies (continued)

Revenue Recognition (continued)

Contract Balances

The timing of

our revenue recognition may differ from the timing of payment by our customers.

The Company records a receivable when revenue

is recognized prior to payment and the Company has an unconditional right to payment.

Alternatively, when payment precedes the

provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.

September 30, 2019, the Company had deferred revenue of approximately $789,000 related to software license agreements and approximately

$262,000 related to cash received in advance for product maintenance services provided by the Company’s technical staff.

The Company expects to satisfy its remaining performance obligations for these maintenance services and recognize the deferred

revenue and related contract costs over the next twelve months after September 30, 2019.

Stock-Based Compensation

The Company measures the cost of services

received in exchange for an award of equity instruments based on the fair value of the award.

The fair value of the award is measured

on the grant date and recognized over the period services are required to be provided in exchange for the award, usually the vesting

timing of the Company’s revenue recognition may differ from the timing of payment by its customers.

The Company records

a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment.

Alternatively,

when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations

are satisfied.

The Company had deferred revenue of approximately $877,000 and $912,000 as of March 31, 2020 and December 31, 2019,

respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s

technical staff.

The Company expects to satisfy its remaining performance obligations for these maintenance services and professional

services, and recognize the deferred revenue and related contract costs over the next twelve months.

The Company’s contract balances as of March 31, 2020 and December 31, 2019 were deemed immaterial.

Disaggregation

Revenues consisted of the following (in millions):

For the Three Months Ended March 31,

Digital tear-sheets

(A) Mapping revenue is a result of the Jibestream acquisition in August

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3 - Summary of Significant Accounting Policies (continued)

Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity

instruments based upon the fair value of the award on the date of grant.

The fair value of that award is then ratably recognized

as an expense over the period during which the recipient is required to provide services in exchange for that award.

Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.

The fair value of the award is measured on the grant date and recognized over the period services are required to be provided

in exchange for the award, usually the vesting period.

Forfeitures of unvested stock options are recorded when they occur.

The Company incurred stock-based compensation

charges of $871,000 and $122,000 for the three months ended September 30, 2019 and 2018, respectively, and $2,618,000 and

$979,000 for the nine months ended September 30, 2019 and 2018, respectively, which are included in general and administrative

The Company recognizes forfeitures as they occur.

The following table summarizes the nature of such charges for the

periods then ended (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Company incurred stock-based compensation charges of $399,000 and $890,000 for the three months ended March 31, 2020 and 2019,

respectively, which are included in general and administrative expenses.

The following table summarizes the nature of such charges

for the periods then ended (in thousands):

For the Three Months Ended March 31,

Compensation and related benefits

Professional and legal fees

Net Loss Per Share

The Company computes basic and diluted

earnings per share by dividing net loss by the weighted average number of common shares outstanding during the period.

diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options

and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 3 - Summary of Significant Accounting

Policies (continued)

Net Loss Per Share (continued)

The following table summarizes the number

of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the nine

months ended September 30, 2019 and 2018:

Nine Months Ended

September 30,

Loss Per Share

Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding

during the period.

Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant

to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.

following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net

loss per common share for the three months ended March 31, 2020 and 2019:

For the Three Months Ended March 31,

Convertible preferred stock

Convertible note

ATM sales of common stock to be issued*

Reserved for service providers

Common stock issuable pursuant to Jibestream acquisition share purchase agreement

Preferred Stock

The Company applies the accounting standards

for distinguishing liabilities from equity under GAAP when determining the classification and measurement of its convertible preferred

Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value.

Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the

control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)

are classified as temporary equity.

At all other times, preferred shares are classified as permanent equity.

Reclassification

Certain accounts in the prior year’s

consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current

year’s consolidated financial statements.

These reclassifications have no effect on previously reported earnings.

Recently Issued and Adopted Accounting

In February 2016, the Financial Accounting

Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, “Leases (Topic

(“ASU 2016-02”).

ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease

for both financing and operating leases.

ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors

and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

2016-02 is effective for fiscal years beginning after December 15, 2018.

As a result of the new standard, all of our leases greater

than one year in duration are recognized in our balance sheets as both operating lease liabilities and right-of-use assets upon

adoption of the standard.

The Company adopted the standard using the modified-retrospective method effective January 1, 2019.

adoption primarily affected the Company’s condensed consolidated balance sheet based on the recording of right-of-use assets

and the lease liability, current and noncurrent, for its operating leases.

The adoption of ASU 2016-02 did not change the Company’s

historical classification of these leases or the straight-line recognition of related expenses.

Upon adoption, the Company recorded

approximately $0.6 million in right-of-use assets and $0.7 million in operating lease liabilities on the Company’s balance

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 3 - Summary of Significant Accounting

Policies (continued)

Recently Issued and Adopted Accounting

Standards (continued)

In June 2018, the FASB issued ASU

2018-07, “Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment

Accounting,”

(“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718 to include share-based payment

transactions for acquiring goods and services from nonemployees.

ASU 2018-07 also clarifies that Topic 718 does not apply to

share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with

selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic

ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that

The Company has adopted this standard and the adoption of this standard did not have a material impact on its

financial statements or disclosures.

Represents shares of common stock sold as of March 31, 2020, with a closing date following the period covered by this Form 10-Q.

Company applies the accounting standards for distinguishing liabilities from equity under GAAP when determining the classification

and measurement of its convertible preferred stock.

Preferred shares subject to mandatory redemption are classified as liability

instruments and are measured at fair value.

Conditionally redeemable preferred shares (including preferred shares that feature

redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events

not solely within the Company’s control) are classified as temporary equity.

At all other times, preferred shares are classified

as permanent equity.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3 - Summary of Significant Accounting Policies (continued)

Issued and Adopted Accounting Standards

In August 2018, the FASB issued ASU No.

“Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value

Measurement,”

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,”

(“ASU 2018-13”).

ASU 2018-13 requires application of the prospective method of transition (for

only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements

for (1) changes in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used

to develop significant unobservable inputs for Level 3 fair value measurements.

ASU 2018-13 also requires prospective application

to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement

ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that

In June 2016, the FASB issued Accounting

Standards Update No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments (“ASU 2016-13”).

ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate

credit losses on certain types of financial instruments, including trade receivables.

The estimate of expected credit losses will

require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.

ASU 2016-13 also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions,

models and methods for estimating expected credit losses.

For public business entities that meet the definition of a Securities

and Exchange Commission filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019,

ASU 2018-13 requires application of the prospective method of transition (for only the most recent

interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements for (1) changes

in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used to develop significant

unobservable inputs for Level 3 fair value measurements.

ASU 2018-13 also requires prospective application to any modifications

to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty.

is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year.

has adopted this standard and the adoption of this standard did not have a material impact on its financials or disclosures.

In June 2016, the FASB issued ASU No.

Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of

financial instruments, including trade receivables.

The estimate of expected credit losses will require entities to incorporate

considerations of historical information, current information and reasonable and supportable forecasts.

ASU 2016-13 also expands

the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods

for estimating expected credit losses.

For public business entities that meet the definition of a Securities and Exchange Commission

filer and smaller reporting company, ASU 2016-13 is effective for annual and interim reporting periods beginning after December

15, 2022, and the guidance is to be applied using the modified retrospective approach.

Earlier adoption is permitted for annual and interim

reporting periods beginning after December 15, 2018.

In April 2019, the FASB issued Accounting

Standards Update No.

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives

and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards

2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”).

The Company is currently

evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed consolidated financial

statements and related disclosures.

Subsequent Events

The Company evaluates events and/or transactions

occurring after the balance sheet date and before the issue date of the condensed consolidated financial statements to determine

if any of those events and/or transactions requires adjustment to or disclosure in the condensed consolidated financial statements.

Note 4 - Locality Acquisition

On May 21, 2019, Inpixon, through its

wholly owned subsidiary, Inpixon Canada as purchaser, completed its acquisition of Locality in which Locality’s stockholders

sold all of their Locality Shares to the purchaser in exchange for consideration of (i) $1,500,000 (the “Aggregate Cash

Consideration”) plus or minus the amount by which the estimated working capital is more or less than the working capital

target (as defined in the purchase agreement), and (ii) 650,000 shares of common stock of Inpixon.

The Aggregate Cash Consideration, less

the working capital adjustment to be applied against the Aggregate Cash Consideration of $85,923, will be paid in installments

(i) the initial installment representing $250,000 minus $46,422 of the working capital adjustment was paid on the closing

(ii) $210,499 on November 21, 2019 which is comprised of a $250,000 installment less $39,501 of the working capital adjustment;

(iii) two additional installments, each equal to $250,000, will be paid twelve months and eighteen months after the closing date;

and (iv) one final installment representing $500,000 will be paid on the second anniversary of the closing date, in each case minus

the cash fees payable to the advisor in connection with the acquisition.

Inpixon Canada will have the right to offset any loss,

as defined in the purchase agreement, first, against any installment of the installment cash consideration that has not been paid

and second, against the sellers and the advisor on a several basis, in accordance with the indemnification provisions of the purchase

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 4 - Locality Acquisition

The total recorded purchase price for the

transaction was approximately $1,928,000, which consisted of cash at closing of $204,000, approximately $1,210,000 of cash that

will be paid in installments as discussed above and $514,000 representing the value of the stock issued upon closing.

The preliminary purchase price is allocated as follows (in thousands):

Earlier adoption is permitted for annual

and interim reporting periods beginning after December 15, 2018.

The Company has adopted this standard and the adoption of this

standard did not have a material impact on its financials or disclosures.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3 - Summary of Significant Accounting Policies (continued)

Issued and Adopted Accounting Standards (continued)

In April 2019, the FASB issued ASU No.

Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825,

Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards Update No.

2019-05, Financial

Instruments--Credit Losses (Topic 326) (“ASU 2019-05”).

These amendments are effective for fiscal years beginning

after December 15, 2022, including interim periods within those fiscal years with early application permitted.

The Company is

currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed consolidated

financial statements and related disclosures.

December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,”

which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to

the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

is effective for the Company beginning in fiscal 2021.

The Company is currently assessing the impact that this pronouncement will

have on its condensed consolidated financial statements.

On January 7, 2020, the Company effected

a 1-for-45 reverse stock split of its outstanding common stock.

The condensed consolidated financial statements and accompanying

notes give effect to the stock split as if it occurred at the beginning of the first period presented.

was no change to the previously reported net loss.

Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the

condensed consolidated financial statements to determine if any of those events and/or transactions requires adjustment to or

disclosure in the condensed consolidated financial statements.

4 - Locality Acquisition

May 21, 2019, the Company, through its wholly owned subsidiary, Inpixon Canada as purchaser, completed its acquisition of Locality

in which Locality’s stockholders sold all of their shares to the purchaser in exchange for consideration of (i) $1,500,000

(the “Aggregate Cash Consideration”) minus a working capital adjustment equal to $39,501 calculated in accordance

with the terms of the purchase agreement), and (ii) 14,445 shares of common stock of Inpixon with a fair market value of $514,000.

Locality is a technology company specializing in wireless device positioning and radio frequency augmentation of video surveillance

The Locality acquisition allows us to accept wireless device positioning from third-party Wi-Fi access points as well

as surveillance systems and combine that information with our own location data into our analytics platform providing our customers

with additional data and ability to see video and radio frequency data concurrently.

Aggregate Cash Consideration, less the working capital adjustment applied against the Aggregate Cash Consideration of $85,923,

is payable in installments as follows:

(i) the initial installment representing $250,000 minus $46,422 of the working capital

adjustment was paid on the closing date;

(ii) $210,499 was paid on November 21, 2019, which was comprised of a $250,000 installment

less $39,501 of the working capital adjustment;

(iii) two additional installments, each equal to $250,000, will be paid twelve

months and eighteen months after the closing date;

and (iv) one final installment representing $500,000 will be paid on the second

anniversary of the closing date, in each case minus the cash fees payable to the advisor in connection with the acquisition.

Canada will have the right to offset any loss, as defined in the purchase agreement, first, against any installment of the installment

cash consideration that has not been paid and second, against the sellers and the advisor on a several basis, in accordance with

the indemnification provisions of the purchase agreement.

total recorded purchase price for the transaction was approximately $1,928,000, which consisted of cash at closing of $204,000,

approximately $1,210,000 of cash that will be paid in installments as discussed above and $514,000 representing the value of the

stock issued upon closing.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

4 - Locality Acquisition (continued)

purchase price was allocated and modified for measurement period adjustments due to the receipt of the final valuation report

and updated tax provision estimates as follows (in thousands):

Preliminary Allocation

Valuation Measurement Period Adjustments

Tax Provision Measurement Period Adjustments

Adjusted Allocation

Assets Acquired:

10 unchanged sentences

Total Purchase Price

Proforma information has not been presented

as it has been deemed to be immaterial.

Note 5 - GTX Acquisition

On June 27, 2019, Inpixon completed its

acquisition of certain assets of GTX, consisting of a portfolio of GPS technologies and intellectual property (the “Assets”).

The Assets were acquired for aggregate

consideration consisting of (i) $250,000 in cash delivered at the closing and (ii) 1,000,000 shares of Inpixon’s restricted

common stock of which 100,000 shares of common stock are subject to certain holdback restrictions and forfeiture for the purpose

of satisfying indemnification claims.

The total recorded purchase price for

the transaction was $900,000, which consisted of the cash paid of $250,000 and $650,000 representing the value of the stock issued

upon closing.

Assets acquired (in thousands):

value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data

provided by management of the Company.

The deferred revenue included in the financial statements is the expected liability to

service the projects.

The goodwill represents the excess fair value after the allocation to the intangibles.

The calculated goodwill

is not deductible for tax purposes.

The financial data of Locality is included in the Company’s financial statements starting

on the acquisition date through the three months ended March 31, 2020.

Proforma information has not been presented as it has been

deemed to be immaterial.

5 - GTX Acquisition

On June 27, 2019, the Company completed

its acquisition of certain assets of GTX, consisting of a portfolio of GPS technologies and intellectual property (the “Assets”)

that allow us to provide positioning and positioning solutions for assets and devices homogenously from the indoors to the outdoors.

Prior to this asset acquisition, the Company was only providing indoor location.

Assets were acquired for aggregate consideration consisting of (i) $250,000 in cash delivered at the closing and (ii) 22,223 shares

of Inpixon’s restricted common stock.

total recorded purchase price for the transaction was $900,000, which consisted of the cash paid of $250,000 and $650,000 representing

the value of the stock issued upon closing.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

5 - GTX Acquisition (continued)

The purchase price was allocated based

on the receipt of a final valuation report as follows (in thousands):

Developed technology

1 unchanged sentence

Total Purchase Price

A final valuation of the assets and purchase price allocation of GTX has not been completed as of the

end of this reporting period.

Consequently, the purchase price was preliminarily allocated based upon our best estimates at the

time of this filing.

These amounts are subject to revision upon the completion of formal studies and valuations, as needed, which

the Company expects to occur during the fourth quarter of 2019.

On September 16, 2019, the Company loaned

The note accrues interest at a rate of 5% per annum and has a maturity date of April 13, 2020.

Interest accrues beginning

on the date that is the earlier of (i) 180 days from the issue date of the note and (ii) the registration effective date as defined

in the acquisition agreement.

This note is included as part of other receivables in the Company’s condensed consolidated

financial statements.

As of September 30, 2019, the balance of the note was $50,000.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 6 - Jibestream Acquisition

On August 15, 2019, Inpixon, through its

wholly owned subsidiary, Inpixon Canada as purchaser (the “Purchaser”), completed its acquisition of Jibestream for

consideration consisting of:

(i) CAD $5,000,000, plus an amount equal to all cash and cash equivalents held by Jibestream at the

closing, minus, if a negative number, the absolute value of the Estimated Working Capital Adjustment (as defined in the acquisition

agreement), minus any amounts loaned by the Purchaser to Jibestream to settle any Indebtedness (as defined in the Purchase Agreement)

or other fees, minus any cash payments to the holders of outstanding options to settle any in-the-money options, minus the deferred

revenue costs of CAD $150,000, and minus the costs associated with the audit and review of the financial statements of Jibestream

required by the Purchase Agreement (collectively, the “Estimated Cash Closing Amount”);

plus (ii) a number of shares

of the Company’s common stock equal to CAD $3,000,000, which will be converted to U.S.

dollars based on the exchange rate

at the time of the closing, divided by $0.2775 which is the price per share at which shares of the Company’s common stock

are issued in of the Company’s common stock the Offering on August 12, 2019 (“Inpixon Shares”).

The Nasdaq listing rules require the Company

to obtain the approval of the Company’s stockholders for the issuance of 2,864,000 of the Inpixon Shares (the “Excess

Shares”), which was obtained on October 31, 2019.

A number of Inpixon Shares representing fifteen percent (15%) of the value

of the Purchase Price (the “Holdback Amount”) will be subject to stop transfer restrictions and forfeiture to secure

the indemnification and other obligations of the Vendors in favor of the Company arising out of or pursuant to Article VIII of

the Purchase Agreement and, at the option of the Company, to secure the obligation of the Vendors’

to pay any adjustment

to the Purchase Price pursuant to Section 2.5 of the Purchase Agreement.

The Company has accrued an acquisition liability for the

Excess Shares of approximately $490.000 which is included in the current liabilities section of the condensed consolidated balance

The total recorded purchase price for the

transaction was approximately $5,062,000, which consisted of cash at closing of approximately $3,714,000 and $1,348,000 representing

the value of the stock issued upon closing determined based on the closing price of the Company’s common stock as of the

closing date on August 15, 2019.

The purchase price is subject to adjustment for the Working Capital Adjustment as defined above.

The preliminary purchase price is allocated

On September 16, 2019, the Company

loaned GTX $50,000 in accordance with the terms of the asset purchase agreement.

The note began to accrue interest at a rate

of 5% per annum beginning on November 1, 2019.

The note was amended on May 11, 2020 to extend the maturity date from April

13, 2020 to September 13, 2020 and require monthly payments against the outstanding balance of the note.

included as part of other receivables in the Company’s condensed consolidated financial statements.

As of March 31,

2020, the balance of the note including interest was $51,067.

Proforma information has not been presented as it has been

deemed to be immaterial.

6 - Jibestream Acquisition

On August 15, 2019, the Company, through

its wholly owned subsidiary, Inpixon Canada as purchaser (the “Purchaser”), completed its acquisition of Jibestream,

a provider of indoor mapping and location technology, for consideration consisting of:

(i) CAD $5,000,000, plus an amount equal

to all cash and cash equivalents held by Jibestream at the closing, minus, if a negative number, the absolute value of the Estimated

Working Capital Adjustment (as defined in the acquisition agreement), minus any amounts loaned by the Purchaser to Jibestream to

settle any Indebtedness (as defined in the applicable purchase agreement (the “Purchase Agreement”)) or other fees,

minus any cash payments to the holders of outstanding options to settle any in-the-money options, minus the deferred revenue costs

of CAD $150,000, and minus the costs associated with the audit and review of the financial statements of Jibestream required by

the Purchase Agreement (collectively, the “Estimated Cash Closing Amount”);

plus (ii) 176,289 shares of the Company’s

common stock which was equal to CAD $3,000,000, converted to U.S.

dollars based on the exchange rate at the time of the closing,

divided by $12.4875 which was the price per share at which shares of the Company’s common stock were issued in the Company’s

common stock offering on August 12, 2019 (“Inpixon Shares”).

provides a dynamic interactive map that allows customers to put their digitized map into their mobile app or provide the map on

a kiosk or other interface.

Using the Jibestream map allows Inpixon to offer a more intuitive interface to see its locationing

data and analytics.

Nasdaq listing rules required the Company to obtain the approval of the Company’s stockholders for the issuance of 63,645

of the Inpixon Shares (the “Excess Shares”), which was obtained on October 31, 2019 and the shares were issued on

November 5, 2019.

A number of Inpixon Shares representing fifteen percent (15%) of the value of the Purchase Price (the “Holdback

Amount”) were subject to stop transfer restrictions and forfeiture to secure the indemnification and other obligations of

the Vendors in favor of the Company arising out of or pursuant to Article VIII of the Purchase Agreement and, at the option of

the Company, to secure the obligation of the Vendors’

to pay any adjustment to the Purchase Price pursuant to Section 2.5

of the Purchase Agreement.

total recorded purchase price for the transaction was approximately $5,062,000, which consisted of cash at closing of approximately

$3,714,000 and $1,348,000 representing the value of the stock issued upon closing determined based on the closing price of the

Company’s common stock as of the closing date on August 15, 2019.

Subsequently, the Company agreed not to enforce any right

of setoff resulting from a Working Capital Adjustment.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

6 - Jibestream Acquisition (continued)

preliminary purchase price was allocated and modified for measurement period adjustments due to updated tax provision estimates

as follows (in thousands):

Preliminary Allocation

Tax Provision Measurement Period Adjustments

Adjusted Allocation

Assets Acquired:

11 unchanged sentences

Total Purchase Price

A final valuation of the assets and purchase price allocation of Jibestream has not been completed as

of the end of this reporting period.

Consequently, the purchase price was preliminarily allocated based upon our best estimates

The value of the intangibles and goodwill

were calculated by a third party valuation firm based on projections and financial data provided by management of the Company.

The deferred revenue included in the condensed consolidated financial statements is the expected liability to service the projects.

The goodwill represents the excess fair value after the allocation to the intangibles.

The calculated goodwill is not deductible

for tax purposes.

As part of the acquisition, the Company acquired a lease obligation with an operating lease right of use asset

of approximately $371,000 and an operating lease obligation of approximately $371,000 which are included in other assets and other

liabilities, respectively, in the purchase price allocation.

The financial data of Jibestream is included in the Company’s

financial statements starting on the acquisition date through the three months ended March 31, 2020.

A final valuation of the assets and purchase

price allocation of Jibestream has not been completed as of the end of this reporting period as the third party valuation has

not been finalized.

Consequently, the purchase price was preliminarily allocated based upon the Company’s best estimates

at the time of this filing.

These amounts are subject to revision upon the completion of formal studies and valuations, as needed,

which the Company expects to occur during the fourth quarter of 2019.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 7 - Proforma Financial Information

which the Company expects to occur during the second quarter of 2020.

Jibestream was amalgamated into Inpixon

Canada on January 1, 2020.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

7 - Proforma Financial Information

The following unaudited proforma financial

information presents the consolidated results of operations of the Company and Jibestream for the three and nine months ended

September 30, 2019 and 2018, as if the acquisition had occurred as of the beginning of the first period presented instead of

on August 15, 2019.

The proforma information does not necessarily reflect the results of operations that would have occurred had

the entities been a single company during those periods.

information presents the condensed consolidated results of operations of the Company and Jibestream for the three months ended

March 31, 2019, as if the acquisition had occurred as of the beginning of the first period presented instead of on August 15, 2019.

The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been

a single company during those periods.

(in thousands, except per share data)

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

For the Three

Net loss attributable to common stockholders

2 unchanged sentences

Basic and Diluted

Note 8 - Inventory

Inventory as of September 30, 2019 and

December 31, 2018 consisted of the following (in thousands):

September 30,

8 - Inventory

as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

Raw materials

1 unchanged sentence

Total Inventory

Note 9 - Debt

Debt as of September 30, 2019 and December 31, 2018 consisted

of the following (in thousands):

September 30,

as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

Short-Term Debt

1 unchanged sentence

Revolving line of credit (B)

Other short-term debt (C)

Total Short-Term Debt

Long-Term Debt

Notes payable

Total Long-Term Debt

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 9 - Debt (continued)

Notes Payable

On January 29, 2019, the Company and Chicago

Venture Partners, L.P., the holder of that certain outstanding convertible promissory note ( “Chicago Venture”

“Note Holder”), issued on November 17, 2017 (as amended, supplemented or otherwise modified, the “Original Note”),

with an outstanding balance of $383,768 (the “Remaining Balance”), entered into an exchange agreement (the “Exchange

Agreement”), pursuant to which the Company and the Note Holder agreed to (i) partition a new convertible promissory note

in the form of the Original Note (the “Partitioned Note”) in the original principal amount equal to the Remaining Balance

(the “Exchange Amount”) and then cause the Remaining Balance to be reduced by the Exchange Amount;

and (ii) exchange

the Partitioned Note for the delivery of 172,869 shares of the Company’s common stock at an effective price share equal to

Following such partition of the Original Note, the Original Note was deemed paid in full, was automatically deemed canceled,

and shall not be reissued.

October 2018 Note Purchase Agreement

and Promissory Note

On October 12, 2018, the Company entered

into a note purchase agreement with Iliad Research and Trading, L.P.

(the “Holder”

or “Iliad”), which is

affiliated with Chicago Venture, pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2018 Note Purchase Agreement and Promissory Note

On December 21, 2018, the Company entered into a note purchase

agreement with Iliad Research and Trading, L.P.

(“Iliad”

or the “Holder”), pursuant to which the Company

agreed to issue and sell to Iliad an unsecured promissory note (the “December 2018 Note”) in an aggregate principal

amount of $1,895,000, which is payable on or before December 31, 2019 (as provided in the Exchange Agreement, dated October 24,

2019, described below (the “October 24 th Exchange Agreement”)).

The initial principal amount includes an

original issue discount of $375,000 and $20,000 that the Company agreed to pay to the Holder to cover its legal fees, accounting

costs, due diligence, monitoring and other transaction costs.

In exchange for the December 2018 Note, the Holder paid an aggregate

purchase price of $1,500,000.

Interest on the December 2018 Note accrues at a rate of 10% per annum and is payable on the maturity

date or otherwise in accordance with the December 2018 Note.

The Company may pay all or any portion of the amount owed earlier

than it is due;

provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it will

pay 115% of the portion of the outstanding balance the Company elects to prepay.

Beginning on the date that is 6 months from the

issuance date and at the intervals indicated below until the December 2018 Note is paid in full, the Holder has the right to redeem

up to an aggregate of 1/3 of the initial principal balance of the December 2018 Note each month (each monthly exercise, a “Monthly

Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”) delivered to the Company;

provided, however, that if any Monthly Redemption Amount is not exercised in its corresponding month then such Monthly Redemption

Amount will be available for the Holder to redeem in any future month in addition to such future month’s Monthly Redemption

Upon receipt of any Monthly Redemption Notice, the Company shall pay the applicable Monthly Redemption Amount in cash within

5 business days of the Company’s receipt of such Monthly Redemption Notice.

Pursuant to the October 24 th Exchange

Agreement described below, the Holder agreed that the exercise of any redemption rights described above would be deferred until

no earlier than December 31, 2019.

to Note Purchase Agreements

February 8, 2019, the Company entered into a global amendment (the “Global Amendment”) to the note purchase agreements

entered into on October 12, 2018 and December 21, 2018, in connection with the notes issued as of such dates, to delete the phrase

“by cancellation or exchange of the Note, in whole or in part”

from Section 8.1 of those agreements.

The Company also

agreed to pay Iliad’s fees and other expenses in an aggregate amount of $80,000 (the “Fee”) in connection with

the preparation of the Global Amendment by adding $40,000 of the Fee to the outstanding balance of each of the notes.

August 8, 2019, the Company and Iliad entered into a standstill agreement with respect to the December 2018 Note (the “Standstill

Agreement”).

Pursuant to the Standstill Agreement, Iliad agreed that it will not redeem all or any portion of the December

2018 Note for a period beginning on August 8, 2019, and ending on the date that is 90 days from August 8, 2019.

As consideration

for this, the outstanding balance of the December 2018 Note was increased by $206,149.

The Company and

Iliad entered into an amendment to the December 2018 Note pursuant to which the maturity date of the note was further extended

from December 31, 2019 to March 31, 2020.

In addition, Iliad agreed to further extend the standstill previously agreed to pursuant

to the terms of that certain Standstill Agreement, dated as of August 8, 2019, whereby Iliad will not be entitled to redeem all

or any portion of the principal amount of the Note until March 31, 2020.

From October 15, 2019 through March 31,

2020, the Company exchanged approximately $2,112,000 of the outstanding principal and interest under the December 2018 Note for

707,078 shares of the Company’s common stock at exchange prices between $1.80 and $4.95 per share.

As of March 31, 2020,

the outstanding principal balance of the December 2018 Note was approximately $28,749.

On April 1, 2020, the Company exchanged

approximately $223,146 of the remaining outstanding principal and interest under the December 2018 Note for 187,517 shares of the

Company’s common stock at an exchange price of $1.19 per share.

After this exchange the balance owed under the December 2018

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2019 Note Purchase Agreement and Promissory Note

On May 3, 2019, the Company entered into

a note purchase agreement (the “Purchase Agreement”) with Chicago Venture Partners, L.P.

(“Chicago Venture”),

an affiliate of Iliad, pursuant to which the Company agreed to issue and sell to the investor an unsecured promissory note (the

“May 2019 Note”) in an aggregate principal amount of $3,770,000, which is payable on or before the date that is 10

months from the issuance date.

The initial principal amount includes an original issue discount of $750,000 and $20,000 that the

Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other

transaction costs.

In exchange for the May 2019 Note, the holder paid an aggregate purchase price of $3,000,000.

Interest on the

May 2019 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the May 2019

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in the event the Company

elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the outstanding

balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated

below until the May 2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial

principal balance of the May 2019 Note each month (each monthly exercise, a “Monthly Redemption Amount”) by providing

written notice (each, a “Monthly Redemption Notice”) delivered to the Company;

provided, however, that if the holder

does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption Amount shall be available

for the holder to redeem in any future month in addition to such future month’s Monthly Redemption Amount.

Upon receipt of

any Monthly Redemption Notice, the Company shall pay the applicable Monthly Redemption Amount in cash to the holder within five

business days of the Company’s receipt of such Monthly Redemption Notice.

the year ended December 31, 2019, the Company exchanged approximately $2,076,000 of the outstanding principal and interest under

the note for 738,891 shares of the Company’s common stock at exchange prices between $1.80 and $3.51 per share.

analyzed the exchange of principal under the note as an extinguishment and compared the net carrying value of the debt being extinguished

to the reacquisition price (shares of common stock being issued) and recorded an approximately $96,000 loss on the exchange of

debt for equity as a separate item in the other income/expense section of the consolidated statements of operations for the year

ended December 31, 2019.

During the three months ended March 31,

2020, the Company exchanged approximately $1,958,000 of the outstanding principal and interest under the May 2019 Note for 524,140

shares of the Company’s common stock at exchange prices between $3.65 and $4.05 per share.

The Company analyzed the exchange

of principal under the May 2019 Note as an extinguishment and compared the net carrying value of the debt being extinguished to

the reacquisition price (shares of common stock being issued) and recorded an approximately $53,000 loss on the exchange of debt

for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations for the

three months ended March 31, 2020.

of March 31, 2020, the outstanding balance of the May 2019 Note was $0.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2019 Note Purchase Agreement and Promissory Note

June 27, 2019, the Company entered into a note purchase agreement (the “Purchase Agreement”) with Chicago Venture,

pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “June 2019 Note”)

in an aggregate principal amount of $1,895,000, which is payable on or before the date that is 9 months from the issuance date.

1 unchanged sentence

holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.

for the note, the Holder paid an aggregate purchase price of $2,000,000.

Interest on the note accrues at a rate of 10% per annum

and is payable on the maturity date or otherwise in accordance with the note.

Beginning as of the date that was 6 months from the

issuance date and at the intervals indicated below until the note is paid in full, the Holder has the right to redeem up to an

aggregate of 1/3 of the initial principal balance of the note each month (each monthly exercise, a “Monthly Redemption Amount”)

by providing written notice (each, a “Monthly Redemption Notice”) to the Company;

provided, however, that if the Monthly

Redemption Amount is not exercised in its corresponding month then such Monthly Redemption Amount will be available for the Holder

to redeem in any future month in addition to such future month’s Monthly Redemption Amount.

Upon receipt of any Monthly Redemption

Notice, the Company is required to pay the applicable Monthly Redemption Amount in cash to the Holder within 5 business days of

the Company’s receipt of such Monthly Redemption Notice.

During the nine months ended September

30, 2019, the Company exchanged $2,730,000 of the outstanding principal and interest under the note for 4,177,379 shares of the

Company’s common stock at exchange prices between $0.51 and $0.8989 per share.

The Company analyzed the exchange of principal

under the note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price

(shares of common stock being issued) and recorded a $188,000 loss on the exchange of debt for equity as a separate item in the

other income/expense section of the condensed consolidated statements of operations for the three and nine months ended September

These exchanges satisfied the liability in full and the balance owed under the note was $0 as of September 30, 2019.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 9 - Debt (continued)

Notes Payable (continued)

December 2018 Note Purchase Agreement

and Promissory Note

On December 21, 2018, the Company entered

into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to Iliad an unsecured promissory

note (the “December 2018 Note”) in an aggregate principal amount of $1,895,000, which is payable on or before December

31, 2019 (as provided in the Exchange Agreement, dated October 24, 2019, described below (the “October 24 th Exchange

Agreement”)).

The initial principal amount includes an original issue discount of $375,000 and $20,000 that the Company agreed

to pay to the Holder to cover its legal fees, accounting costs, due diligence, monitoring and other transaction costs.

for the December 2018 Note, the Holder paid an aggregate purchase price of $1,500,000.

Interest on the Note accrues at a rate of

10% per annum and is payable on the maturity date or otherwise in accordance with the December 2018 Note.

The Company may pay all

or any portion of the amount owed earlier than it is due;

provided, that in the event the Company elects to prepay all or any portion

of the outstanding balance, it will pay 115% of the portion of the outstanding balance the Company elects to prepay.

on the date that is 6 months from the issuance date and at the intervals indicated below until the December 2018 Note is paid in

full, the Holder has the right to redeem up to an aggregate of 1/3 of the initial principal balance of the December 2018 Note each

month (each monthly exercise, a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption

Notice”) delivered to the Company;

provided, however, that if any Monthly Redemption Amount is not exercised in its corresponding

month then such Monthly Redemption Amount will be available for the Holder to redeem in any future month in addition to such future

month’s Monthly Redemption Amount.

Upon receipt of any Monthly Redemption Notice, the Company shall pay the applicable Monthly

Redemption Amount in cash within 5 business days of the Company’s receipt of such Monthly Redemption Notice.

the October 24 th Exchange Agreement described below, the Holder agreed that the exercise of any redemption rights described

above would be deferred until no earlier than December 31, 2019.

Amendment to Note Purchase Agreements

On February 8,

2019, the Company entered into a global amendment (the “Global Amendment”) to the note purchase agreements entered

into on October 12, 2018 and December 21, 2018, in connection with the notes issued as of such dates, to delete the phrase “by

cancellation or exchange of the Note, in whole or in part”

from Section 8.1 of those agreements.

The Company also agreed

to pay Iliad’s fees and other expenses in an aggregate amount of $80,000 (the “Fee”) in connection with the preparation

of the Global Amendment by adding $40,000 of the Fee to the outstanding balance of each of the notes.

On August 8, 2019,

the Company and Iliad entered into a standstill agreement with respect to the December 2018 Note (the “Standstill Agreement”).

Pursuant to the Standstill Agreement, Iliad agreed that it will not redeem all or any portion of the December 2018 Note for a period

beginning on August 8, 2019, and ending on the date that is 90 days from August 8, 2019.

As consideration for this, the outstanding

balance of the December 2018 Note was increased by $206,149.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 9 - Debt (continued)

Notes Payable (continued)

May 2019 Note Purchase Agreement

and Promissory Note

On May 3, 2019, the Company entered into

a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed to

issue and sell to the investor an unsecured promissory note (the “May 2019 Note”) in an aggregate principal amount

of $3,770,000, which is payable on or before the date that is 10 months from the issuance date.

The initial principal amount includes

an original issue discount of $750,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal

fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the May 2019 Note, the holder paid

an aggregate purchase price of $3,000,000.

Interest on the May 2019 Note accrues at a rate of 10% per annum and is payable on the

maturity date or otherwise in accordance with the May 2019 Note.

The Company may pay all or any portion of the amount owed earlier

than it is due;

provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall

pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay.

Beginning on the date that is 6

months from the issuance date and at the intervals indicated below until the May 2019 Note is paid in full, the holder shall have

the right to redeem up to an aggregate of 1/3 of the initial principal balance of the May 2019 Note each month (each monthly exercise,

a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”) delivered

to the Company;

provided, however, that if the holder does not exercise any Monthly Redemption Amount in its corresponding month

then such Monthly Redemption Amount shall be available for the holder to redeem in any future month in addition to such future

month’s Monthly Redemption Amount.

Upon receipt of any Monthly Redemption Notice, the Company shall pay the applicable Monthly

Redemption Amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption Notice.

June 2019 Note Purchase Agreement

and Promissory Note

On June 27, 2019, the Company entered into

a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed to

issue and sell to the holder an unsecured promissory note (the “June 2019 Note”) in an aggregate principal amount of

$1,895,000, which is payable on or before the date that is 9 months from the issuance date.

The initial principal amount includes

an original issue discount of $375,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal

fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the June 2019 Note, the holder paid

an aggregate purchase price of $1,500,000.

Interest on the June 2019 Note accrues at a rate of 10% per annum and is payable on

the maturity date or otherwise in accordance with the June 2019 Note.

The Company may pay all or any portion of the amount owed

earlier than it is due;

provided, that in the event the Company elects to prepay all or any portion of the outstanding balance,

it shall pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay.

Beginning on the date that

is 6 months from the issuance date and at the intervals indicated below until the June 2019 Note is paid in full, the holder shall

have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the June 2019 Note each month by providing

written notice delivered to the Company;

provided, however, that if the holder does not exercise any monthly redemption amount

in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month

in addition to such future month’s monthly redemption amount.

Upon receipt of any monthly redemption notice, the Company

shall pay the applicable monthly redemption amount in cash to the holder within five business days.

The June 2019 Note includes

customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%.

occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related

Event of Default”)), the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other

amounts due under the June 2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of

the June 2019 Note (the “Mandatory Default Amount”).

Upon the occurrence of a Bankruptcy-Related Event of Default,

without notice, all unpaid principal, plus all accrued interest and other amounts due under the June 2019 Note will become immediately

due and payable at the Mandatory Default Amount.

Pursuant to the terms of the Purchase Agreement, if at any time while the

June 2019 Note is outstanding, the Company will immediately following the completion of any offering of its equity securities make

a cash payment to the holder in the following amount:

(a) twenty-five percent (25%) of the outstanding balance of the June 2019

Note if the Company receives net proceeds equal to $2,500,000.00 or less;

(b) fifty percent (50%) of the outstanding balance of

the June 2019 Note if the Company receives net proceeds of more than $2,500,000.00 but less than $5,000,000.00;

and (c) one hundred

percent (100%) of the outstanding balance of the June 2019 Note if the Company receives net proceeds equal to $5,000,000.00 or

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 9 - Debt (continued)

Notes Payable (continued)

Effective as of

August 12, 2019, the Company and Chicago Venture entered into an amendment agreement, dated as of August 14, 2019, to provide that

the Company’s obligation to repay all or a portion of the outstanding balance of the June 2019 Note upon the completion of

any offering of equity securities of the Company would not apply or be effective until December 27, 2019.

As consideration for

the amendment, a fee of $191,883 was added to the outstanding balance of the June 2019 Note.

August 2019 Note Purchase Agreement

and Promissory Note

for the June 2019 Note, the holder paid an aggregate purchase price of $1,500,000.

Interest on the June 2019 Note accrues at a

rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the June 2019 Note.

The Company may

pay all or any portion of the amount owed earlier than it is due;

provided, that in the event the Company elects to prepay all

or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the outstanding balance the Company

elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the

June 2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance

of the June 2019 Note each month by providing written notice delivered to the Company;

provided, however, that if the holder does

not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for

the holder to redeem in any future month in addition to such future month’s monthly redemption amount.

Upon receipt of any

monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business

The June 2019 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default

interest rate of 22%.

Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency

proceedings (the “Bankruptcy-Related Event of Default”)), the holder may, by written notice, declare all unpaid principal,

plus all accrued interest and other amounts due under the June 2019 Note to be immediately due and payable at an amount equal

to 115% of the outstanding balance of the June 2019 Note (the “Mandatory Default Amount”).

Upon the occurrence of

a Bankruptcy-Related Event of Default, without notice, all unpaid principal, plus all accrued interest and other amounts due under

the June 2019 Note will become immediately due and payable at the Mandatory Default Amount.

Pursuant to the terms of the

Purchase Agreement, if the Company consummates an offering of its equity securities, the Company is required to make a cash payment

to the holder in the following amount:

(a) twenty-five percent (25%) of the outstanding balance of the June 2019 Note if the Company

receives net proceeds equal to $2,500,000.00 or less;

(b) fifty percent (50%) of the outstanding balance of the June 2019 Note

if the Company receives net proceeds of more than $2,500,000.00 but less than $5,000,000.00;

and (c) one hundred percent (100%)

of the outstanding balance of the June 2019 Note if the Company receives net proceeds equal to $5,000,000.00 or more.

as of August 12, 2019, the Company and Chicago Venture entered into an amendment agreement, dated as of August 14, 2019, to provide

that the Company’s obligation to repay all or a portion of the outstanding balance of the June 2019 Note upon the completion

of any offering of equity securities of the Company would not apply or be effective until December 27, 2019.

As consideration

for the amendment, a fee of $191,883 was added to the outstanding balance of the June 2019 Note.

During the three months ended March 31,

2020, the Company exchanged approximately $2,236,000 of the outstanding principal and interest under the June 2019 Note for 1,372,417

shares of the Company’s common stock at exchange prices between $1.12 and $3.05 per share.

The Company analyzed the exchange

of principal under the June 2019 Note as an extinguishment and compared the net carrying value of the debt being extinguished to

the reacquisition price (shares of common stock being issued) and recorded an approximately $33,000 loss on the exchange of debt

for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations for the

three months ended March 31, 2020.

of March 31, 2020, the outstanding balance of the June 2019 Note was $0.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2019 Note Purchase Agreement and Promissory Note

On August 8, 2019, the Company entered

30 unchanged sentences

at the Mandatory Default Amount.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 9 - Debt (continued)

Notes Payable (continued)

As of March 31, 2020, the outstanding principal balance of the August 2019 Note was approximately

September 2019 Note Purchase Agreement

2 unchanged sentences

into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory

note (the “September 2019 Note”) in an aggregate principal amount of $952,500.00, which is payable on or before the

date that is 9 months from the issuance date.

note (the “September 2019 Note”) in an aggregate principal amount of $952,500, which is payable on or before the date

that is 9 months from the issuance date.

The initial principal amount includes an original issue discount of $187,500 and $15,000

1 unchanged sentence

and other transaction costs.

In exchange for the Note, the Holder paid an aggregate purchase price of $750,000.00.

the Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the September 2019

In exchange for the September 2019 Note, the holder paid an aggregate purchase price of $750,000.

Interest on the Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the

September 2019 Note.

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in the event the Company

elects to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding

balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated

below until the September 2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the

initial principal balance of the September 2019 Note each month by providing written notice to the Company;

provided, however,

that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount

shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption amount.

Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder

within five business days of the Company’s receipt of such monthly redemption notice.

The September 2019 Note includes customary

event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%.

Upon the occurrence

of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related

Event of Default”)), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other

amounts due under the September 2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance

of the Note (the “Mandatory Default Amount”).

Upon the occurrence of a Bankruptcy-Related Event of Default, without

notice, all unpaid principal, plus all accrued interest and other amounts due under the Note will become immediately due and payable

provided, that in the event

the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the

outstanding balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals

indicated below until the September 2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate of

1/3 of the initial principal balance of the September 2019 Note each month by providing written notice to the Company;

however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption

amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption

Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to

the holder within five business days of the Company’s receipt of such monthly redemption notice.

The September 2019 Note

includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2019 Note Purchase Agreement and Promissory Note (continued)

Upon the occurrence of an event of default

(except a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related Event of Default”)),

the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the September

2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the September 2019 Note (the

“Mandatory Default Amount”).

Upon the occurrence of a Bankruptcy-Related Event of Default, without notice, all unpaid

principal, plus all accrued interest and other amounts due under the September 2019 Note will become immediately due and payable

at the Mandatory Default Amount.

Under the terms of the September 2019 Note, since it was still outstanding on December 17, 2019,

a one-time monitoring fee equal to ten percent (10%) of the then outstanding balance, or $97,661, was added to the September 2019

As of March 31, 2020, the outstanding principal balance of the September 2019 Note was approximately $1,050,161.

November 2019 Note Purchase Agreement

and Promissory Note

On November 22, 2019, the Company issued

a promissory note to St.

George Investments LLC (“St.

George”), an affiliate of Iliad and Chicago Venture, pursuant

to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “November 2019 Note”)

in the initial principal amount of $952,500, which is payable on or before the date that is 6 months from the issuance date, subject

to extension in accordance with the terms of the November 2019 Note.

The initial principal amount includes an original issue discount

of $187,500 and $15,000 that the Company agreed to pay to St.

George to cover its legal fees, accounting costs, due diligence,

monitoring and other transaction costs.

In exchange for the November 2019 Note, St.

George paid an aggregate purchase price of

Interest on the November 2019 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise

in accordance with the note.

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in

the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion

of the outstanding balance the Company elects to prepay.

The November 2019 Note includes customary event of default provisions,

subject to certain cure periods, and provides for a default interest rate of 22%.

Upon the occurrence of an event of default (except

a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related Event of Default”)),

the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the November

2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the Note (the “Mandatory

Default Amount”).

Upon the occurrence of a Bankruptcy-Related Event of Default, without notice, all unpaid principal, plus

all accrued interest and other amounts due under the Note will become immediately due and payable at the Mandatory Default Amount.

Under the terms of the November 2019 Note, since it was still outstanding on February 22, 2020, a one-time monitoring fee equal

to ten percent (10%) of the then-current outstanding balance, or approximately $97,688, was added to the note.

As of March 31,

2020, the outstanding balance of the November 2019 Note was approximately $1,050,188.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

2020 Note Purchase Agreement and Promissory Note

On March 18, 2020, the Company entered

into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory

note (the “March 2020 Note”) in an aggregate initial principal amount of $6,465,000, which is payable on or before

the date that is 12 months from the issuance date.

The initial principal amount includes an original issue discount of $1,450,000

and $15,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence,

monitoring and other transaction costs.

In exchange for the March 2020 Note, the holder paid an aggregate purchase price of $5,000,000.

on the March 2020 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the

March 2020 Note.

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in the event

the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the

outstanding balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals

indicated below until the March 2020 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3

of the initial principal balance of the March 2020 Note each month by providing written notice delivered to the Company;

however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption

amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption

Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to

the holder within five business days of the Company’s receipt of such Monthly Redemption Notice.

The March 2020 Note includes

customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%.

occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings, the holder may,

by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 Note to be

immediately due and payable.

Upon the occurrence of a bankruptcy-related event of default, without notice, all unpaid principal,

plus all accrued interest and other amounts due under the March 2020 Note will become immediately due and payable at the mandatory

default amount.

If the March 2020 Note is still outstanding on the date that is six (6) months from the issuance date, then a one-time

monitoring fee equal to ten percent (10%) of the then-current outstanding balance shall be added to the March 2020 Note.

March 31, 2020, the outstanding principal balance of the March 2020 Note was approximately $6,465,000.

Line of Credit

In accordance with the Payplant Loan and

Security Agreement, dated as of August 14, 2017 (the “Loan Agreement”), the Loan Agreement allows the Company to request

loans from the Lender (in the manner provided therein) with a term of no greater than 360 days in amounts that are equivalent

to 80% of the face value of purchase orders received.

The Lender is not obligated to make the requested loan, however, if the

Lender agrees to make the requested loan, before the loan is made, the Company must provide Lender with (i) one or more promissory

notes for the amount being loaned in favor of Lender, (ii) one or more guaranties executed in favor of Lender and (iii) other

documents and evidence of the completion of such other matters as Lender may request.

The principal amount of each loan shall

accrue interest at a 30 day rate of 2% (the “Interest Rate”), calculated per day on the basis of a year of 360 days

and, when combined with all fees that may be characterized as interest will not exceed the maximum rate allowed by law.

occurrence and during the continuance of any event of default, interest shall accrue at a rate equal to the Interest Rate plus

0.42% per 30 days.

All computations of interest shall be made on the basis of a year of 360 days.

The promissory note is subject

to the interest rates described in the Loan Agreement and is secured by the assets of the Company pursuant to the Loan Agreement

and will be satisfied in accordance with the terms of the Payplant Client Agreement.

On August 31, 2018, Inpixon, Sysorex,

SGS, and Payplant executed Amendment 1 to Payplant Client Agreement (the “Amendment”).

Pursuant to the Amendment,

Sysorex and SGS are no longer parties to the Payplant Client Agreement, originally entered into on August 14, 2017, and have been

released from any and all obligations and liabilities arising under the Payplant Client Agreement, whether such obligations and

liabilities were in existence prior to or on the date of the Amendment or arise after the date of the Amendment.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 10 - Capital Raises

January 2019 Capital Raise

On January 15,

2019, the Company closed a rights offering whereby it sold an aggregate of 12,000 units consisting of an aggregate of 12,000

shares of Series 5 Convertible Preferred Stock and 3,600,000 warrants to purchase common stock exercisable for one share

of common stock at an exercise price of $3.33 per share in accordance with the terms and conditions of a warrant agency agreement,

resulting in gross proceeds to the Company of approximately $12 million, and net proceeds of approximately

$10.77 million after deducting expenses relating to dealer-manager fees and expenses, and excluding any proceeds

received upon exercise of any warrants.

Following the rights offering, the conversion

price of the Series 4 Convertible Preferred Stock was reduced to the floor price of $4.96, the exercise price of the warrants

issued in the April 2018 public offering were also reduced to the floor price of $4.96 and the number of shares issuable upon

exercise of such warrants was increased to 2,769,000 shares of common stock.

The maximum deemed dividend under the Series 4 Convertible

Preferred Stock has been recognized so there is no accounting effect from the conversion price reduction of the Series 4 Convertible

Preferred Stock.

However, the Company recorded a $1.3 million deemed dividend for the reduction to the exercise price of the April

2018 warrants.

August 2019 Financing

On August 12, 2019, the Company sold an aggregate of (i) 6,497,410 shares of our common stock, (ii) 2,997

shares of our Series 6 Convertible Preferred Stock, with a stated value $1,000 per share, convertible into shares of our common

stock (the “Series 6 Preferred Stock”), and (iii) Series A warrants to purchase up to an aggregate of 17,297,410 shares

of common stock at an exercise price per share of $0.2775, resulting in gross proceeds to the Company of approximately $4.8 million,

and net proceeds of approximately $4 million after deducting the underwriting discounts and offering expenses.

Note 11 - Common Stock

On January 29, 2019, the Company issued

172,869 shares of common stock under an exchange agreement to settle the outstanding balance of $383,768 under a partitioned note.

On February 20, 2019, the Company issued

749,440 shares of common stock under a settlement agreement for an arbitration proceeding (see Note 18).

During the three months ended March 31,

2019, the Company issued 13,761 shares of common stock in connection with the exercise of 13,761 warrants at $3.33 per share.

During the three months ended March 31,

2019, the Company issued 1,248,324 shares of common stock in connection with the exercise of 2,080,539 warrants through cashless

During the three months ended March 31,

2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 3,021,663 shares of the Company’s common

Accounts Receivable Bank Line

accordance with the Payplant Loan and Security Agreement, dated as of August 14, 2017 (the “Loan Agreement”), the

Loan Agreement allows the Company to request loans from the Lender (in the manner provided therein) with a term of no greater

than 360 days in amounts that are equivalent to 80% of the face value of purchase orders received.

The Lender is not obligated

to make the requested loan, however, if the Lender agrees to make the requested loan, before the loan is made, the Company must

provide Lender with (i) one or more promissory notes for the amount being loaned in favor of Lender, (ii) one or more guaranties

executed in favor of Lender and (iii) other documents and evidence of the completion of such other matters as Lender may request.

The principal amount of each loan shall accrue interest at a 30 day rate of 2% (the “Interest Rate”), calculated per

day on the basis of a year of 360 days and, when combined with all fees that may be characterized as interest will not exceed

the maximum rate allowed by law.

Upon the occurrence and during the continuance of any event of default, interest shall accrue

at a rate equal to the Interest Rate plus 0.42% per 30 days.

All computations of interest shall be made on the basis of a year

The promissory note is subject to the interest rates described in the Loan Agreement and is secured by the assets

of the Company pursuant to the Loan Agreement and will be satisfied in accordance with the terms of the Payplant Client Agreement.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

9 - Debt (continued)

Accounts Receivable Bank Line (continued)

On August 31, 2018, Inpixon, Sysorex, Sysorex Government Services,

(“SGS”), and Payplant executed Amendment 1 to Payplant Client Agreement (the “Amendment”).

to the Amendment, Sysorex and SGS are no longer parties to the Payplant Client Agreement, originally entered into on August 14,

2017, and have been released from any and all obligations and liabilities arising under the Payplant Client Agreement, whether

such obligations and liabilities were in existence prior to or on the date of the Amendment or arise after the date of the Amendment.

As of March 31, 2020, the outstanding balance on the revolving line of credit is $0.

Short-Term Debt

of March 31, 2020, the Company owed approximately $75,000 to the pre-acquisition stockholders of Shoom.

Any amounts not subject

to claims shall be released to the pre-acquisition stockholders of Shoom pro-rata on the next anniversary date of the closing

date of the Shoom acquisition, August 31, 2020.

10 - Capital Raises

At-The-Market

On March 3, 2020, the Company entered into

an Equity Distribution Agreement (the “Sales Agreement”) with Maxim Group LLC (“Maxim”) under which the

Company may offer and sell shares of its common stock having an aggregate offering price of up to $50 million (the “Shares”)

from time to time through Maxim, acting exclusively as the Company’s sales agent (the “Offering”).

intends to use the net proceeds of the Offering primarily for working capital and general corporate purposes.

The Company may also

use a portion of the net proceeds to invest in or acquire businesses or technologies that it believes are complementary to its

own, although the Company has no current plans, commitments or agreements with respect to any acquisitions as of the date of this

Maxim will be entitled to compensation at a fixed commission rate of 4.0% of the gross sales price per Share sold.

the Company has agreed to reimburse Maxim for its costs and out-of-pocket expenses incurred in connection with its services, including

the fees and out-of-pocket expenses of its legal counsel.

Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company

will sell any Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell,

or the dates on which any such sales will take place.

The Sales Agreement will continue until the earliest of (i) twelve (12)

months following the date of the Sales Agreement, (ii) the sale of Shares having an aggregate offering price of $50 million, and

(iii) the termination by either the Agent or the Company upon the provision of 15 days written notice or otherwise pursuant to

the terms of the Sales Agreement.

The Company issued 937,010 shares of common

stock during the quarter ended March 31, 2020, in connection with the ATM at per share prices between $1.23 and $2.11, resulting

in net proceeds to the Company of approximately $1.3 million after subtracting sales commissions and other offering expenses.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

11 - Common Stock

January 29, 2019, the Company issued 3,842 shares of common stock under an exchange agreement to settle the outstanding balance

of $383,768 under a partitioned note.

February 20, 2019, the Company issued 16,655 shares of common stock under a settlement agreement for an arbitration proceeding.

the three months ended March 31, 2019, the Company issued 306 shares of common stock in connection with the exercise of 306 warrants

at $149.85 per share.

the three months ended March 31, 2019, the Company issued 27,741 shares of common stock in connection with the exercise of 46,235

warrants through cashless exercises.

the three months ended March 31, 2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 67,149 shares

of the Company’s common stock.

the three months ended March 31, 2019, the Company issued 4,445 shares of common stock for services, which were fully vested upon

The Company recorded an expense of approximately $242,000.

During the three months ended March 31,

2019, the Company issued 200,000 shares of common stock for services which were fully vested upon grant.

The Company recorded

an expense of approximately $242,000.

During the three months ended June 30,

2019, the Company issued 2,773,607 shares of common stock under an exchange agreement to settle the outstanding balance of $2,005,000

under a partitioned note (See Note 9).

During the three months ended June 30,

2019, the Company issued 835,740 shares of common stock in connection with the exercise of 1,392,900 warrants through cashless

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 11 - Common Stock (continued)

During the three months ended June 30,

2019, 1,812 shares of Series 5 Convertible Preferred Stock were converted into 544,145 shares of the Company’s common stock.

On May 21, 2019, the Company issued 650,000

shares of common stock to Locality as part of an acquisition (See Note 4).

On June 27, 2019, the Company issued 1,000,000

shares of common stock to GTX as part of an acquisition (See Note 5).

On August 12, 2019 the Company issued

6,497,410 shares of common stock as part of a public offering (See Note 10).

On August 15, 2019, the Company issued

5,068,969 shares of common stock to security holders of Jibestream as part of an acquisition (See Note 6).

During the three months ended September

30, 2019, the Company issued 1,403,772 shares of common stock under an exchange agreement to settle the outstanding balance of

approximately $725,000 under a partitioned note (See Note 9).

During the three months ended September

30, 2019, the Company issued 13,956,909 shares of common stock in connection with the exercise of 13,956,909 warrants through

cashless exercises.

During the three months ended September

30, 2019, 2,997 shares of Series 6 Convertible Preferred Stock were converted into 10,800,011 shares of the Company’s common

Note 12 - Preferred Stock

The Company is authorized to issue up

to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges and restrictions

as to be determined by the Company’s Board of Directors.

Series 5 Convertible Preferred Stock

On January 14, 2019, the Company filed

with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred

Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations

of the Series 5 Convertible Preferred Stock.

The Series 5 Convertible Preferred Stock is non-voting (except to the extent required

The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common Stock, determined by dividing

the aggregate stated value of the Series 5 Convertible Preferred Stock of $1,000 per share to be converted by $3.33.

On January 15, 2019, the Company closed

a rights offering whereby it sold an aggregate of 12,000 units consisting of an aggregate of 12,000 shares of Series

5 Convertible Preferred Stock and 3,600,000 warrants to purchase common stock exercisable for one share of common stock at an

exercise price of $3.33 per share.

2020, the Company issued 1,896,557 shares of common stock under exchange agreements to settle outstanding balances totalling $4,194,030

under partitioned notes.

During the three months ended March 31,

2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 3,021,663 shares of the Company’s common

During the three months ended June 30,

2019, 1,812 shares of Series 5 Convertible Preferred Stock were converted into 544,145 shares of the Company’s common stock.

As of September 30, 2019, there were 126

shares of Series 5 Convertible Preferred Stock outstanding.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 12 - Preferred Stock (continued)

Series 6 Convertible Preferred Stock

On August 13,

2019, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series 6 Convertible Preferred

Stock (the “Series 6 Preferred Certificate of Designation”) with the Secretary of State of Nevada, establishing the

rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series 6 Convertible Preferred

Stock with a stated value of $1,000 and convertible into a number of shares of the Company’s common stock equal to $1,000

divided by $0.2775.

On August 12, 2019, the Company

closed a public offering whereby it sold an aggregate of 2,997 shares of Series 6 Convertible Preferred Stock, 6,497,410

shares of our common stock and 17,297,410 warrants to purchase common stock exercisable for one share of common stock at an exercise

price of $0.2775 per share.

During the three months ended September

30, 2019, 2,997 shares of Series 6 Convertible Preferred Stock were converted into 10,800,011 shares of the Company’s common

As of September 30, 2019, there were 0

shares of Series 6 Convertible Preferred Stock outstanding.

Note 13 - Stock Options

In September 2011, the Company adopted

the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory

common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors.

2020, the Company issued 937,010 shares of common stock in connection with the ATM at per share prices between $1.23 and $2.11,

resulting in net proceeds to the Company of approximately $1,300,000 after subtracting sales commissions and other offering expenses

(see Note 10).

12 - Preferred Stock

Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences,

privileges and restrictions as to be determined by the Company’s Board of Directors.

4 Convertible Preferred Stock

April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created

the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and

designated the preferences, rights and limitations of the Series 4 Preferred.

The Series 4 Preferred is non-voting (except to

the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate

stated value of the Series 4 Preferred of $1,000 per share to be converted by $828.00 (the “Conversion Price”).

of March 31, 2020, there was 1 share of Series 4 Preferred outstanding.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

12 - Preferred Stock (continued)

5 Convertible Preferred Stock

January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created

the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the

preferences, rights and limitations of the Series 5 Convertible Preferred Stock.

The Series 5 Convertible Preferred Stock is non-voting

(except to the extent required by law).

The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common

Stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $1,000 per share to be

converted by $149.85.

of March 31, 2020, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

13 - Authorized Share Increase and Reverse Stock Split

January 3, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of

the State of Nevada to effect a 1-for-45 reverse stock split of the Company’s issued and outstanding shares of common stock,

effective as of January 7, 2020.

The condensed consolidated financial statements

and accompanying notes give effect to 1-for-45 reverse stock split as if it occurred at the first period presented.

14 - Stock Options

September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the

granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee directors,

consultants and independent contractors.

The plan was amended and restated in May 2014.

Unless terminated sooner by the Board of Directors, this plan will terminate

on August 31, 2021.

In February 2018, the Company adopted

the 2018 Employee Stock Incentive Plan (the “2018 Plan”

and together with the 2011 Plan, the “Option Plans”),

which is utilized with the 2011 Plan for employees, corporate officers, directors, consultants and other key persons employed.

The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including

Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).

Incentive stock options granted under

the Option Plans are granted at exercise prices not less than 100% of the estimated fair market value of the underlying common

stock at date of grant.

The exercise price per share for incentive stock options may not be less than 110% of the estimated fair

value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common

stock of the Company.

Options granted under the Option Plans vest over periods ranging from immediately to four years and are

exercisable over periods not exceeding ten years.

Unless terminated sooner by the Board

of Directors, this plan will terminate on August 31, 2021.

February 2018, the Company adopted the 2018 Employee Stock Incentive Plan (the “2018 Plan”

and together with the 2011

Plan, the “Option Plans”), which will be utilized with the 2011 Plan for employees, corporate officers, directors,

consultants and other key persons employed.

The 2018 Plan will provide for the granting of incentive stock options, NQSOs, stock

grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).

stock options granted under the Option Plans are granted at exercise prices not less than 100% of the estimated fair market value

of the underlying common stock at date of grant.

The exercise price per share for incentive stock options may not be less than

110% of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10%

of the total outstanding common stock of the Company.

Options granted under the Option Plans vest over periods ranging from immediately

to four years and are exercisable over periods not exceeding ten years.

The aggregate number of shares that may

be awarded under the 2011 Plan as of September 30, 2019 is 158,424 and awarded under the 2018 Plan as of September 30, 2019 is

As of September 30, 2019, 5,584,423 of options were granted to employees, directors and consultants of the Company

(including 39 shares outside of our Options Plans) and 1,890,416 shares of common stock were reserved for future issuance under

the Option Plans.

be awarded as of March 31, 2020 under the 2011 Plan and the 2018 Plan were 417,270 and 11,230,073, respectively.

As of March 31,

2020, 120,796 of options were granted to employees, directors and consultants of the Company (including 1 share outside of the

Company’s Option Plans) and 11,526,548 options were available for future grant under the Option Plans.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

14 - Stock Options (continued)

During the three months ended March 31,

2019, the Company granted stock options for the purchase of 2,717,500 shares of common stock to employees and directors of the

These stock options are either 100% vested or vest pro-rata over 12 to 48 months, have a life of ten years and an exercise

price of $2.26 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value

of the awards was determined to be $3.3 million.

The fair value of the common stock as of the grant date was determined to be

$2.26 per share.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 13 - Stock Options (continued)

During the three months ended June 30,

2019, the Company granted stock options for the purchase of 2,337,500 shares of common stock to employees and directors of the

These stock options vest pro-rata over 12 to 48 months, have a life of ten years and an exercise price of $0.75 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined

to be $928,000.

The fair value of the common stock as of the grant date was determined to be $0.75 per share.

During the three months ended September

30, 2019, the Company granted stock options for the purchase of 819,500 shares of common stock to employees and directors of the

These stock options vest pro-rata over 12 to 48 months, have a life of ten years and an exercise price of $0.47 per share.

The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined

to be approximately $145,000.

The fair value of the common stock as of the grant date was determined to be $0.47 per share.

The Company recorded a stock based

compensation charge for the amortization of employee stock options of $871,000 and $122,000 for the three months ended September

30, 2019 and 2018, respectively, and $2,376,000 and $899,000, for the nine months ended September 30, 2019 and 2018, respectively.

As of September 30, 2019, the fair value

of non-vested stock options totaled $1.9 million, which will be amortized to expense over the weighted average remaining term

2020, no stock options were granted to consultants or employees of the Company.

During the three months ended March 31,

2020 and 2019, the Company recorded a charge of approximately $399,000 and $648,000, respectively, for the amortization of employee

stock options.

As of March 31, 2020, the fair value of

non-vested options totalled approximately $496,000, which will be amortized to expense over the weighted average remaining term

of 0.38 years.

The fair value of each employee stock

option grant is estimated on the date of the grant using the Black-Scholes option-pricing model.

Key weighted-average assumptions

used to apply this pricing model during the nine months ended September 30, 2019 were as follows:

Nine Months Ended

September 30,

Risk-free interest rate

Expected life of stock option grants

Expected volatility of underlying stock

49.48-106.16%

Dividends assumption

The expected stock price volatility for

the Company’s stock options was determined by the historical volatilities for industry peers and used an average of those

volatilities.

The Company attributes the value of stock-based compensation to operations on the straight-line single option method.

Risk free interest rates were obtained from U.S.

Treasury rates for the applicable periods.

The dividends assumption was $0 as

the Company historically has not declared and does not expect to declare any dividends.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 14 - Credit Risk and Concentrations

Financial instruments that subject the

Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.

The Company performs certain

credit evaluation procedures and does not require collateral for financial instruments subject to credit risk.

The Company believes

that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors

surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes

that its accounts receivable credit risk exposure beyond such allowances is limited.

The Company maintains cash deposits with

financial institutions, which, from time to time, may exceed federally insured limits.

Cash is also maintained at foreign financial

institutions for its Canadian subsidiary and its majority-owned India subsidiary.

Cash in foreign financial institutions as of

September 30, 2019 and December 31, 2018 was immaterial.

The Company has not experienced any losses and believes it is not exposed

to any significant credit risk from cash.

The following table sets forth the percentages

of revenue derived by the Company from those customers which accounted for at least 10% of revenues during the nine months ended

September 30, 2019 and 2018 (in thousands):

Nine Months Ended

September 30,

Nine Months Ended

September 30,

The following table sets forth the percentages

of revenue derived by the Company from those customers which accounted for at least 10% of revenues during the three months ended

September 30, 2019 and 2018 (in thousands):

Three Months Ended

September 30,

Three Months Ended

September 30,

As of September 30, 2019, Customer A represented

approximately 59%, Customer B represented approximately 0%, and Customer C represented approximately 0% of total accounts receivable.

of September 30, 2018, Customer A represented approximately 0%, Customer B represented approximately 5%, and Customer C represented

approximately 24% of total accounts receivable.

As of September 30, 2019, two vendors

represented approximately 41% and 14% of total gross accounts payable.

There were no purchases from these vendors during the three

and nine months ended September 30, 2019.

As of September 30, 2018, one vendor represented approximately 60% of total gross

accounts payable.

There were no purchases from this vendor during the three and nine months ended September 30, 2018.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 15 - Foreign Operations

15 - Credit Risk and Concentrations

instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.

The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to

The Company believes that credit risk is limited because the Company routinely assesses the financial strength of

its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible

accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.

Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits.

is also maintained at foreign financial institutions for its Canadian subsidiary and its majority-owned India subsidiary.

in foreign financial institutions as of March 31, 2020 and December 31, 2019 was immaterial.

The Company has not experienced any

losses and believes it is not exposed to any significant credit risk from cash.

following table sets forth the percentages of revenue derived by the Company from those customers, which accounted for at least

10% of revenues during the three-month period ended March 31, 2020 and 2019 (in thousands):

For the Three Months Ended

March 31, 2020

For the Three Months Ended

March 31, 2019

of March 31, 2020, Customer C represented approximately 32% and Customer A represented approximately 27 % of total accounts receivable.

As of March 31, 2019, Customer A represented approximately 37%, Customer C represented approximately 22%, Customer D represented

approximately 11%, and Customer E represented approximately 11% of total accounts receivable.

of March 31, 2020, two vendors represented approximately 41% and 16% of total gross accounts payable.

Purchases from these vendors

during the three months ended March 31, 2020 was $0.

As of March 31, 2019, one vendor represented approximately 43% of total

gross accounts payable.

Purchases from this vendor during the three months ended March 31, 2019 was $0.

the three months ended March 31, 2020, five vendors represented approximately 28%, 21%, 17%, 16%, and 15% of total purchases.

For the three months ended March 31, 2019, two vendors represented approximately 44% and 56% of total purchases.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

16 - Foreign Operations

The Company’s operations are located

primarily in the United States, Canada, and India.

Revenues by geographic area are attributed by country of domicile of our subsidiaries.

Revenues by geographic area are attributed by country of domicile of the Company’s

subsidiaries.

The financial data by geographic area are as follows (in thousands):

For the Three Months Ended September 30, 2019:

Revenues by geographic area

Operating income (loss) by geographic area

Net income (loss) by geographic area

For the Three Months Ended September 30, 2018:

Revenues by geographic area

Operating income (loss) by geographic area

Net income (loss) by geographic area

For the Nine Months Ended September 30, 2019:

For the Three Months Ended March 31, 2020:

Revenues by geographic area

1 unchanged sentence

Net income (loss) by geographic area

For the Nine Months Ended September 30, 2018:

For the Three Months Ended March 31, 2019:

Revenues by geographic area

1 unchanged sentence

Net income (loss) by geographic area

As of September 30, 2019:

As of March 31, 2020:

Identifiable assets by geographic area

3 unchanged sentences

Long lived assets by geographic area

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 16 - Related Party Transactions

Nadir Ali, the Company’s Chief Executive

Officer and a member of its Board of Directors, is also the Chairman of the Board of Directors of Sysorex.

Sysorex Note Purchase Agreement

On December 31,

2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which

the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below), a secured promissory

note (the “Secured Note”) for up to an aggregate principal amount of $3 million (the “Principal Amount”),

including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be borrowed and disbursed

in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the “Loan Amount”),

with interest to accrue at a rate of 10% percent per annum on all such Loan Amounts, beginning as of the date of disbursement with

respect to any portion of such Loan Amount.

In addition, Sysorex agreed to pay $20,000 to the Company to cover the Company’s

legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and

sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the Principal Amount.

Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding balance, exclusive of any unpaid

accrued interest, not to exceed the Principal Amount at any one time.

All sums advanced

by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will become part of

the aggregate Loan Amount underlying the Secured Note.

All outstanding principal amounts and accrued unpaid interest owing under

the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the date the Secured

Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company upon the occurrence

of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in the Secured Note.

accrued unpaid interest shall be payable in cash.

The amount owed for principal and accrued interest by Sysorex to the Company

as of December 31, 2018 was $2.2 million and as of September 30, 2019 was approximately $10.4 million.

On February 4, 2019,

the Related Party Note was amended to increase the maximum principal amount that may be outstanding at any time under the Related

Party Note from $3 million to $5 million.

On April 2, 2019, the Related Party Note was amended to increase the maximum principal

amount that may be outstanding at any time under the Related Party Note from $5 million to $8 million.

On May 22, 2019, the Related

Party Note was amended to increase the maximum principal amount that may be outstanding at any time under the Related Party Note

from $8 million to $10 million.

Promissory Note

On August 12, 2019, prior to the acquisition

of Jibestream, the Company loaned Jibestream $140,600 for operating expenses.

The note accrues interest at a rate of 5% per annum

and has a maturity date of December 31, 2019.

This note is recorded as a current note receivable on the Company books, however,

it is eliminated in the condensed consolidated financial statements.

As of September 30, 2019, the balance of the note including

principal and interest was approximately $142,000.

The Company has an operating lease is

for its administrative office in Palo Alto, California, effective October 1, 2014, for five years.

The initial lease rate

was $14,225 per month with escalating payments.

In connection with the lease, the Company is obligated to pay $8,985

monthly for operating expenses for building repairs and maintenance.

The Company also has an operating lease is for its

administrative office in Encino, CA.

17 - Related Party Transactions

Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, is also a member of the Board of Directors

Note Purchase Agreement

December 31, 2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”)

pursuant to which the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below),

a secured promissory note (the “Secured Note”) for up to an aggregate principal amount of $3 million (the “Principal

Amount”), including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be

borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the

“Loan Amount”), with interest to accrue at a rate of 10% percent per annum on all such Loan Amounts, beginning as

of the date of disbursement with respect to any portion of such Loan Amount.

In addition, Sysorex agreed to pay $20,000 to the

Company to cover the Company’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred

in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount

is included in the Principal Amount.

Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding

balance, exclusive of any unpaid accrued interest, not to exceed the Principal Amount at any one time.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

17 - Related Party Transactions (continued)

Note Purchase Agreement (continued)

sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will

become part of the aggregate Loan Amount underlying the Secured Note.

All outstanding principal amounts and accrued unpaid interest

owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the

date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company

upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in

the Secured Note.

All accrued unpaid interest shall be payable in cash.

On February 4, 2019, April 2, 2019, and May 22, 2019,

the Secured Note was amended to increase the Principal Amount that may be outstanding at any time from $3 million to $5 million,

$5 million to $8 million and $8 million to $10 million, respectively.

On March 1, 2020, the Company extended the maturity date

of the Secured Note to December 31, 2022.

In addition, the Secured Note was amended to increase the default interest rate from

18% to 21% or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount

in an amount equal to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series

of related financings, in which Sysorex raises aggregate gross proceeds of at least $5 million.

The amount owed for principal and accrued

interest by Sysorex to the Company as of March 31, 2020 and December 31, 2019 was approximately $10.6 million.

The Secured Note

has been classified as “held for sale”

and the Company, with the assistance of a third-party valuation firm, estimated

the fair value of such using Sysorex financial projections, a discounted cash flow model and a 12.3% discount rate.

the Company established a full valuation allowance as of March 31, 2020.

The Company is required to periodically re-evaluate the

carrying value of the note and the related valuation allowance based on various factors, including, but not limited to, Sysorex’s

performance and collectability of the note.

Sysorex’s performance against those financial projections will directly impact

future assessments of the fair value of the note.

February 20, 2019, the Company, Sysorex and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement

resulting in a net award of $941,796 whereby Atlas agreed to accept an aggregate of 16,655 shares of freely-tradable common stock

of the Company in full satisfaction of the award.

The Company and Sysorex each agreed pursuant to the terms and conditions

of that certain Separation and Distribution Agreement, dated August 7, 2018, as amended, that 50% of the costs and liabilities

related to the arbitration action would be shared by each party following the Spin-off.

As a result, Sysorex owes the Company

$559,121 for the settlement plus the interest accrued through March 31, 2020 of approximately $72,949.

The total owed to the Company

for this settlement as of March 31, 2020 was $632,070.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

Company has an operating lease for its administrative office in Palo Alto, California, effective October 1, 2014, for 8.3 years.

The initial lease rate was $14,225 per month with escalating payments.

In connection with the lease, the Company

is obligated to pay $8,985 monthly for operating expenses for building repairs and maintenance.

The Company also has an

operating lease for its administrative office in Encino, CA.

This lease was effective June 1, 2014 and will end on July 31, 2021.

The current lease rate

is $6,984 per month and $276 per month for the common area maintenance.

Additionally, the Company has an operating lease is for

its administrative office in Coquitlam, Canada, from October 1, 2016 through September 30, 2021.

The current lease rate is $6,984 per month and $276 per month for the common area maintenance.

Additionally, the Company has an

operating lease for its administrative office in Coquitlam, Canada, from October 1, 2016 through September 30, 2021.

lease rate was $8,931 CAD per month with escalating payments.

In connection with the lease, the Company is obligated

to pay $6,411 CAD monthly for operating expenses for building repairs and maintenance.

The Company has an operating lease

for its administrative office in Toronto, Canada, from August 15, 2019 through July 31, 2021.

The monthly lease rate is $24,506

CAD per month with no escalating payments.

In connection with the lease, the Company is obligated to pay $9,651 CAD

monthly for operating expenses for building repairs and maintenance.

Additionally, the Company has an operating lease for

its administrative office in New Westminster, Canada, from August 1, 2019 through July 31, 2021.

The initial lease rate was $575

CAD per month with escalating payments.

In connection with the lease, the Company is obligated to pay $6,411 CAD monthly

for operating expenses for building repairs and maintenance.

The Company has an operating lease is for its administrative

office in Toronto, Canada, from August 15, 2019 through May 31, 2021.

The monthly lease rate is $24,503 CAD per month with no

escalating payments.

In connection with the lease, the Company is obligated to pay $9,651 CAD monthly for operating

expenses for building repairs and maintenance.

The Company has no other operating or financing leases with terms greater

than 12 months.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 17 - Leases (continued)

The Company adopted ASC Topic 842, Leases

(“ASC Topic 842”) effective January 1, 2019 using the modified-retrospective method, and thus, the prior comparative

period continues to be reported under the accounting standards in effect for that period.

The Company elected to use the package

of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain

(ii) an entity need not reassess the lease classification for any expired or existing leases;

and (iii) an entity need

not reassess any initial direct costs for any existing leases.

At the time of adoption, the Company did not have any leases with

terms of 12 months or less, which would have resulted in short-term lease payments being recognized in the condensed consolidated

statements of income on a straight-line basis over the lease term.

All of the Company’s leases were previously classified

as operating and are similarly classified as operating lease under the new standard.

On January 1, 2019, upon adoption of

ASC Topic 842, the Company recorded right-of-use asset of $641,992, lease liability of $683,575 and eliminated deferred rent

The adoption of ASC 842 did not have a material impact to prior year comparative periods and a result,

a cumulative-effect adjustment was not required.

The Company determined the lease

liability using the Company’s estimated incremental borrowing rate of 8.0% to estimate the present value of the

remaining monthly lease payments.

With the Jibestream acquisition, the Company adopted ASC Topic 842 effective August 15,

2019 for the Toronto, Canada office operating lease.

Right-of-use assets is summarized below

(in thousands):

September 30,

CAD per month.

The Company has an operating lease for its administrative office in Hyderabad, India, from January 1, 2019 through

February 28, 2024.

The monthly lease rate is 482,720 INR per month with 5% escalating payments.

In connection with

the lease, the Company is obligated to pay 68,960 INR monthly for operating expenses for building repairs and maintenance.

The Company has no other operating or financing leases with terms greater than 12 months.

Company adopted ASC Topic 842, Leases (“ASC Topic 842”) effective January 1, 2019 using the modified-retrospective

method, and thus, the prior comparative period continues to be reported under the accounting standards in effect for that period.

Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any

expired or existing contracts are or contain leases;

(ii) an entity need not reassess the lease classification for any

expired or existing leases;

and (iii) an entity need not reassess any initial direct costs for any existing leases.

time of adoption, the Company did not have any leases with terms of 12 months or less, which would have resulted in

short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over

the lease term.

All of the Company’s leases were previously classified as operating and are similarly classified as

operating lease under the new standard.

January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use asset of $641,992, lease liability of $683,575

and eliminated deferred rent of $41,583.

The adoption of ASC 842 did not have a material impact to prior year comparative periods

and a result, a cumulative-effect adjustment was not required.

The Company determined the lease liability using the Company’s

estimated incremental borrowing rate of 8.0% to estimate the present value of the remaining monthly lease payments.

With the Locality

acquisition, the Company adopted ASC Topic 842 effective May 21, 2019 for the Westminster, Canada office operating lease.

the Jibestream acquisition, the Company adopted ASC Topic 842 effective August 15, 2019 for the Toronto, Canada office operating

With the India acquisition, the Company adopted ASC Topic 842 effective January 1, 2019 for the Hyderabad, India office

operating lease.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

18 - Leases (continued)

assets is summarized below (in thousands):

Palo Alto, CA Office

Encino, CA Office

Hyderabad, India Office

Coquitlam, Canada Office

Westminster, Canada Office

Toronto, Canada Office

1 unchanged sentence

Right-of-use asset, net

During the three and nine months ended

September 30, 2019, the Company recorded $129,196 and $310,921, respectively, as rent expense to the right-of-use assets.

Lease liability is summarized below (in

September 30,

expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future

minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs.

lease expenses, inclusive of short-term and variable lease expenses, recognized in the Company’s condensed consolidated

statement of income for the three-month period ended March 31, 2020 was $271,000.

the three-month period ended March 31, 2020, the Company recorded $124,264 as rent expense to the right-of-use assets.

liability is summarized below (in thousands):

Total lease liability

1 unchanged sentence

Long term portion

Maturity analysis under the lease agreement

is as follows (in thousands):

Three months ending December 31, 2019

analysis under the lease agreement is as follows (in thousands):

Year ending December 31, 2020

Year ending December 31, 2021

Year ending December 31, 2022

Year ending December 31, 2023

Year ending December 31, 2024

Present value discount

Lease liability

Operating lease liabilities are based

on the net present value of the remaining lease payments over the remaining lease term.

In determining the present value of lease

payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of Topic

As of September 30, 2019, the weighted average remaining lease term is 1.68 years and the weighted average discount rate

used to determine the operating lease liabilities was 8.0%.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

Note 18 - Commitments and Contingencies

Certain conditions may exist as of the

date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved

when one or more future events occur or fail to occur.

The Company assesses such contingent liabilities, and such assessment inherently

involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against the Company,

or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings

or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates

that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated

liability would be accrued in the Company’s consolidated financial statements.

If the assessment indicates that a potentially

material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature

of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are

generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed.

There can be no assurance

that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations

or cash flows.

Atlas Settlement

On February 20, 2019, in connection with

the satisfaction of an award in an aggregate amount of $1,156,840 plus pre-judgment interest equal to an aggregate of $59,955

(the “Award”) granted to Atlas Technology Group, LLC (“Atlas”) following arbitration proceedings arising

out of an engagement agreement, dated September 8, 2016, by and between Atlas and the Company (including its subsidiaries) (the

“Engagement Agreement”), the Company, Sysorex and Atlas entered into a settlement agreement (the “Settlement

Agreement”) pursuant to which Atlas agreed to (a) reduce the Award by $275,000 resulting in a “Net Award”

$941,796 and (b) accept an aggregate of 749,440 shares of freely-tradable common stock of the Company (the “Settlement Shares”)

in satisfaction of the Award which was determined by dividing 120% of the Net Award by $1.508, which was the “minimum price,”

as defined under Nasdaq Listing Rule 5635(d).

Pursuant to the Settlement Agreement,

after the Company issued and delivered the Settlement Shares to Atlas, the Award was deemed satisfied in full and the parties

were deemed to have released each other from any claims arising out of the Engagement Agreement.

The Settlement Shares

were issued to Atlas pursuant to the Company’s registration statement on Form S-3, as amended (SEC File No.

which was declared effective by the SEC on June 5, 2018.

In connection with Spin-off of Sysorex,

the Company and Sysorex each agreed pursuant to the terms and conditions of that certain Separation and Distribution Agreement,

dated August 7, 2018, as amended, that 50% of the costs and liabilities related to the arbitration action arising from the Engagement

Agreement would be shared by each party following the Spin-off.

As a result, Sysorex is required to indemnify the Company

for half of the total amount paid by the Company to satisfy the Award.

Compliance with Nasdaq Continued

Listing Requirement

On May 30, 2019, we received a deficiency

letter from Nasdaq indicating that, based on our closing bid price for the last 30 consecutive business days, we

do not comply with the minimum bid price requirement of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq listing Rule 5810(c)(3)(A), the Company was provided a period of 180 calendar days, or until November

26, 2019, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the

closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business

days without effecting a reverse split.

lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term.

In determining

the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the

date of adoption of Topic 842.

As of March 31, 2020, the weighted average remaining lease term is 2.51 years and the weighted

average discount rate used to determine the operating lease liabilities was 8.0%.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

19 - Commitments and Contingencies

conditions may exist as of the date the condensed consolidated financial statements are issued which may result in a loss to

the Company, but which will only be resolved when one or more future events occur or fail to occur.

The Company assesses such

contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies

related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings,

the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of

the amount of relief sought or expected to be sought therein.

the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the

liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated

financial statements.

If the assessment indicates that a potentially material loss contingency is not probable, but is

reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of

the range of possible losses, if determinable and material, would be disclosed.

contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would

be disclosed.

There can be no assurance that such matters will not materially and adversely affect the Company’s business,

financial position, and results of operations or cash flows.

with Nasdaq Continued Listing Requirement

On May 30, 2019, the Company received a

deficiency letter from Nasdaq indicating that, based on the Company’s closing bid price for the last 30 consecutive

business days, the Company did not comply with the minimum bid price requirement of $1.00 per share, as set forth

in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq listing Rule 5810(c)(3)(A), the Company was provided a period of 180

calendar days, or until November 26, 2019, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement,

the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of ten

consecutive business days without effecting a reverse split.

In addition to the failure to comply with

Nasdaq Listing Rule 5550(a)(2), the Nasdaq Staff has advised us that our history of non-compliance with Nasdaq’s minimum

bid price requirement, the corresponding history of reverse stock splits, the dilutive effect of the Offering and an inability

to cure the bid price deficiency organically without effecting a reverse stock split prior to November 26, 2019 would raise public

Nasdaq Listing Rule 5550(a)(2), the Nasdaq Staff advised us that the Company’s history of non-compliance with Nasdaq’s

minimum bid price requirement, the corresponding history of reverse stock splits, the dilutive effect of the Offering and an inability

to cure the bid price deficiency organically without effecting a reverse stock split prior to November 26, 2019 could raise public

interest concerns under Nasdaq Listing Rule 5101 and could result in the Nasdaq Staff issuing a delisting determination with respect

to our common stock (subject to any appeal the Company may file).

Nasdaq rules provide that Nasdaq may suspend or delist particular

securities based on any event, condition or circumstance that exists or occurs that makes continued listing of the securities on

Nasdaq inadvisable or unwarranted in the opinion of the Nasdaq Staff, even though the securities meet all enumerated criteria for

continued listing on Nasdaq.

In that regard, the Nasdaq Staff has discretion to determine that our failure to comply with the minimum

bid price rule or any subsequent price-based market value requirement or the dilutive effect of the an offering, constitutes a

public interest concern and while the Company will have an opportunity to appeal, the Company cannot assure that Nasdaq will not

exercise such discretionary authority or that the Company will be successful if such discretion is exercised and the Company appeals.

INPIXON AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

FOR THE NINE MONTHS ENDED SEPTEMBER

30, 2019 AND 2018

to the Company’s common stock (subject to any appeal the Company may file).

Nasdaq rules provide that Nasdaq may suspend

or delist particular securities based on any event, condition or circumstance that exists or occurs that makes continued listing

of the securities on Nasdaq inadvisable or unwarranted in the opinion of the Nasdaq Staff, even though the securities meet all

enumerated criteria for continued listing on Nasdaq.

In that regard, the Nasdaq Staff has discretion to determine that the Company’s

failure to comply with the minimum bid price rule or any subsequent price-based market value requirement or the dilutive effect

of the an offering, constitutes a public interest concern and while the Company would have an opportunity to appeal, the Company

cannot assure that Nasdaq would not exercise such discretionary authority or that the Company would be successful if such discretion

is exercised and the Company appeals.

On November 27, 2019, the Company received

notice from the Nasdaq Listing Qualifications Department of the Nasdaq Stock Market LLC that based upon the Company’s continued

non-compliance with the minimum $1.00 bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2),

the Company’s common stock would be subject to delisting from the Nasdaq Capital Market (the “Staff Delisting Determination”),

unless the Company timely requested an appeal hearing before the Nasdaq Hearings Panel.

The Company requested such hearing which

was held on January 23, 2020, following the Company’s implementation of a reverse stock split effective on January 7, 2020.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

19 - Commitments and Contingencies (continued)

with Nasdaq Continued Listing Requirement (continued)

On February 5, 2020, the Company received

a letter from the Office of General Counsel of Nasdaq informing us that the Nasdaq Hearings Panel (the “Panel”) granted

the Company’s request to continue the listing of the Company’s common stock on Nasdaq.

The Panel also determined to

impose a Panel Monitor pursuant to Nasdaq Listing Rule 5815(d)(4)(A) to last until February 5, 2021 (“Panel Monitor Period”).

If at any time before February 5, 2021, the Staff or the Panel determines that the Company has failed to meet the minimum bid price

requirement for a period of 30 consecutive trading days or any other requirement for continued listing on Nasdaq, the Panel will

direct the Staff to issue a Staff Delisting Determination and the Hearings Department will promptly schedule a new hearing, with

the initial Panel or a newly convened Panel if the initial Panel is unavailable.

During the monitor period, the Company is obligated

to notify the Panel immediately, in writing, in the event the Company’s bid price falls below the minimum requirement for

any reason, or if the Company falls out of compliance with any applicable listing requirement.

Note 20 - Subsequent Events

During the three months ending December

31, 2019, the Company issued 3,126,801 shares of common stock in connection with the exercise of 3,126,801 warrants through cashless

During the three months ending December 31,

2019, the Company issued 625 shares of common stock in connection with the exercise of 625 non-qualified stock options at an exercise

price of $0.14 per share for gross proceeds of approximately $87.50.

Equity Distribution Agreement

On October 10, 2019, the Company entered

into an Equity Distribution Agreement with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares

of its common stock having an aggregate offering price of up to $6.5 million from time to time through Maxim, acting exclusively

as the Company’s sales agent.

The Company intends to use the net proceeds from such sales primarily for working capital

and general corporate purposes.

The Company may also use a portion of the net proceeds to invest in or acquire businesses or technologies

that the Company believes are complementary to its own, although the Company has no current commitments or definitive agreements

with respect to any acquisitions as of the date of this Form 10-Q.

During the three months ending December 31, 2019, the Company sold 6,415,270 shares of common stock under

the Equity Distribution Agreement for net proceeds of approximately $589,000 at sales prices ranging from $0.0794 to $0.116 per

The Company paid Maxim compensation of approximately $28,000, based on a rate of 4.5% of the gross sales.

Exchange Agreements

On October 15, 2019, the Company exchanged

$200,000 of the outstanding principal and interest under the December 2018 Note for 1,818,182 shares of the Company’s common

stock at an exchange price of $0.11 per share.

On October 18, 2019, the Company exchanged

$200,000 of the outstanding principal and interest under the December 2018 Note for 2,000,000 shares of the Company’s common

stock at an exchange price of $0.10 per share.

On October 24, 2019, the Company exchanged

$195,000 of the outstanding principal and interest under the December 2018 Note for 1,950,000 shares of the Company’s common

stock at an exchange price of $0.10 per share.

On October 31, 2019, the Company exchanged $240,000 of the outstanding principal and interest under the

December 2018 Note for 3,000,000 shares of the Company’s common stock at an exchange price of $0.08 per share.

On November 5, 2019, the Company exchanged

$202,400 of the outstanding principal and interest under the December 2018 Note for 2,300,000 shares of the Company’s common

stock at an exchange price of $0.088 per share.

Standstill Agreement Extension

part of the exchange agreement dated October 24, 2019, Iliad agreed to extend the standstill previously agreed to pursuant to the

terms of that certain Standstill Agreement, dated as of August 8, 2019, whereby Iliad will not be entitled to redeem all or any

portion of the principal amount of the original December 2018 Note until December 31, 2019, and (ii) the maturity date of the Original

Note was extended to December 31, 2019.

Management’s

Discussion and Analysis of Financial Condition and Results of Operations

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 our audited consolidated financial statements

included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC.

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

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.”

of our Business

provide a number of different technology products and services relating to Indoor Data including Indoor Positioning, Mapping Analytics

and other digital solutions to private and public sector customers.

Effective August 31, 2018, the Company completed a Spin-off

of Sysorex and the associated Infrastructure business and it is no longer a part of our reporting in the current year.

financial data, the revenue and expenses of the Spin-off entities are shown as discontinued operations.

Positioning Analytics (“IPA”) products secure, digitize and optimize the interior of any premises with indoor positioning

and data analytics that provide rich positional information, similar to a global positioning system, and browser-like intelligence

On April 13, 2020, the Company entered

into a subscription agreement with a provider in connection with the issuance by the Company of an aggregate of 183,486 shares

of the Company’s common stock at a purchase price of $1.09 per share in satisfaction of an aggregate of $200,000 payable

to the provider by the Company for legal services rendered.

At-The-Market Program

During the quarter ending June 30, 2020,

the Company issued 9,551,636 shares of common stock in connection with the ATM, at per share prices between $1.13 and $1.28, resulting

in net proceeds to the Company of approximately $10,623,000 after subtracting sales commissions of 4% of gross proceeds.

During the quarter ending June 30, 2020,

the Company exchanged approximately $2,257,000 of the outstanding principal and interest under notes for 2,019,737 shares of the

Company’s common stock at exchange prices between $1.09 and $1.19 per share.

Stock Option Grants

During the quarter ending June 30, 2020,

the Company granted options under the 2018 Plan for the purchase of 5,567,500 shares of common stock to employees and consultants

of the Company.

These options are 100% vested or vest pro-rata over 12 to 48 months, have a life of ten years and an exercise price

of $1.10 per share.

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 our audited consolidated financial statements included

in our Annual Report on Form 10-K for the year ended December 31, 2019, 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.

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.”

where indicated, all share and per share data in this section, as well as the condensed consolidated financial statements, reflect

the 1-for-45 reverse split of our common stock effective on January 7, 2020.

Overview of Our Business

We are an indoor intelligence company.

Our business and government

customers use our solutions to secure, digitize and optimize their indoor spaces with our positioning, mapping and analytics products.

Our indoor intelligence platform uses sensor technology to detect accessible cellular, Wi-Fi, Bluetooth, ultra-wide band “UWB”

and radio frequency identification “RFID”

signals emitted from devices within a venue providing positional information

similar to what global positioning system (“GPS”) satellite systems provide for the outdoors.

Combining this positional

data with our dynamic and interactive mapping solution and a high-performance analytics engine, yields near real time insights

to our customers providing them with visibility, security and business intelligence within their indoor spaces.

Our highly configurable

platform can also ingest data from our customers’

and other third party sensors, Wi-Fi access points, Bluetooth beacons,

video cameras, and big data sources, among others to maximize indoor intelligence.

We also offer digital tear-sheets with optional

invoice integration, digital ad delivery, and an e-edition designed for reader engagement for the media, publishing and entertainment

Our Indoor Intelligence products secure, digitize and optimize the interior of any premises with indoor positioning and

data analytics that provide rich positional information, similar to a global positioning system, and browser-like intelligence

for the indoors.

On May 21, 2019, we acquired Locality, a technology company based near Vancouver, Canada, specializing in wireless

device positioning and radio frequency (“RF”) augmentation of video surveillance systems and on June 27, 2019, we

acquired certain global positioning system (“GPS”) products, software, technologies, and intellectual property from

based company specializing in GPS technologies.

On August 15, 2019 we acquired Jibestream an indoor intelligent mapping

platform company based in Toronto, Canada.

These transactions expand our indoor positioning product line.

In addition, we offer

digital tear-sheets with optional invoice integration, digital ad delivery, and an e-edition designed for reader engagement for

the media, publishing and entertainment industry.

increased in the three months ended September 30, 2019 over the same period in 2018 by approximately 63% because of an

increase in our IPA revenues resulting from an increased focus on the IPA product line after the Spin-off of our Sysorex

business, the acquisitions mentioned above and the addition of a new customer that accounted for approximately 33% of our

revenues for the third quarter of 2019.

We expect to continue to grow our IPA product line in 2019.

The IPA product line does

have long sales cycles, which are a result from customer-related issues such as budget and procurement processes but also

because of the early stages of indoor-positioning technology and the learning curve required for customers to implement such

Customers also engage in a pilot program first which prolongs sales cycles and is typical of most emerging

technology adoption curves.

We anticipate sales cycles to improve in 2019 as our customer base moves from early adopters to

mainstream customers.

The sales cycle is also improving with the increased presence and awareness of beacon and Wi-Fi

locationing technologies in the market.

IPA sales can be licensed-based with government customers but commercial customers

typically prefer a SaaS or subscription model.

Our other digital solutions are also delivered on a SaaS model and allow us to

generate industry analytics that complement our indoor-positioning solutions.

experienced a net loss of $6.6 million and $5.2 million for the three months ended September 30, 2019 and 2018, respectively,

and a net loss of $17.0 million and $17.3 million for the nine months ended September 30, 2019 and 2018, respectively.

assure that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable.

In order to continue

our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and

proceeds from loans and bank credit lines.

Furthermore, except for our Payplant facility, we have no committed source of financing

and we cannot assure that we will be able to raise money as and when we need it to continue our operations.

If we cannot raise

funds as and when we need them, we may be required to scale back our business operations by reducing expenditures for employees,

consultants, business development and marketing efforts, selling assets or one or more products in our business, or otherwise

severely curtailing our operations.

Strategy Update

continues to pursue a corporate strategy that is focused on building and developing our business as a provider of turnkey solutions

ranging from the collection of data to delivering insights from that data to our customers with a focus on securing, digitizing

and optimizing premises with our Indoor Positioning, Mapping and Analytics solutions for businesses and governments.

In connection

with such strategy and in order to facilitate our long-term growth, we are evaluating various strategic transactions and acquisitions

of companies with technologies and intellectual property (“IP”) that complement such goals by adding technology, differentiation,

customers and/or revenue.

We are primarily looking for accretive opportunities that have business value and operational synergies.

We believe these complimentary technologies will allow us to provide a comprehensive Indoor Data Platform, or one-stop shop to

our customers.

We believe that acquiring complementary products and/or IP will add value to the Company.

Candidates with

proven technologies that complement our overall strategy may come from anywhere in the world, so long as there are strategic and

financial reasons to make the acquisition.

If we make any acquisitions in the future, we expect that we may pay for such acquisitions

using our equity securities, cash and debt financing in combinations appropriate for each acquisition.

In connection with this

strategy, on May 21, 2019, we acquired Locality, a technology company based near Vancouver, Canada, specializing in wireless device

positioning and radio frequency (“RF”) augmentation of video surveillance systems.

In addition, on June 27, 2019,

we acquired certain global positioning system (“GPS”) products, software, technologies, and intellectual property

from GTX, a U.S.

based company specializing in GPS technologies.

These transactions expand our patent portfolio and includes certain

granted or licensed patents and GPS and RF technologies.

Furthermore, on August 15, 2019, we acquired Jibestream, a provider of

highly configurable intelligent indoor mapping platforms to expand our suite of products.

During the third quarter

ended September 30, 2019, the Company entered into exchange agreements with Iliad Research and Trading, L.P.

pursuant to which

it exchanged an aggregate amount of $724,807 of the outstanding balance of the outstanding convertible promissory note issued on

December 31, 2018 for partitioned notes and then exchanged such notes for an aggregate of 1,403,772 shares of common stock at exchange

prices between $0.51 and $0.532 per share.

Subsequent to the

quarter ended September 30, 2019, between October 15, 2019 and November 5, 2019, the Company entered into exchange agreements

pursuant to which it exchanged an aggregate amount of $1,037,400 of the outstanding balance of the outstanding convertible promissory

note issued on December 21, 2018 for partitioned notes and then exchanged such notes for an aggregate of 11,068,182 shares of

common stock at exchange prices between $0.08 and $0.11 per share.

Standstill Agreement

as of August 12, 2019, the Company and Chicago Venture Partners, L.P.

(“Chicago”

or the “Holder”), the

holder of that certain unsecured promissory note issued on June 27, 2019 (the “June 2019 Note”) in an aggregate principal

amount of $1,895,000 entered into an amendment agreement, dated as of August 14, 2019, to provide that the Company’s obligation

to repay all or a portion of the outstanding balance of the June 2019 Note upon the completion of any offering of equity securities

of Company would not apply or be effective until December 27, 2019.

As consideration for the amendment, a fee of approximately

$191,883 was added to the outstanding balance of the June 2019 Note.

Issuance of August 2019 Promissory

On August 8, 2019,

the Company entered into a note purchase agreement (the “Purchase Agreement”) with the Holder pursuant to which the

Company agreed to issue and sell to the Holder an unsecured promissory note (the “August 2019 Note”) in an aggregate

principal amount of $1,895,000 (the “Initial Principal Amount”), which is payable on or before the date that is 9 months

from the issuance date.

The Initial Principal Amount includes an original issue discount of $375,000 and $20,000 that the Company

agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction

In exchange for the August 2019 Note, the Holder paid an aggregate purchase price of $1,500,000.

Interest on the August

2019 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the August 2019

The Company may pay all or any portion of the amount owed earlier than it is due;

provided, that in the event the Company

elects to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding

balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date and at the intervals indicated

below until the August 2019 Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/3 of the initial

principal balance of the Note each month by providing written notice delivered to the Company;

provided, however, that if the Holder

does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available

for the Holder to redeem in any future month in addition to such future month’s monthly redemption amount.

2019 Financing

On August 12, 2019,

in an offering of our securities (the “August Offering”) we sold an aggregate of (i) 6,497,410 shares of our common

stock, (ii) 2,997 shares of our Series 6 Convertible Preferred Stock, with a stated value $1,000 per share, convertible into shares

of our common stock (the “Series 6 Preferred Stock”), and (iii) Series A warrants to purchase up to an aggregate of

17,297,410 shares of common stock at an exercise price per share of $0.2775, resulting in gross proceeds to the Company of approximately

$4.8 million, and net proceeds of approximately $4 million after deducting the underwriting discounts and offering expenses.

September 2019 Promissory Note

September 17, 2019, the Company entered into a note purchase agreement with the Holder, pursuant to which the Company agreed to

issue and sell to the Holder an unsecured promissory note (the “September 2019 Note”) in an aggregate principal amount

of $952,500.00, which is payable on or before the date that is 9 months from the issuance date.

The Initial Principal Amount includes

an original issue discount of $187,500 and $15,000 that the Company agreed to pay to the Holder to cover the Holder’s legal

fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the Note, the Holder paid an aggregate

purchase price of $750,000.00.

Interest on the Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise

in accordance with the September 2019 Note.

The Company may pay all or any portion of the amount owed earlier than it is due;

that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of

the portion of the outstanding balance the Company elects to prepay.

Beginning on the date that is 6 months from the issuance date

and at the intervals indicated below until the September 2019 Note is paid in full, the holder shall have the right to redeem up

to an aggregate of 1/3 of the initial principal balance of the September 2019 Note each month by providing written notice to the

provided, however, that if the holder does not exercise any monthly redemption amount in its corresponding month then

such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month’s

monthly redemption amount.

Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption

amount in cash to the holder within five business days of the Company’s receipt of such monthly redemption notice.

The September

2019 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest

Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings

(the “Bankruptcy-Related Event of Default”)), the Holder may, by written notice, declare all unpaid principal, plus

all accrued interest and other amounts due under the September 2019 Note to be immediately due and payable at an amount equal to

115% of the outstanding balance of the Note (the “Mandatory Default Amount”).

Upon the occurrence of a Bankruptcy-Related

Event of Default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the Note will become

immediately due and payable at the Mandatory Default Amount.

GTX Registration Extension and Loan

In connection with

the acquisition of certain assets of GTX Corp (“GTX”) pursuant to the terms of an Asset Purchase Agreement, dated June

27, 2019, we agreed to file a resale registration statement within 30 days of the closing date of the asset acquisition (the “Registration

Filing Deadline”), to register the shares issued to GTX as partial consideration for the assets (the “GTX Shares”)

In the event that such registration statement was not filed on or prior to the Registration Filing Deadline, or in

the event that thereafter such registration statement is not declared effective by the SEC within 45 days of the closing date (the

“Effectiveness Date”), we agreed to loan GTX, at its option, up to $50,000 per month until the earlier of the effectiveness

of the registration statement or the date on which such shares may be sold without restriction in accordance with Rule 144 under

the Securities Act for up to a maximum of $250,000 in the aggregate.

Each promissory note representing a loan to GTX will have

a maturity date that is 210 days from the issue date of such note and will accrue interest at a rate of 5% per annum (“GTX

Note”).

Pursuant to the terms of an extension agreement between the Company and GTX, the Registration Filing Deadline was

extended until the end of the thirty-day period commencing upon the execution of the underwriting agreement and the Effectiveness

Date was extended to 60 days following the end of the 60-day period commencing upon the execution of the underwriting agreement.

The registration statement registering the resale of the GTX Shares was filed on September 13, 2019 and declared effective on October

In addition, on September 16, 2019, the Company loaned GTX $50,000 (the “Loan Amount”) as represented by

a GTX Note issued by GTX in an aggregate principal amount equal to the Loan Amount.

August 15, 2019, we completed the acquisition of 100% of the outstanding capital stock (the “Transaction”) of Jibestream

Inc., an Ontario corporation (“Jibestream”) through our wholly owned subsidiary, Inpixon Canada, Inc.

(“Inpixon

Canada”), pursuant to the terms of a Share Purchase Agreement, dated July 9, 2019, as amended on August 9, 2019, by and among

the Company, Inpixon Canada and each of the persons set forth on Exhibit A of the Purchase Agreement (each, a “Vendor”

and collectively, the “Vendors”) and Chris Wiegand, as a Vendor and Vendors’

representative (“Jibestream

Share Purchase Agreement”).

Jibestream provides highly configurable indoor mapping and location technology.

provides customers with a full-featured geospatial platform that integrates business data with high-fidelity indoor maps to create

smart indoor spaces.

This allows customers to create multi-dimensional and multi-layered indoor maps, which can be added to existing

web or mobile applications.

Jibestream’s technology integrates with a variety of third-party indoor positioning systems to

allow for clear, contextualized indoor wayfinding and directions.

We anticipate utilizing Jibestream’s mapping technology

with our existing indoor positioning offerings to offer our customers a more comprehensive suite of products going forward.

Jibestream’s

products have applications in any indoor space where location and wayfinding is a concern.

Jibestream’s existing product

solutions have been deployed in hundreds of venues worldwide and within numerous customer segments including government, airports,

malls, office buildings, and hospitals.

At the closing of

the Transaction, Inpixon Canada purchased the Shares in exchange for consideration consisting of:

(i) CAD $5,000,000 (the

“Cash Consideration”), plus an amount equal to all cash and cash equivalents held by Jibestream at the closing,

minus, if a negative number, the absolute value of the Estimated Working Capital Adjustment (as defined in the Purchase

Agreement), minus any amounts loaned by the Purchaser to Jibestream to settle any Indebtedness (as defined in the Purchase

Agreement) or other fees, minus any cash payments to the holders of outstanding options to settle any in-the-money options

(the “Option Payout”), minus the deferred revenue costs of CAD $150,000, and minus the costs associated with the

audit and review of the financial statements of Jibestream required by the Purchase Agreement (collectively, the

“Estimated Cash Closing Amount”);

plus (ii) 7,932,969 shares of Inpixon’s common stock (the “Inpixon

Shares”), which represents a number of shares determined by dividing CAD $3,000,000, after application of the exchange

rate quoted by the Royal Bank of Canada as of August 15, 2019 (the “Exchange Rate”), by $0.2775 per share (the

“Price Per Share”).

An aggregate of 3,173,187 Inpixon Shares (the “Holdback Shares”) are subject to

transfer restrictions and forfeiture in order to secure the indemnification and other obligations of the Vendors in favor of

the Company arising out of or pursuant to Article VIII of the Purchase Agreement and, at the option of the Company, to secure

the obligation of the Vendors’

to pay any adjustment to the Purchase Price.

accordance with applicable Nasdaq rules, the issuance of an aggregate of 2,864,000 Holdback Shares (the

“Excess Shares”) are subject to the receipt of stockholder approval in accordance with applicable Nasdaq listing

rules, which was obtained on October 31, 2019.

pursuant to the Purchase Agreement, as amended, the Company agreed to file on or before the thirtieth (30th) day from the

date of the underwriting agreement signed in connection with the Offering an “evergreen”

shelf registration

statement on Form S-1 or Form S-3 pursuant to Rule 415 under the Securities Act, providing for the resale of the Inpixon

Shares issued pursuant to the Purchase Agreement on a continuous basis and will use best efforts to cause such registration

statement to become effective no later than the date that is 60 days from the date of the underwriting agreement signed in

connection with the Offering.

The registration statement registering the resale of the Inpixon Shares was filed on September

13, 2019 and declared effective on October 18, 2019.

Revenues increased

in the three months ended March 31, 2020 over the same period in 2019 by approximately 32% primarily due to an increase in revenue

from mapping services.

The Indoor Intelligence product line does have long sales cycles, which result from customer-related issues

such as budget and procurement processes but also because of the early stages of indoor-positioning technology and the learning

curve required for customers to implement such solutions.

Customers also often engage in a pilot program first which prolongs sales

cycles and is typical of most emerging technology adoption curves.

Indoor Intelligence sales can be licensed-based with government

customers but commercial customers may prefer a SaaS or subscription model.

Our other digital solutions are also delivered on a

SaaS model and allow us to generate industry analytics that complement our indoor-positioning solutions.

We experienced a net

loss of approximately $6.2 million and $5.2 million for the three months ended March 31, 2020 and 2019, respectively.

assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable.

continue our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities

and proceeds from loans and bank credit lines.

While we believe that our recent debt financing in which we raised aggregate gross

proceeds of $5 million, in addition to the capital raised or that may be raised in connection with sales under our at-the-market

equity facility (the “ATM”) in an aggregate amount of up to $50 million, in addition to the availability on the purchase

order and receivables financing facility with Payplant, LLC (“Payplant”) to finance purchase orders and invoices in

an amount equal to 80% of the face value of purchase orders received and funds from revenue may be sufficient to fund planned operations

for the next 12 months from the date the financial statements are issued, the impact of the COVID-19 pandemic on our business and

results of operations is uncertain at this time.

We have been able to continue operations remotely and have not seen a significant

impact in the demand for certain products including our SaaS or subscription based services and products, certain projects and

customer requests have had to be delayed either because they require onsite services which could not be performed while shelter

in place orders have been in effect or because of the uncertainty of the customer’s financial position and ability to invest

in our technology.

However, we have also seen an increase in interest in our indoor intelligence solutions for workplace readiness

which is directed at enterprise organizations and government agencies to assist them in optimizing the use of their facilities

as well as in developing and monitoring compliance with corporate policies and government regulations for physical distancing,

exposure notification, and the identification of high traffic areas for sanitizing and cleaning in order to keep their employees

healthier and safer within the workplace.

If we are successful in expanding the adoption of our products and services for this

solution, we may be able to offset any revenue loss that may be experienced, however, there are no assurances that we will be successful

or that we will be able to offset any losses, if realized.

In addition, if general economic or other conditions resulting from

COVID 19 or other events materiality impact the liquidity of our common stock or ability to access capital from the ATM in addition

to our ability to generate revenue from the sales of our products and services, we will not have sufficient funds to support our

operations for the next 12 months.

The Company is also pursuing possible strategic transactions and may raise such additional

capital as needed, using our equity securities, an assignment of our note receivable from Sysorex, Inc.

(“Sysorex”)

and/or cash and debt financings in combinations appropriate for each acquisition.

We cannot assure that we will be able to raise

sufficient capital as and when we need it to continue our operations.

If we cannot raise funds as and when we need them, we may

be required to scale back our business operations by reducing expenditures for employees, consultants, business development and

marketing efforts, selling assets or one or more products in our business, or otherwise severely curtailing our operations.

Corporate Strategy Update

Management continues

to pursue a corporate strategy that is focused on building and developing our business as a provider of end-to-end solutions ranging

from the collection of data to delivering insights from that data to our customers with a focus on securing, digitizing and optimizing

premises with our indoor positioning, mapping and analytics solutions for businesses and governments.

In connection with such strategy

and to facilitate our long-term growth, we continue to evaluate various strategic transactions and acquisitions of companies with

technologies and intellectual property (“IP”) that complement those goals by adding technology, differentiation, customers

and/or revenue.

We are primarily looking for accretive acquisitions that have business value and operational synergies, but will

be opportunistic for other strategic and/or attractive transactions.

We believe these complementary technologies will add value

to the Company and allow us to provide a comprehensive indoor intelligence platform, offering a one-stop shop to our customers.

Candidates with proven technologies that complement our overall strategy may come from anywhere in the world, as long as there

are strategic and financial reasons to make the acquisition.

In addition, we are also exploring opportunities that will supplement

our revenue growth.

If we make any acquisitions in the future, we expect that we may pay for such acquisitions using our equity

securities, an assignment of our note receivable from Sysorex Inc.

(“Sysorex”) and/or cash and debt financings in combinations

appropriate for each acquisition.

In furtherance of this strategy, over the last year, we enhanced our product offerings and expanded

our intellectual property portfolio by completing several strategic transactions, including, the acquisition of (1) Locality Systems,

(“Locality”), a technology company based near Vancouver, Canada, specializing in wireless device positioning and

radio frequency (“RF”) augmentation of video surveillance systems and (2) Jibestream Inc.

(“Jibestream”),

a provider of a highly configurable intelligent indoor mapping platform to expand our suite of products.

In addition, we acquired

certain GPS products, software, technologies, and intellectual property from GTX Corp (“GTX”), a U.S.

based company

specializing in GPS technologies.

Recent Events

Reverse Stock Split

During the first quarter

ended March 31, 2020, on January 7, 2020, we effected a 1-for-45 reverse split of our outstanding common stock.

Equity Distribution

On October 10, 2019,

the Company entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim”) under which we may offer

and sell shares of our common stock having an aggregate offering price of up to $6.5 million from time to time through Maxim,

acting exclusively as our sales agent.

The Company intends to use the net proceeds of the Offering primarily for working capital

and general corporate purposes.

We may also use a portion of the net proceeds to invest in or acquire businesses or technologies

that we believe are complementary to our own, although we have no current plans, commitments or agreements with respect to any

acquisitions as of the date of this report.

The Company sold 6,415,270 shares of common stock between October 16, 2019 and October

31, 2019 at per share prices between $0.0794 and $0.116.

These sales resulted in net proceeds to the Company of approximately

The Company paid Maxim compensation of approximately $28,000, based on a rate of 4.5% of the gross sales.

to Section 107 of the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until such time

as those standards apply to private companies.

We have irrevocably elected to opt out of this exemption from new or revised accounting

standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging

growth companies.

Accounting Policies and Estimates

consolidated financial statements are prepared in accordance with U.S.

On March 3, 2020, we

entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim”) under which we may offer and sell shares

of our common stock in connection with the ATM in an aggregate offering amount of up to $50 million from time to time through Maxim,

acting exclusively as our sales agent (the “Offering”).

We intend to use the net proceeds of the Offering primarily

for working capital and general corporate purposes.

We may also use a portion of the net proceeds to invest in or acquire businesses

or technologies that we believe are complementary to our own.

We issued 937,010 shares of common stock during the quarter ended

March 31, 2020, in connection with the ATM at per share prices between $1.23 and $2.11, resulting in net proceeds to the Company

of approximately $1,328,096, after paying Maxim compensation of approximately $55,337, based on a rate of 4% of the gross sales.

Subsequent to the

quarter ended March 31, 2020, we have issued 9,551,636 shares of common stock in connection with the ATM, at per share prices

between $1.13 and $1.28, resulting in net proceeds to the Company of approximately $10,622,893 after paying Maxim compensation

of approximately $442,621, based on a rate of 4% of the gross sales.

Such sales were made

pursuant to the Company’s effective shelf registration statement on Form S-3 (File No.

333-223960), which was filed with

the Securities and Exchange Commission (the “SEC”) on March 27, 2018, as amended on May 15, 2018, and declared effective

on June 5, 2018 (the “Registration Statement”), and a base prospectus dated as of June 5, 2018 included in the Registration

Statement and the prospectus supplement relating to the offering filed with the SEC on March 3, 2020.

Note Exchanges

During the first

quarter ended March 31, 2020, we entered into exchange agreements with a noteholder pursuant to which we issued an aggregate

of 1,896,557 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $4,194,030 of

the outstanding balance of promissory notes issued on May 3, 2019 and June 27, 2019 to the holders of such notes at exchange

prices between $1.12 and $4.05 per share, in each case at a price per share equal to Nasdaq’s “minimum

as defined by Nasdaq Listing Rule 5635(d).

Subsequent to the quarter

ended March 31, 2020, we entered into exchange agreements pursuant to which we issued an aggregate of 2,019,737 shares of common

stock in exchange for the satisfaction of an aggregate amount of approximately $2,256,790 of the outstanding balance of promissory

notes issued on December 21, 2018 and August 8, 2019 to the holders of such notes at exchange prices between $1.09 and $1.19 per

Promissory Note

On March 18, 2020,

we entered into a note purchase agreement (the “Purchase Agreement”) with Iliad Research & Trading, L.P.

(the “Holder”),

pursuant to which we issued and sold to the Holder an unsecured promissory note (the “Note”) in an aggregate initial

principal amount of $6,465,000.00 (the “Initial Principal Amount”), which is payable on or before the date that is

12 months from the issuance date (the “Maturity Date”).

The Initial Principal Amount includes an original issue discount

of $1,450,000.00 and $15,000.00 that we agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due

diligence, monitoring and other transaction costs.

In exchange for the Note, the Holder paid an aggregate purchase price of $5,000,000.00

(the “Transaction”).

The Note is payable on or before the date that is 12 months from the issuance date.

the note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the note.

pay all or any portion of the amount owed earlier than it is due in an amount equal to 115% of the portion of the outstanding balance

the Company elects to prepay.

on the date that is 6 months from the issuance date and at the intervals indicated below until the Note is paid in full, the Holder

has the right to redeem up to an aggregate of 1/3 of the initial principal balance of the Note each month (each monthly exercise,

a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”);

however, that if the Holder does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption

Amount shall be available for the Holder to redeem in any future month in addition to such future month’s Monthly Redemption

Upon receipt of Monthly Redemption Notice, we are required to the applicable Monthly Redemption Amount in cash to the Holder

within five business days of receipt.

Monitoring Fee .

If the Note is still outstanding on the date that is six (6) months from the issuance date, then a one-time monitoring fee equal

to ten percent (10%) of the then-current outstanding balance shall be added to the Note.

In addition, at any

time while the Note is outstanding, if we intend to enter into a financing pursuant to which we will issue securities that (A)

have or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be

issued pursuant to such conversion right varies with the market price of the Company’s common stock, or (B) are or may become

convertible into common stock (including without limitation convertible debt, warrants or convertible preferred stock), with a

conversion price that varies with the market price of the common stock, even if such security only becomes convertible following

an event of default, the passage of time, or another trigger event or condition (a “Future Offering”), then we must

first offer such opportunity to the Holder on the same terms no later than five (5) trading days immediately prior to the trading

day of the expected announcement of the Future Offering (the “Right of First Refusal”).

If the Holder is unwilling

or unable to provide such financing then we may obtain such financing upon the exact same terms and conditions offered to the Holder,

which must be completed within 30 days after the date of the notice.

If we do not receive the financing within 30 days after the

date of the notice, then we must again offer the financing opportunity to the Holder as described above, and the process detailed

above will be repeated.

The Right of First Refusal does not apply to an Exempt Issuance (as defined in the Purchase Agreement)

or to a registered offering made pursuant to a registration statement on Form S-1 or Form S-3.

Critical Accounting Policies and Estimates

Our consolidated financial

statements are prepared in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”).

In connection with the preparation of our 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

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 consolidated financial statements are prepared.

On a regular basis, we review

the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented

fairly and in 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.

significant accounting policies are discussed in Note 3 of the condensed consolidated financial statements.

We believe that the

following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results,

and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect

of matters that are inherently uncertain.

In connection with

the preparation of our 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.

base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes

to be relevant at the time our consolidated financial statements are prepared.

On a regular basis, we review the accounting policies,

assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance

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.

Our significant accounting

policies are discussed in Note 3 of the condensed consolidated financial statements.

We believe that the following accounting estimates

are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult,

subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

There have been no changes to estimates during the periods presented in the filing.

Historically changes in management estimates have not been material.

Company records revenue according to “Revenue from Contracts with Customers (Topic 606)”, or ASU 2016-12, which requires

revenue to be recognized either at a “point in time”

or “over time”, depending on the facts and circumstances

of the arrangement, and is evaluated using a five-step model.

As A Service Revenue Recognition

respect to sales of our maintenance, consulting and other service agreements including our digital advertising and electronic

services, customers pay fixed monthly fees in exchange for the Company’s service.

The Company’s performance obligation

is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous

access to its service.

Services Revenue Recognition

Company’s professional services include fixed fee and time and materials contracts.

Fixed fees are paid monthly, in phases,

or upon acceptance of deliverables.

The Company’s time and materials contracts are paid weekly or monthly based on hours

Revenue on time and materials contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other specified direct costs, are reimbursed as actual costs and may include markup.

The Company has elected the

practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds

directly with the value to the customer of the performance completed to date.

For fixed fee contracts including maintenance service

provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because

the Company is providing continuous service.

Because the Company’s contracts have an expected duration of one year or less,

the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance

Historically changes in management estimates

have not been material.

Revenue Recognition

The Company records

revenue according to “Revenue from Contracts with Customers (Topic 606)”, or ASU 2016-12, which requires revenue to

be recognized either at a “point in time”

or “over time”, depending on the facts and circumstances of the

arrangement, and is evaluated using a five-step model.

Software As A Service Revenue Recognition

With respect to sales

of our maintenance, consulting and other service agreements including our digital tear-sheets, customers pay fixed monthly fees

in exchange for the Company’s service.

The Company’s performance obligation is satisfied over time as the digital tear-sheets

are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period using a

time-based measure because the Company is providing continuous access to its service.

Mapping Services Revenue Recognition

Mapping services revenue

is accounted for using the percentage of completion method.

As soon as the outcome of a contract can be estimated reliably, contract

revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.

costs are expensed as incurred.

Contract costs include all amounts that relate directly to the specific contract, are attributable

to contract activity, and are specifically chargeable to the customer under the terms of the contract.

Professional Services Revenue Recognition

The Company’s

professional services include fixed fee and time and materials contracts.

Fixed fees are paid monthly, in phases, or upon acceptance

of deliverables.

The Company’s time and materials contracts are paid weekly or monthly based on hours worked.

time and materials contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other

specified direct costs, are reimbursed as actual costs and may include markup.

The Company has elected the practical expedient

to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the

value to the customer of the performance completed to date.

For fixed fee contracts including maintenance service provided by in

house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is

providing continuous service.

Because the Company’s contracts have an expected duration of one year or less, the Company

has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Anticipated losses are recognized as soon as they become known.

For the three and nine months ended September 30,

2019 and 2018, the Company did not incur any such losses.

For the three months ended March 31, 2020 AND 2019, the Company

did not incur any such losses.

These amounts are based on known and estimated factors.

Contract Balances

timing of our revenue recognition may differ from the timing of payment by our customers.

3 unchanged sentences

the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.

of September 30, 2019, the Company had deferred revenue of approximately $789,000 related to software license agreements and approximately

of March 31, 2020, the Company had deferred revenue of approximately $692,000 related to software license agreements and approximately

$185,000 related to cash received in advance for product maintenance services provided by the Company’s technical staff.

1 unchanged sentence

revenue and related contract costs over the next twelve months.

account for our long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting

for the Impairment or Disposal of Long-Lived Assets”

(“ASC 360”), which requires that long-lived assets be evaluated

whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

Some of the events or changes in circumstances that would trigger an impairment test include, but are not limited to:

under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows

for two consecutive years);

negative industry or economic trends;

of transactions involving the sale of similar property at amounts below our carrying value;

expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not

meet the criteria to be classified as “held for sale.”

assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely

independent of the cash flows of other assets.

The impairment test for long-lived assets requires us to assess the recoverability

of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly

associated with and arising from our use and eventual disposition of the assets.

If the net carrying value of a group of long-lived

assets exceeds the sum of related undiscounted estimated future cash flows, we would be required to record an impairment charge

equal to the excess, if any, of net carrying value over fair value.

assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets,

we make assumptions regarding estimated future cash flows and other factors.

Some of these assumptions involve a high degree of

judgment and also bear a significant impact on the assessment conclusions.

Included among these assumptions are estimating undiscounted

future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property

and equipment and residual value of asset groups.

We formulate estimates from historical experience and assumptions of future

performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions.

that our estimates or related assumptions change in the future, we may be required to record an impairment charge.

evaluation we did not record a charge for impairment for the three and nine months ended September 30, 2019 and 2018.

benefits to be derived from our acquired intangibles, will take additional financial resources to continue the development of

our technology.

Management believes our technology has significant long-term profit potential, and to date, management continues

to allocate existing resources to the develop products and services to seek returns on its investment.

We continue to seek additional

resources, through both capital raising efforts and meeting with industry experts, as part of our continued efforts.

there can be no assurance that these efforts will be successful, we intend to allocate financial and personnel resources when

deemed possible and/or necessary.

If we choose to abandon these efforts, or if we determine that such funding is not available,

the related development of our technology (resulting in our lack of ability to expand our business), may be subject to significant

described previously, we continue to experience weakness in market conditions, a depressed stock price, and challenges in executing

our business plans.

Long-lived Assets

We account for our

long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for the Impairment

or Disposal of Long-Lived Assets”

(“ASC 360”), which requires that long-lived assets be evaluated whenever events

or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

events or changes in circumstances that would trigger an impairment test include, but are not limited to:

significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for two consecutive years);

significant negative industry or economic trends;

knowledge of transactions involving the sale of similar property at amounts below our carrying value;

our expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria to be classified as “held for sale.”

Long-lived assets are

grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent

of the cash flows of other assets.

The impairment test for long-lived assets requires us to assess the recoverability of our long-lived

assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and

arising from our use and eventual disposition of the assets.

If the net carrying value of a group of long-lived assets exceeds

the sum of related undiscounted estimated future cash flows, we would be required to record an impairment charge equal to the excess,

if any, of net carrying value over fair value.

When assessing the

recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, we make assumptions

regarding estimated future cash flows and other factors.

Some of these assumptions involve a high degree of judgment and also bear

a significant impact on the assessment conclusions.

Included among these assumptions are estimating undiscounted future cash flows,

including the projection of comparable sales, operating expenses, capital requirements for maintaining property and equipment and

residual value of asset groups.

We formulate estimates from historical experience and assumptions of future performance, based

on business plans and forecasts, recent economic and business trends, and competitive conditions.

In the event that our estimates

or related assumptions change in the future, we may be required to record an impairment charge.

Based on our evaluation we did

not record a charge for impairment for the three months ended March 31, 2020.

The benefits to be

derived from our acquired intangibles, will take additional financial resources to continue the development of our technology.

Management believes our technology has significant long-term profit potential, and to date, management continues to allocate existing

resources to the develop products and services to seek returns on its investment.

We continue to seek additional resources, through

both capital raising efforts and meeting with industry experts, as part of our continued efforts.

Although there can be no assurance

that these efforts will be successful, we intend to allocate financial and personnel resources when deemed possible and/or necessary.

If we choose to abandon these efforts, or if we determine that such funding is not available, the related development of our technology

(resulting in our lack of ability to expand our business), may be subject to significant impairment.

As described previously,

we continue to experience weakness in market conditions, a depressed stock price, and challenges in executing our business plans.

The Company will continue to monitor these uncertainties in future periods, to determine the impact.

evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate

that a revision to the remaining period of amortization is warranted.

Such events or circumstances may include (but are not limited

the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in

which we operate, known technological advances, legislative actions, or changes in the regulatory environment.

If the estimated

remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would

be amortized prospectively over that revised remaining useful life.

We have determined that there were no events or circumstances

during the three and nine months ended September 30, 2019 and 2018, which would indicate a revision to the remaining amortization

period related to any of our long-lived assets.

Accordingly, we believe that the current estimated useful lives of long-lived

assets reflect the period over which they are expected to contribute to future cash flows and are therefore deemed appropriate.

In-Process Research and Development (“IPR&D”)

accordance with authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and subsequently account

for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts.

Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly.

If the IPR&D asset is abandoned, the remaining carrying value is written off.

During fiscal year 2014, we acquired IPR&D

through the acquisition of AirPatrol, in 2015 through the acquisition of the assets of LightMiner and in 2019 through the acquisitions

of Locality, Jibestream and certain assets of GTX.

Our IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream and

GTX technology, which was valued on the date of the acquisition.

It will take additional financial resources to continue development

of these technologies.

continue to seek additional resources, through both capital raising efforts and meeting with industry experts, for further development

of the AirPatrol, Locality, Jibestream and GTX technologies.

Through September 30, 2019, we have made some progress with raising

capital since these acquisitions, building our pipeline and getting industry acknowledgment.

We have been recognized by leading

industry analysts in a report on leading indoor positioning companies and was also awarded the IoT Security Excellence award by

Management remains focused on growing revenue from these products and continues to pursue efforts to recognize the value

of the AirPatrol, LightMiner, Locality, Jibestream and GTX technologies.

Although there can be no assurance that these efforts

will be successful, we intend to allocate financial and personnel resources when deemed possible and/or necessary.

to abandon these efforts, or if we determine that such funding is not available, the related IPR&D will be subject to significant

of Long-Lived Assets Subject to Amortization

amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment

indicator exists.

We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived

assets, including our intangible assets, may not be recoverable.

When such events or changes in circumstances occur, we assess

recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future

If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment

loss based on the excess of the carrying amount over the fair value of the assets.

We did not recognize any intangible asset impairment

charges for the three and nine months ended September 30, 2019.

We evaluate the remaining

useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision

to the remaining period of amortization is warranted.

Such events or circumstances may include (but are not limited to):

of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in which we operate,

known technological advances, legislative actions, or changes in the regulatory environment.

If the estimated remaining useful

lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be amortized prospectively

over that revised remaining useful life.

We have determined that there were no events or circumstances during the three months

ended March 31, 2020 and 2019, which would indicate a revision to the remaining amortization period related to any of our long-lived

Accordingly, we believe that the current estimated useful lives of long-lived assets reflect the period over which they

are expected to contribute to future cash flows and are therefore deemed appropriate.

Acquired In-Process Research and

Development (“IPR&D”)

In accordance with

authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and subsequently account for it as an

indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts.

Once an IPR&D

project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly.

If the IPR&D asset

is abandoned, the remaining carrying value is written off.

During fiscal year 2014, we acquired IPR&D through the acquisition

of AirPatrol, in 2015 through the acquisition of the assets of LightMiner and in 2019 through the acquisitions of Locality, Jibestream

and certain assets of GTX.

Our IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream and GTX technology, which

was valued on the date of the acquisition.

It will take additional financial resources to continue development of these technologies.

We continue to seek

additional resources, through both capital raising efforts and meeting with industry experts, for further development of the AirPatrol,

Locality, Jibestream and GTX technologies.

Through March 31, 2020, we have made some progress with raising capital since these

acquisitions, building our pipeline and getting industry acknowledgment.

We have been recognized by leading industry analysts in

a report on leading indoor positioning companies and was also awarded the IoT Security Excellence award by TMC.

Management remains

focused on growing revenue from these products and continues to pursue efforts to recognize the value of the AirPatrol, LightMiner,

Locality, Jibestream and GTX technologies.

Although there can be no assurance that these efforts will be successful, we intend

to allocate financial and personnel resources when deemed possible and/or necessary.

If we choose to abandon these efforts, or

if we determine that such funding is not available, the related IPR&D will be subject to significant impairment.

Impairment of Long-Lived Assets

Subject to Amortization

We amortize intangible

assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists.

We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived assets, including

our intangible assets, may not be recoverable.

When such events or changes in circumstances occur, we assess recoverability by

determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows.

the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on

the excess of the carrying amount over the fair value of the assets.

We did not recognize any intangible asset impairment charges

for the three months ended March 31, 2020.

See “Acquired In-Process Research and Development (“IPR&D”)”

for further information.

Development Costs

Company develops and utilizes internal software for the processing of data provided by its customers.

Costs incurred in this effort

are accounted for under the provisions of FASB ASC 350-40, Internal Use Software and ASC 985-20, Software –

Cost of Software

to be Sold, Leased or Marketed, whereby direct costs related to development and enhancement of internal use software is capitalized,

and costs related to maintenance are expensed as incurred.

The Company capitalizes its direct internal costs of labor and associated

employee benefits that qualify as development or enhancement.

These software development costs are amortized over the estimated

useful life which management has determined ranges from one to five years.

for Doubtful Accounts

maintain our reserves for credit losses at a level believed by management to be adequate to absorb potential losses inherent in

the respective balances.

We assign an internal credit quality rating to all new customers and update these ratings regularly,

but no less than annually.

Management’s determination of the adequacy of the reserve for credit losses for our accounts

and notes receivable is based on the age of the receivable balance, the customer’s credit quality rating, an evaluation

of historical credit losses, current economic conditions, and other relevant factors.

of September 30, 2019 and December 31, 2018, reserves for credit losses included a reserve for doubtful accounts of approximately

$505,000 and $464,000, respectively, due to the aging of the items greater than 120 days outstanding and other potential non-collections.

account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the

acquired business are recorded at their fair values at the date of acquisition.

The excess of the purchase price over the estimated

fair value is recorded as goodwill.

Any changes in the estimated fair values of the net assets recorded for acquisitions prior

to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount

of the purchase price allocable to goodwill.

Any subsequent changes to any purchase price allocations that are material to our

consolidated financial results will be adjusted.

All acquisition costs are expensed as incurred and in-process research and development

costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion,

at which point the asset is amortized over its expected useful life.

Separately recognized transactions associated with business

combinations are generally expensed subsequent to the acquisition date.

The application of business combination and impairment

accounting requires the use of significant estimates and assumptions.

acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date and are included

in our Consolidated Financial Statements from the acquisition date.

account for equity instruments issued to non-employees in accordance with accounting guidance, which requires that such equity

instruments are recorded at their fair value on the measurement date, which is typically the date the services are performed.

account for equity instruments issued to employees in accordance with accounting guidance that requires that awards are recorded

at their fair value on the date of grant and are amortized over the vesting period of the award.

We recognize compensation costs

over the requisite service period of the award, which is generally the vesting term of the equity instrument issued.

Black-Scholes option valuation model is used to estimate the fair value of the options or the equivalent security granted.

model includes subjective input assumptions that can materially affect the fair value estimates.

The model was developed for use

in estimating the fair value of traded options or warrants.

The expected volatility is estimated based on the average of historical

volatilities for industry peers.

the three months ended September 30, 2019 and 2018, the Company incurred stock-based compensation charges of $871,000 and $122,000,

respectively.

For the nine months ended September 30, 2019 and 2018, the Company incurred stock-based compensation charges of

$2,618,000 and $979,000, respectively.

The principal assumptions used in applying the Black-Scholes model along with the results

from the model were as follows:

September 30, 2019

interest rate

life of option grants

volatility of underlying stock

49.48-106.16%

The Company recorded a

stock based compensation charge for the amortization of employee stock options of $871,000 and $122,000 for the three months ended

September 30, 2019 and 2018, respectively, and $2,376,000 and $899,000 for the nine months ended September 30, 2019 and 2018, respectively.

Software Development Costs

The Company develops

and utilizes internal software for the processing of data provided by its customers.

Costs incurred in this effort are accounted

for under the provisions of FASB ASC 350-40, Internal Use Software and ASC 985-20, Software –

Cost of Software to be Sold,

Leased or Marketed, whereby direct costs related to development and enhancement of internal use software is capitalized, and costs

related to maintenance are expensed as incurred.

The Company capitalizes its direct internal costs of labor and associated employee

benefits that qualify as development or enhancement.

These software development costs are amortized over the estimated useful life

which management has determined ranges from one to five years.

Allowance for Doubtful Accounts

We maintain our reserves

for credit losses at a level believed by management to be adequate to absorb potential losses inherent in the respective balances.

We assign an internal credit quality rating to all new customers and update these ratings regularly, but no less than annually.

Management’s determination of the adequacy of the reserve for credit losses for our accounts and notes receivable is based

on the age of the receivable balance, the customer’s credit quality rating, an evaluation of historical credit losses, current

economic conditions, and other relevant factors.

As of March 31, 2020

and December 31, 2019, reserves for credit losses included a reserve for doubtful accounts of approximately $471,000 and $646,000,

respectively, due to the aging of the items greater than 120 days outstanding and other potential non-collections.

Business Combinations

We account for business

combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are

recorded at their fair values at the date of acquisition.

The excess of the purchase price over the estimated fair value is recorded

Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of

more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable

Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will

All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair

value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset

is amortized over its expected useful life.

Separately recognized transactions associated with business combinations are generally

expensed subsequent to the acquisition date.

The application of business combination and impairment accounting requires the use

of significant estimates and assumptions.

Upon acquisition, the

accounts and results of operations are consolidated as of and subsequent to the acquisition date and are included in our Consolidated

Financial Statements from the acquisition date.

Stock-Based Compensation

We account for equity

instruments issued to non-employees in accordance with accounting guidance, which requires that such equity instruments are recorded

at their fair value on the measurement date, which is typically the date the services are performed.

We account for equity

instruments issued to employees in accordance with accounting guidance that requires that awards are recorded at their fair value

on the date of grant and are amortized over the vesting period of the award.

We recognize compensation costs over the requisite

service period of the award, which is generally the vesting term of the equity instrument issued.

The Black-Scholes option

valuation model is used to estimate the fair value of the options or the equivalent security granted.

The model includes subjective

input assumptions that can materially affect the fair value estimates.

The model was developed for use in estimating the fair value

of traded options or warrants.

The expected volatility is estimated based on the average of historical volatilities for industry

The Company incurred

stock-based compensation charges of $399,000 and $890,000 for the three months ended March 31, 2020 and 2019, respectively, which

are included in general and administrative expenses.

The following table summarizes the nature of such charges for the periods

then ended (in thousands):

For the Three Months Ended March 31,

Compensation and related benefits

Professional and legal fees

During the three months

ended March 31, 2020 there were no stock options granted to consultants or employees of the Company.

of Operations

Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

following table sets forth selected condensed consolidated financial data as a percentage of our revenue and the percentage of

period-over-period change:

ended March 31, 2020 compared to three months ended March 31, 2019

The following table

sets forth selected condensed consolidated financial data as a percentage of our revenue and the percentage of period-over-period

For the Three Months Ended

September 30, 2019

September 30, 2018

March 31, 2020

March 31, 2019

(in thousands, except percentages)

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which may be rounded to the nearest hundred thousand, may not produce the same results.

for the three months ended September 30, 2019 were $1,534,000 compared to $940,000 for the comparable period in the prior year

for an increase of $594,000, or approximately 63%.

Revenues increased in the third quarter of 2019 over the prior period in 2018

primarily due to an increase in our IPA revenues resulting from an increased focus on the IPA product line and a new significant

Our increased revenue is a result of a new customer retained in the three months ended March 31, 2019 which represents

approximately 33% of our revenues for the three months ended September 30, 2019.

of revenues for the three months ended September 30, 2019 were $382,000 compared to $298,000 for the comparable period in the

This increase of $84,000, or approximately 28%, was primarily attributable to the increase in IPA revenue during the

three months ended September 30, 2019.

gross profit margin for the three months ended September 30, 2019 was 75% compared to 68% for the three months ended September

This increase in margin is primarily due to the increase in higher margin IPA revenue during the three months ended

September 30, 2019.

expenses for the three months ended September 30, 2019 were $6.8 million and $4.0 million for the comparable period ended September

This increase of approximately $2.8 million is primarily attributable to $495,000 of higher acquisition costs, approximately

$479,000 of Jibestream’s operating expenses, approximately $749,000 of higher stock-based compensation expense and higher

professional fees, bad debts expense and other administrative costs during the three months ended September 30, 2019.

From Operations

from operations for the three months ended September 30, 2019 was $5.7 million as compared to $3.3 million for the comparable

period in the prior year.

This increase of approximately $2.4 million was primarily attributable to the higher gross margin offset

by higher operating expenses during the three months ended September 30, 2019 as discussed in the reporting caption above.

Income/Expense

income/expense for the three months ended September 30, 2019 was a loss of $928,000 compared to a loss of $78,000 for the comparable

period in the prior year.

This increase in loss of $850,000 is primarily attributable to the interest income from a related party

note offset by an increase in interest expense and debt discount on promissory notes in the three months ended September 30, 2019.

Provision for

was no provision for corporate income taxes for the three months ended September 30, 2019 and 2018 as the Company was in a net

taxable loss position.

Deferred tax assets resulting from such losses are fully reserved as of September 30, 2019 and 2018 since,

at present, the Company has no history of taxable income and it is more likely than not that such assets will not be realized.

The Company recorded an income tax benefit of approximately $33,000 during the three months ended September 30, 2019 for the reduction

of the deferred tax liability related to the amortization of the Locality and Jibestream intangibles.

Gain and Net Loss Attributable To Non-Controlling Interest

gain attributable to non-controlling interest for the three months ended September 30, 2019 was $5,000 compared to net gain of

$4,000 for the comparable period in the prior year.

This increase in gain of $1,000 was attributable to the gain from Inpixon

India and is immaterial.

Loss Attributable To Stockholders of Inpixon

loss attributable to stockholders of Inpixon for the three months ended September 30, 2019 was $6.6 million compared to $5.2 million

for the comparable period in the prior year.

The higher loss of approximately $1.4 million was primarily attributable to higher

margin IPA revenue offset by higher operating and interest expense during the three months ended September 30, 2019.

Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

following table sets forth selected condensed consolidated financial data as a percentage of our revenue and the percentage of

period-over-period change:

For the Nine Months Ended

September 30, 2019

September 30, 2018

(in thousands, except percentages)

Cost of revenues

for the three months ended March 31, 2020 were $1,804,000 compared to $1,363,000 for the comparable period in the prior year for

an increase of $441,000, or approximately 32%.

Revenues increased in the first quarter of 2020 over the prior period in 2019 primarily

due to an increase in revenue from mapping services, which we did not have in 2019.

of revenues for the three months ended March 31, 2020 were $510,000 compared to $337,000 for the comparable period in the prior

This increase of $173,000, or approximately 51%, was primarily attributable to the increase in mapping revenue during the

first quarter ended March 31, 2020.

gross profit margin for the three months ended March 31, 2020 was 72% compared to 75% for the first quarter ended March 31, 2019.

This decrease in margin is primarily due to lower margins associated with our mapping services during the first quarter ended March

Operating Expenses

expenses for the three months ended March 31, 2020 were $6.9 million and $5.9 million for the comparable period ended March 31,

This increase of approximately $1.0 million is primarily attributable to the additional operating expenses from the Jibestream

acquisition and increase in professional fees.

Loss From Operations

Net loss attributable to stockholders of Inpixon

used to calculate dollar and percentage changes are based on numbers in the thousands.

Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand,

may not produce the same results.

for the nine months ended September 30, 2019 were $4.4 million compared to $2.6 million for the comparable period in the

prior year for an increase of approximately $1.8 million, or approximately 67%.

Revenues increased in the nine months ended

September 30, 2019 over the prior period in 2018 primarily due to an increase in our IPA revenues resulting from an increased

focus on the IPA product line.

Our increased focus resulted in the addition of a new customer, representing approximately 46%

of our revenues for the nine months ended September 30, 2019.

of revenues for the nine months ended September 30, 2019 were $1,109,000 compared to $818,000 for the comparable period in the

This increase of $291,000, or approximately 36%, was primarily attributable to the increase in IPA revenue during

the nine months ended September 30, 2019.

gross profit margin for the nine months ended September 30, 2019 was 75% compared to 69% for the nine months ended September 30,

This increase in margin is primarily due to the increase in higher margin IPA revenue during the nine months ended September

expenses for the nine months ended September 30, 2019 were $18.6 million and $13.4 million for the comparable period ended September

This increase of approximately $5.2 million is primarily attributable to approximately $1.1 million of higher acquisition

costs, approximately $479,000 of Jibestream’s operating expenses, approximately $1.6 million of higher stock-based compensation

expense and higher professional fees, compensation expense, marketing expense, bad debts expense and other administrative costs

during the nine months ended September 30, 2019.

From Operations

from operations for the nine months ended September 30, 2019 was $15.3 million as compared to $11.6 million for the comparable

period in the prior year.

This increase of approximately $3.7 million was primarily attributable to higher gross margins offset

by higher operating expenses during the nine months ended September 30, 2019 as discussed in the reporting caption above.

Income/Expense

income/expense for the nine months ended September 30, 2019 was a loss of $1,723,000 compared to a loss of $921,000 for the comparable

from operations for the three months ended March 31, 2020 was $5.6 million as compared to $4.9 million for the comparable period

in the prior year.

This increase of approximately $0.7 million was primarily attributable to the higher gross margin offset by

higher operating expenses during the three months ended March 31, 2020 as discussed in the reporting caption above.

Other Income/Expense

income/expense for the three months ended March 31, 2020 was a loss of $689,000 compared to a loss of $287,000 for the comparable

period in the prior year.

This increase in loss of $802,000 is primarily attributable to the interest income from a related party

note offset by higher interest expense and debt discount during the nine months ended September 30, 2019.

This increase in loss of $402,000 is primarily attributable to the increase in interest expense and debt

discount on promissory notes in the first quarter ended March 31, 2020.

Provision for

was no provision for corporate income taxes for the nine months ended September 30, 2019 and 2018 as the Company was in a net

taxable loss position.

Deferred tax assets resulting from such losses are fully reserved as of September 30, 2019 and 2018 since,

at present, the Company has no history of taxable income and it is more likely than not that such assets will not be realized.

The Company recorded an income tax benefit of approximately $35,000 during the nine months ended September 30, 2019 for the reduction

of the deferred tax liability related to the amortization of the Locality and Jibestream intangibles.

Gain and Net Loss Attributable To Non-Controlling Interest

gain attributable to non-controlling interest for the nine months ended September 30, 2019 was $9,000 compared to net gain of

was no provision for corporate income taxes for the three months ended March 31, 2020 and 2019 as the Company was in a net taxable

loss position.

Deferred tax assets resulting from such losses are fully reserved as of March 31, 2020 and 2019 since, at present,

the Company has no history of taxable income and it is more likely than not that such assets will not be realized.

recorded an income tax benefit of approximately $87,000 during the three months ended March 31, 2020 for the reduction of the deferred

tax liability related to the amortization of the Locality and Jibestream intangibles.

Net Loss Attributable

To Non-Controlling Interest

loss attributable to non-controlling interest for the three months ended March 31, 2020 was $10,000 compared to net loss of $5,000

for the comparable period in the prior year.

This increase in gain of $3,000 was attributable to the gain from Inpixon

India and is immaterial.

Loss Attributable To Stockholders of Inpixon

loss attributable to stockholders of Inpixon for the nine months ended September 30, 2019 was $17.0 million compared to $17.3 million

This increase in loss of $5,000 was attributable to the gain from Inpixon India and

is immaterial.

Net Loss Attributable

To Stockholders of Inpixon

loss attributable to stockholders of Inpixon for the three months ended March 31, 2020 was $6.2 million compared to $5.2 million

for the comparable period in the prior year.

The lower loss of approximately $0.3 million was primarily attributable to higher

margin IPA revenue offset by higher operating costs and interest expense during the nine months ended September 30, 2019 and the

additional losses from deconsolidated operations of the Spin-off during the nine months ended September 30, 2018.

Financial information

The higher loss of approximately $1.0 million was primarily attributable to higher

gross margin offset by higher operating and interest expense during the first quarter ended March 31, 2020.

Non-GAAP Financial information

is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization.

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for other income or expense items, non-recurring items and non-cash stock-based compensation.

EBITDA for the three months ended September 30, 2019 was a loss of $2.4 million compared to a loss of $3.4 million for the

prior period in 2018.

Adjusted EBITDA for the nine months ended September 30, 2019 was a loss of $7.0 million compared

to a loss of $10.9 million for the prior period in 2018.

EBITDA for the three months ended March 31, 2020 was a loss of $3.9 million compared to a loss of $2.6 million for the prior

period in 2019.

following table presents a reconciliation of net income/loss attributable to stockholders of Inpixon, which is our GAAP operating

performance measure, to Adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

performance measure, to Adjusted EBITDA for the three months ended March 31, 2020 and 2019 (in thousands):

For the Three Months Ended

Net loss attributable to common stockholders

Non-recurring one-time charges:

Loss on exchange of debt for equity

Settlement of litigation

Acquisition transaction/financing costs

Costs associated with public offering

Gain on the settlement of obligations

Gain on earnout

Gain on the sale of Sysorex Arabia

Cain on the sale of contracts

Change in the fair value of derivative liability

Provision for doubtful accounts

Settlement of litigation

Loss on exchange of debt for equity

Deemed dividend to preferred stockholders

Deemed dividend for triggering of warrant down round feature

Stock-based compensation - compensation and related benefits

Interest expense

Depreciation and amortization

Interest expense, net

Income tax benefit

Depreciation and amortization

Adjusted EBITDA

rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:

review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment

compare our current operating results with corresponding periods and with the operating results of other companies in our

a basis for allocating resources to various projects;

a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions;

evaluate internally the performance of our personnel.

have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results.

We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and

the reconciliation to net income (loss).

By including this information, we can provide investors with a more complete understanding

of our business.

to review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment Reporting;

to compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

as a basis for allocating resources to various projects;

as a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions;

to evaluate internally the performance of our personnel.

We have presented Adjusted

EBITDA above because we believe it conveys useful information to investors regarding our operating results.

We believe it provides

an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net

income (loss).

By including this information, we can provide investors with a more complete understanding of our business.

Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:

believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect

of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation,

amortization of intangibles, change in the fair value of shares to be issued, change in the fair value of derivative liability,

impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision

for doubtful accounts, acquisition costs and the costs associated with public offerings;

believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating

believe that the use of Adjusted EBITDA is helpful to compare our results to other companies.

though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool.

we believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation, amortization of intangibles, change in the fair value of shares to be issued, change in the fair value of derivative liability, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with public offerings;

we believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance;

we believe that the use of Adjusted EBITDA is helpful to compare our results to other companies.

Even though we

believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool.

Thus, we strongly urge

investors not to consider this metric in isolation or as a substitute for net income (loss) and the other consolidated statement

of operations data prepared in accordance with GAAP.

Some of these limitations include the fact that:

EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal

payments on our debt;

depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced

in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments;

companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness

as a comparative measure.

of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the

growth of our business or as a measure of performance in compliance with GAAP.

We compensate for these limitations by relying

primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.

Non-GAAP Net Loss per Share

and diluted net loss per share for the three months ended September 30, 2019 was ($0.28) compared to ($4.84) for the prior period

Basic and diluted net loss per share for the nine months ended September 30, 2019 was ($1.46) compared to ($55.24) for

the prior period in 2018.

The decreased loss per share in 2019 was attributable to the changes discussed in our results of operations,

deemed dividends and the change in weighted average shares outstanding from 2018 to 2019.

investors not to consider this metric in isolation or as a substitute for net income (loss) and the other condensed

consolidated statement of operations data prepared in accordance with GAAP.

Some of these limitations include the fact

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments;

other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure.

Because of these limitations,

Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business

or as a measure of performance in compliance with GAAP.

We compensate for these limitations by relying primarily on our GAAP results

and providing Adjusted EBITDA only as supplemental information.

Proforma Non-GAAP Net Loss per Share

Basic and diluted net

loss per share for the three months ended March 31, 2020 was ($1.22) compared to ($64.01) for the prior period in 2019.

non-GAAP net income (loss) per share is used by our Company’s management as an evaluation tool as it manages the business

2 unchanged sentences

doubtful accounts, acquisition costs and the costs associated with public offerings.

non-GAAP net loss per basic and diluted common share for the three months ended September 30, 2019 was ($0.17) compared to a loss

of ($3.61) per share for the prior period in 2018.

Proforma non-GAAP net loss per basic and diluted common share for the nine

months ended September 30, 2019 was ($0.79) compared to a loss of ($27.11) per share for the prior period in 2018.

non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2020 was ($0.92) compared to a loss of

($31.98) per share for the prior period in 2019.

following table presents a reconciliation of net loss per basic and diluted share, which is our GAAP operating performance measure,

to proforma non-GAAP net loss per share for the periods reflected (in thousands, except per share data):

For the Three Months Ended

(thousands, except per share data)

Three Months Ended

Nine Months Ended

Net loss attributable to common stockholders

Non-recurring one-time charges:

Loss on the exchange of debt for equity

Settlement of litigation

Acquisition transaction/financing costs

Costs associated with public offering

Gain on the settlement of obligations

Gain on earnout

Gain on the sale of Sysorex Arabia

Gain on the sale of contracts

Change in the fair value of derivative liability

Provision for doubtful accounts

Settlement of litigation

Loss on exchange of debt for equity

Deemed dividend to preferred stockholders

Deemed dividend for triggering of warrant down round feature

2 unchanged sentences

Proforma non-GAAP net loss

Proforma non-GAAP net loss per basic

and diluted common share

Proforma non-GAAP net loss per basic and diluted common share

Weighted average basic and diluted common shares outstanding

rely on proforma non-GAAP net loss per share, which is a non-GAAP financial measure:

review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment

compare our current operating results with corresponding periods and with the operating results of other companies in our

a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions;

evaluate internally the performance of our personnel.

have presented proforma non-GAAP net loss per share above because we believe it conveys useful information to investors regarding

our operating results.

We believe it provides an additional way for investors to view our operations, when considered with both

our GAAP results and the reconciliation to net income (loss), and that by including this information we can provide investors

with a more complete understanding of our business.

Specifically, we present proforma non-GAAP net loss per share as supplemental

disclosure because:

believe proforma non-GAAP net loss per share is a useful tool for investors to assess the operating performance of our business

without the effect of non-cash items including stock based compensation, amortization of intangibles and one time charges

including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value

of shares to be issued, acquisition costs and the costs associated with public offerings;

believe that it is useful to provide to investors a standard operating metric used by management to evaluate our operating

believe that the use of proforma non-GAAP net loss per share is helpful to compare our results to other companies.

and Capital Resources as of September 30, 2019

current capital resources and operating results as of and through September 30, 2019, consist of:

overall working capital deficit of $11.7 million;

of approximately $494,000;

Payplant credit facility which we may borrow against based on eligible assets with a balance of $259,000 as of September 30,

cash used by operating activities for the period of $9.1 million.

breakdown of our overall working capital deficit is as follows (in thousands):

to review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment Reporting;

to compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

as a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions;

to evaluate internally the performance of our personnel.

We have presented proforma

non-GAAP net loss per share above because we believe it conveys useful information to investors regarding our operating results.

We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the

reconciliation to net income (loss), and that by including this information we can provide investors with a more complete understanding

of our business.

Specifically, we present proforma non-GAAP net loss per share as supplemental disclosure because:

we believe proforma non-GAAP net loss per share is a useful tool for investors to assess the operating performance of our business without the effect of non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with public offerings;

we believe that it is useful to provide to investors a standard operating metric used by management to evaluate our operating performance;

we believe that the use of proforma non-GAAP net loss per share is helpful to compare our results to other companies.

Liquidity and Capital Resources

as of March 31, 2020

current capital resources and operating results as of and through March 31, 2020, consist of:

an overall working capital deficit of $6.2 million;

cash of approximately $6.1 million;

ATM equity facility in an aggregate offering amount of up to $50 million of which we have raised approximately $1.4 million of gross proceeds as of March 31, 2020;

the Payplant credit facility which we may borrow against based on eligible assets with a balance of $0 as of March 31, 2020;

net cash used by operating activities for the period of $4.5 million.

The breakdown of our

overall working capital deficit is as follows (in thousands):

Working Capital

4 unchanged sentences

Notes and other receivables / Short-term debt

cash used in operating activities during the nine months ended September 30, 2019 of $9.1 million consists of net loss of $17.0

million offset by non-cash adjustments of $8.4 million less net cash changes in operating assets and liabilities of $0.5 million.

The Company’s

capital resources as of September 30, 2019, availability on the Payplant facility to finance purchase orders and invoices in an

amount equal to 80% of the face value of purchase orders received and funds from its revenue will not

be sufficient to fund planned operations during the next twelve months from the date the financial statements are issued based

on current projections.

In addition, the Company is pursuing possible strategic transactions.

Therefore, the Company may raise

such additional capital as needed, through the issuance of equity, equity-linked or debt securities.

In this regard, on October

10, 2019, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Maxim Group

LLC (“Maxim”) under which we may offer and sell shares of our common stock having an aggregate offering price of up

to $6,500,000 from time to time through Maxim, acting exclusively as our sales agent.

Under the Equity Distribution Agreement,

we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales

are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below

which sales may not be made.

Subject to the terms and conditions of the Equity Distribution Agreement, Maxim may sell the shares

by methods deemed to be an “at-the-market”

offering as defined in Rule 415 promulgated under the Securities

Act, including sales made directly on or through the Nasdaq Capital Market, the existing trading market for our common stock,

sales made to or through a market maker other than on an exchange or otherwise, in negotiated transactions at market prices, and/or

any other method permitted by law.

Concern and Management Plans

condensed consolidated financial statements as of September 30, 2019 have been prepared under the assumption that we will continue

as a going concern for the next twelve months from the date the financial statements are issued.

Footnote 1 to the notes to our

condensed consolidated financial statements as of September 30, 2019 include language referring to our recurring and continuing

losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital

becoming available.

Management’s plans and assessment of the probability that such plans will mitigate and alleviate any

substantial doubt about the Company’s ability to continue as a going concern, is dependent upon the ability to obtain additional

equity or debt financing, attain further operating efficiency, reduce expenditures, and, ultimately, to generate sufficient levels

of revenue, which together represent the principal conditions that raise substantial doubt about our ability to continue as a

going concern.

Our condensed consolidated financial statements as of September 30, 2019 do not include any adjustments that might

result from the outcome of this uncertainty.

Net cash used in operating

activities during the three months ended March 31, 2020 of $4.5 million consists of net loss of $6.2 million offset by non-cash

adjustments of $2.7 million less net cash changes in operating assets and liabilities of $1.0 million.

While the Company believes

that its recent debt financing, access to capital in connection with the sale of its securities under the ATM, availability on

the Payplant facility to finance purchase orders and invoices in an amount equal to 80% of the face value of purchase orders received,

and funds from revenue may be sufficient to fund planned operations for the next 12 months from the date the financial statements

are issued, the impact of the COVID-19 pandemic on our business and results of operations is uncertain at this time.

While we have

been able to continue operations remotely and have not seen a significant impact in certain products including our SaaS or subscription

based services and products, certain projects and customer requests have had to be delayed either because they require onsite services

which could not be performed while shelter in place orders have been in effect or because of the uncertainty of the customer’s

financial position and ability to invest in our technology.

However, we have also seen an increase in interest in our indoor intelligence

solutions for workplace readiness which is directed at enterprise organizations and government agencies to assist them in optimizing

the use of their facilities as well as in developing and monitoring compliance with corporate policies and government regulations

for physical distancing, exposure notification, and the identification of high traffic areas for sanitizing and cleaning in order

to keep their employees healthier and safer within the workplace.

If we are successful in expanding the adoption of our products

and services for this solution, we may be able to offset any revenue loss that may be experienced, however, there are no assurances

that we will be successful or that we will be able to offset any losses, if realized.

In addition, if general economic or other

conditions resulting from COVID 19 or other events materiality impact the liquidity of our common stock or ability to access capital

from the ATM in addition to our ability to generate revenue from the sales of our products and services, there are no assurances

that we will have sufficient funds to support our operations for the next 12 months.

The Company is also pursuing

possible strategic transactions and may raise such additional capital as needed, using our equity securities, an assignment

of our note receivable from Sysorex, Inc.

(“Sysorex”) and/or cash and debt financings in combinations appropriate for

each acquisition.

Going Concern and Management Plans

Our condensed consolidated

financial statements as of March 31, 2020 have been prepared under the assumption that we will continue as a going concern for

the next twelve months from the date the financial statements are issued.

Footnote 1 to the notes to our condensed consolidated

financial statements as of March 31, 2020 include language referring to our recurring and continuing losses from operations and

expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.

Management’s

plans and assessment of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s

ability to continue as a going concern, is dependent upon the ability to obtain additional equity or debt financing, attain further

operating efficiency, reduce expenditures, and, ultimately, to generate sufficient levels of revenue, which together represent

the principal conditions that raise substantial doubt about our ability to continue as a going concern.

Our condensed consolidated

financial statements as of March 31, 2020 do not include any adjustments that might result from the outcome of this uncertainty.

and Capital Resources –

of September 30, 2019, the principal amount outstanding under the Loan Agreement was $259,000.

and Capital Resources as of September 30, 2019 Compared to September 30, 2018

Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2019

As of March 31, 2020,

the principal amount outstanding under the Payplant Loan Agreement was $0.

and Capital Resources as of March 31, 2020 Compared to March 31, 2019

Company’s net cash flows used in operating, investing and financing activities for the three months ended March 31, 2020

and 2019 and certain balances as of the end of those periods are as follows (in thousands):

For the Nine Months

Ended September 30,

For the Three Months

Net cash used in operating activities

3 unchanged sentences

Net increase in cash

September 30,

As of December 31,

1 unchanged sentence

Working capital (deficit)

Activities for the nine months ended September 30, 2019

cash used in operating activities during the nine months ended September 30, 2019 was $9.1 million.

Net cash used in operating

activities during the nine months ended September 30, 2018 was $23.5 million.

The cash flows related to the nine months ended

September 30, 2019 consisted of the following (in thousands):

Operating Activities

for the three months ended March 31, 2020

cash used in operating activities during the three months ended March 31, 2020 was $4.5 million.

The cash flows related to the

three months ended March 31, 2020 consisted of the following (in thousands):

Non-cash income and expenses

1 unchanged sentence

Net cash used in operating activities

non-cash income and expense of $8.4 million consisted primarily of the following (in thousands):

Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, and Jibestream operations, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, and August 15, 2019 respectively.

Stock-based compensation expense attributable to warrants and options issued as part of Company operations

Amortization of debt discount

The non-cash income and expense of $2.7 million consisted primarily

of the following (in thousands):

Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, and Jibestream, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, and August 15, 2019, respectively.

Amortization of right of use asset

Amortization of technology

Stock-based compensation expense attributable to warrants and options issued as part of Company operations

Loss on exchange of debt for equity

Provision for doubtful accounts

Total non-cash expenses

net use of cash in the change in operating assets and liabilities aggregated approximately $0.5 million and consisted primarily

of the following (in thousands):

Amortization of debt discount

Income tax benefit

Total non-cash income

net use of cash in the change in operating assets and liabilities aggregated $1.0 million and consisted primarily of the following

(in thousands):

Increase in accounts receivable and other receivables

Increase in inventory and other assets

Increase in accounts payable

Increase in accrued liabilities and other liabilities

Decrease in inventory, other current assets and other assets

Decrease in accounts payable

Decrease in accrued liabilities and other liabilities

Decrease in operating lease liabilities

Decrease in deferred revenue

Net use of cash in the changes in operating assets and liabilities

Activities for the nine months ended September 30, 2018

cash used in operating activities during the nine months ended September 30, 2018 was $23.5 million and consisted of the following

(in thousands):

Net cash used in the changes in operating assets and liabilities

Operating Activities

for the three months ended March 31, 2019

cash used in operating activities during the three months ended March 31, 2019 was $3.5 million.

The cash flows related to the

three months ended March 31, 2019 consisted of the following (in thousands):

Non-cash income and expenses

1 unchanged sentence

Net cash used in operating activities

non-cash income and expense of $5.5 million consisted primarily of the following (in thousands):

Depreciation and amortization expenses

(including amortization of intangibles) primarily attributable to the Lilien, Shoom, AirPatrol, LightMiner and Integrio operations,

which were acquired effective March 1, 2013, August 31, 2013, April 16, 2014, April 24, 2015 and November 21, 2016, respectively

Change in the fair value of derivative liability

Stock-based compensation expense attributable to warrants

and options issued as part of Company operations

Gain on settlement of liabilities

Amortization of debt discount

The non-cash income and expense of $2.5 million consisted primarily

of the following (in thousands):

Amortization of right of use asset

Stock-based compensation expense attributable to warrants and options issued as part of Company operations

Amortization of technology

Amortization of debt discount

Provision for doubtful accounts

Gain on earnout

Gain on the sale of Sysorex Arabia

Total non-cash expenses

Total non-cash income

net use of cash in the change in operating assets and liabilities aggregated $0.8 million and consisted primarily of the following

(in thousands):

Decrease in accounts receivable and other receivables

Increase in prepaid licenses and maintenance contracts

Increase in inventory and other assets

Increase in accounts receivable and other receivables

Increase in inventory, other current assets and other assets

Decrease in accounts payable

Decrease in accrued liabilities and other liabilities

Increase in deferred revenue

Net use of cash in the changes in operating assets and liabilities

Flows from Investing Activities as of September 30, 2019 and 2018

cash flows used in investing activities during the nine months ended September 30, 2019 was $4.9 million compared to net cash

flows used in investing activities during the nine months ended September 30, 2018 of $1.2 million.

Cash flows related to investing

activities during the nine months ended September 30, 2019 include $3.7 million investment in Jibestream, $250,000 investment

in GTX, $204,000 investment in Locality, $658,000 investment in capitalized software, and $58,000 for the purchase of property

and equipment.

Cash flows related to investing activities during the nine months ended September 30, 2018 include $661,000 investment

in capitalized software, $175,000 investment in Athentek, $39,000 for the purchase of property and equipment and $362,000 of cash

that was contributed to Sysorex in connection with the spin-off.

Flows from Financing Activities as of September 30, 2019 and 2018

cash flows provided by financing activities during the nine months ended September 30, 2019 was $13.3 million.

Net cash flows

provided by financing activities during the nine months ended September 30, 2018 was $26.0 million.

During the nine months ended

September 30, 2019, the Company received incoming cash flows of $14.8 million from the issuance of common stock, preferred stock

and warrants, $6.8 million of proceeds from promissory notes, $1.7 million of repayments from related parties, and $237,000 of

net advances from the bank facility offset by $9.9 million of loans to related party, $141,000 of a loan to Jibestream, $50,000

loan to GTX, $15,000 of advances to related party, and $71,000 of net repayments of notes payable.

During the nine months ended

September 30, 2018, the Company received incoming cash flows of $28.0 million from the issuance of common stock, preferred stock

and warrants and $24,000 of repayments from a related party offset by $1.1 million of net repayments to bank facility, $113,000

of repayments of notes payable and $774,000 of advances to a related party.

Sheet Arrangements

Increase in accrued liabilities and other liabilities

Decrease in deferred revenue

Net cash used in the changes in operating assets and liabilities

from Investing Activities as of March 31, 2020 and 2019

cash flows used in investing activities during the three months ended March 31, 2020 was $0.2 million compared to net cash flows

used in investing activities during the three months ended March 31, 2019 of $0.3 million.

Cash flows related to investing activities

during the three months ended March 31, 2020 include $193,000 investment in capitalized software and $16,000 for the purchase of

property and equipment.

Cash flows related to investing activities during the three months ended March 31, 2019 include $239,000

investment in capitalized software and $16,000 for the purchase of property and equipment.

from Financing Activities as of March 31, 2020 and 2019

cash flows provided by financing activities during the three months ended March 31, 2020 was $6.1 million.

Net cash flows provided

by financing activities during the three months ended March 31, 2019 was $6.6 million.

During the three months ended March 31,

2020, the Company received incoming cash flows of $1.3 million from the issuance of common stock, $5.0 million of proceeds from

promissory notes, and $0.2 million of repayments from related parties offset by $0.2 million of loans to related party, and $150,000 of net repayments to bank facility.

During the three months ended March 31, 2019, the

Company received incoming cash flows of $10.9 million from the issuance of common stock, preferred stock and warrants and $652,000

of repayments from a related party offset by $4.9 million of loans to related parties and $23,000 of repayments to bank facility.

Off-Balance Sheet Arrangements

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.

Issued Accounting Standards

We do not engage in

trading activities involving non-exchange traded contracts.

Recently Issued

Accounting Standards

a discussion of recently issued accounting pronouncements, please see Note 3 to our financial statements, which are included in

this Form 10-Q in Item 1.

and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements