What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-31 compared with 2020-03-03 · 18 added, 1015 removed, 3 unchanged (100% of the section changed)

FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently

trades under the symbol “INPX”

on the Nasdaq Capital Market.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently trades under the symbol “INPX” on the Nasdaq Capital Market.

Holders of Record

According to our transfer

agent, as of February 20, 2020, we had approximately 203 shareholders of record of our common stock.

This number does not include

an indeterminate number of shareholders whose shares are held by brokers in street name.

Our stock transfer agent is Computershare

Trust Company, N.A., Meidinger Tower, 462 S.

According to our transfer agent, as of March 23, 2021, we had approximately 191 shareholders of record of our common stock.

This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name.

Our stock transfer agent is Computershare Trust Company, N.A., Meidinger Tower, 462 S.

4th Street, Louisville, KY 40202.

We have not declared

or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion

of our business, therefore, we do not expect to pay any cash dividends in the foreseeable future.

The decision whether to pay

cash dividends on our common stock will be made by our Board, in their discretion, and will depend on our financial condition,

results of operations, capital requirements and other factors that our Board considers significant.

Holders of Series 4 Convertible

Preferred Stock and Series 5 Convertible Preferred Stock will not be entitled to receive any dividends, unless and until specifically

declared by our Board.

Securities Authorized for Issuance under Equity Compensation

For information required

by this item with respect to our equity compensation plans, please see Item 11 of this report.

Recent Sales of Unregistered Equity

During the period covered

by this Annual Report on Form 10-K, we have not sold any equity securities that were not registered under the Securities Act that

were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

We have not declared or paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, therefore, we do not expect to pay any cash dividends in the foreseeable future.

The decision whether to pay cash dividends on our common stock will be made by our Board, in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our Board considers significant.

Holders of Series 4 Convertible Preferred Stock and Series 5 Convertible Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared by our Board.

Securities Authorized for Issuance under Equity Compensation Plans

For information required by this item with respect to our equity compensation plans, please see Item 11 of this report.

Recent Sales of Unregistered Equity Securities

Except as set forth below, during the period covered by this Annual Report on Form 10-K, we have not sold any equity securities that were not registered under the Securities Act that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

On February 12, 2020, the Company exchanged approximately $490,000 of the outstanding principal and interest under the June 2019 Note for 175,000 shares of the Company’s common stock.

During the three months ended December 31, 2020, the Company issued 1,076,676 shares of common stock under exchange agreements to settle outstanding balances under the March 2020 note totaling approximately $1.2 million under partitioned notes.

The offer and sale of such shares were not registered under the Securities Act and issued in reliance on an exemption from registration under Section 3(a)(9) of the Securities Act, in that (a) the shares of common stock were issued in exchange for the partitioned notes which are other outstanding securities of the Company;

(b) there was no additional consideration of value delivered by a note holder in connection with the applicable exchange;

and (c) there are no commissions or other remuneration being paid by the Company in connection with the exchanges.

SELECTED FINANCIAL DATA.

As a smaller reporting company, we are

not required to provide this information.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements

and related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion

and analysis here and throughout this Annual Report on Form 10-K contains forward-looking statements that involve risks, uncertainties

and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements, due to a

number of factors, including but not limited to, risks described in the section entitled “Risk Factors.”

where indicated, all share and per share data in this section, as well as the consolidated financial statements, reflect the 1-for-30

reverse split of our outstanding common stock effected on February 6, 2018, the 1-for-40 reverse split of our outstanding common

stock effected on November 2, 2018 and the 1-for-45 reverse split of our common stock effective on January 7, 2019 (collectively,

the “Reverse Splits”).

We have reflected the Reverse Splits herein, unless otherwise indicated.

Overview of Our Business

We are an indoor intelligence

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

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.

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 industry.

Effective August 31,

2018, the Company completed a spin-off of its then wholly owned subsidiary Sysorex, Inc.

and the associated infrastructure business

and it is no longer a part of our reporting in the current year.

For prior years’

the consolidated financial data, revenue

and expense of Sysorex’s infrastructure business are shown as discontinued operations.

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.

Revenues increased

in the year ended December 31, 2019 over the same period in 2018 by approximately 68% because of an increase in our Indoor Intelligence

revenues resulting from an increased focus on the Indoor Intelligence product line following the spin-off, the completion of certain

acquisitions in 2019 and the addition of a new customer that accounted for approximately 42% of our revenues for the year ended

December 31, 2019.

We expect to continue to grow our Indoor Intelligence product line in 2020.

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

We anticipate sales cycles to improve in 2020 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

Indoor Intelligence 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.

We experienced a net

loss of approximately $34.0 million and $24.6 million for the years ended December 31, 2019 and 2018, respectively.

We cannot 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.

Reverse Stock Split

On January 7, 2020,

we effected a 1-for-45 reverse split of our outstanding common stock.

Loan Transaction

December 31, 2018, the Company and Sysorex entered into a note purchase agreement, as amended (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, as amended (the “Secured Note”), for up to an aggregate principal

amount of $3 million which amount was increased to an aggregate of $10 million as described below (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

sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement are

part of the aggregate Loan Amount underlying the Secured Note.

All outstanding principal amounts and accrued unpaid interest

owing under the Secured Note is due and payable on the earlier to occur of (i) December 31, 2022 (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 Secured Note was amended to extend the maturity date from December 31,

2020 to December 31, 2022 as noted above.

In addition, the default interest rate was increased from 18% to 21% or the maximum

rate allowable by law and 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 December 31, 2018 and December 31, 2019 was approximately $2.2 million and

$10.6 million, respectively.

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.

As a result, the Company established a full valuation allowance as of December 31, 2019.

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.

2019 Capital Raise

January 15, 2019, in a rights offering, we issued and sold an aggregate of 12,000 units consisting of an aggregate of 12,000

shares of Series 5 Convertible Preferred Stock and 80,000 warrants to purchase common stock exercisable for one share of common

stock at an exercise price of $149.85 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 $223.20, the exercise price of the warrants

issued in the April 2018 public offering were also reduced to the floor price of $223.20 and the number of shares issuable upon

exercise of such warrants was increased to 61,562 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.

As of December 31, 2019, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.

Technology Settlement

On February 20, 2019, the Company, Sysorex and Atlas Technology

Group, LLC (“Atlas”) entered into a settlement agreement (the “Settlement Agreement”) in connection with

the satisfaction of an arbitration award granted to Atlas in an aggregate amount of $1,156,840 plus pre-judgment interest equal

to an aggregate of $59,955 (the “Award”) arising out of an engagement agreement, dated September 8, 2016, by and between

Atlas and the Company as well as its subsidiaries, including the predecessor to Sysorex (the “Engagement Agreement”).

Pursuant to the Settlement Agreement, Atlas agreed to (a) reduce the Award by $275,000 resulting in a net award of $941,796 (the

“Net Award”) and (b) accept an aggregate of 16,655 shares of freely-tradable common stock of the Company (the “Settlement

Shares”), in full satisfaction of the Award.

Atlas also agreed to apply an amount equal to the difference between the proceeds

received from the sale of the Settlement Shares and the Net Award, against legal fees incurred by the Company and Sysorex in connection

with the Settlement Agreement.

In connection with

the Spin-off, pursuant to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018,

50% of the costs and liabilities related to the arbitration action arising from the Engagement Agreement are required to be shared

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 the outstanding capital stock of Locality 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) 14,444 shares of common stock of Inpixon.

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

will be paid 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 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.

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.

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) 22,223 shares of Inpixon’s restricted common stock.

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.

Promissory Notes

During the year ended

December 31, 2019, the Company issued an aggregate of 92,831 shares of the Company’s common stock to the holder (the “Note

Holder”) of an unsecured promissory note originally issued on October 12, 2018 (the “October 2018 Note”) in exchange

for the full satisfaction of an aggregate of $2.73 million of the outstanding principal and interest due under the October 2018

Note at a price per share between $22.95 and $40.45.

In each case, the shares of common stock were issued at a price per share

equal to or greater than the Minimum Price as defined by the Nasdaq Listing Rules.

On December 21, 2018,

the Company entered into a note purchase agreement with an institutional investor and affiliate of the Note Holder (the “Affiliated

Note Holder”), pursuant to which the Company agreed to issue and sell to the Affiliated Note Holder an unsecured promissory

note (the “December 2018 Note”) in an aggregate principal amount of $1.895 million (the “December Note Initial

Principal Amount”), for an aggregate purchase price equal to $1.5 million which was payable on or before the date that was

10 months from the issuance date.

The December Note Initial Principal Amount included an original issue discount of $375,000 and

$20,000 that the Company agreed to pay to the Affiliated Note Holder to cover the Affiliated Note Holder’s legal fees, accounting

costs, due diligence, monitoring and other transaction costs.

Subsequently, the December Note Initial Principal Amount was increased

in connection with certain amendments.

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

the maturity date or otherwise in accordance with the December 2018 Note.

During the year ended

December 31, 2019, the Company issued an aggregate of 707,071 shares of the Company’s common stock to the Affiliated Note

Holder in exchange for the full satisfaction of an aggregate of $2.112 million of the outstanding principal and interest due under

the December 2018 Note at a price per share between $1.80 and $4.95.

In each case, the shares of common stock were issued at a

price per share equal to or greater than the Minimum Price as defined by the Nasdaq Listing Rules.

The outstanding balance

of the December 2018 Note was approximately $217,516 as of December 31, 2019 and approximately $220,374 as of February 16, 2020.

On May 3, 2019, we

issued a promissory note (the “May 2019 Note”) to the Note Holder, in the initial principal amount of $3.77 million,

payable on or before the date that is 10 months from the issuance date for an aggregate purchase price equal to $3.0 million.

initial principal amount includes an original issue discount of $750,000 and $20,000 that we agreed to pay the Note Holder to cover

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

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.

As of December 31, 2019, the outstanding

balance of the note was approximately $1.95 million.

During the year ended December 31, 2019, the Company issued an aggregate of

738,889 shares of the Company’s common stock to the Note Holder in exchange for the satisfaction of an aggregate of $2.076

million of the outstanding principal and interest due under the May 2019 Note at a price per share between $1.80 and $3.51.

to the period covered by this report, the Company issued an aggregate of 524,140 shares of common stock to the Note Holder in exchange

for the full satisfaction of the outstanding balance of the May 2019 Note, including principal and interest at a price per share

between $3.65 and $4.05.

In each case, the shares of common stock were issued at a price per share equal to or greater than the

Minimum Price as defined by the Nasdaq Listing Rules.

On June 27, 2019, we

issued a second promissory note (the “June 2019 Note”) to the Note Holder in the initial principal amount of $1.895

million, 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 we agreed to pay to the Note Holder to cover its legal fees, accounting

costs, due diligence, monitoring and other transaction costs.

In exchange for the note, the Note Holder paid an aggregate purchase

price of $1.5 million.

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.

Pursuant to the terms of the note purchase agreement entered into in connection with the issuance

of the note, the Company agreed to make a cash payment immediately following the completion of any offering of its equity securities

in the following amounts:

(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 $2.5 million but less than $5.0 million;

and (c) one hundred percent (100%) of the outstanding

balance of the June 2019 Note if the Company receives net proceeds equal to $5.0 million or more.

In August 2019, the June 2019

Note was amended to defer the effectiveness of the repayment provision in the event of a financing to December 27, 2019.

requested that the Note Holder waive such repayment.

As of December 31, 2019, the outstanding balance of the June 2019 was approximately

Subsequent to the period covered by this report, the Company issued an aggregate of 290,000 shares of common stock

to the Note Holder in exchange for the satisfaction of $840,290 of outstanding principal and accrued interest under the June 2019

Note at a price per share between $2.80 and $3.046.

In each case, the shares of common stock were issued at a price per share equal

to or greater than the Minimum Price as defined by the Nasdaq Listing Rules.

On August 8, 2019,

we issued a third promissory note to the Note Holder in the initial principal amount of $1.895 million, 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 we agreed to pay to the Note Holder to cover its legal fees, accounting costs, due diligence, monitoring and other

transaction costs.

In exchange for the note, the Note Holder paid an aggregate purchase price of $1.5 million.

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.

As of December

31, 2019, the outstanding balance of the note was approximately $1,972,873.

On September 17, 2019,

we issued a second promissory note to the Affiliated Note Holder in the initial 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 that we agreed to pay to the Affiliated Note Holder to cover its legal fees, accounting costs, due diligence,

monitoring and other transaction costs.

In exchange for the note, the paid an aggregate purchase price of $750,000.

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

the terms of the 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 note.

As of December 31 2019, the outstanding balance of the note

was approximately $1,078,728.

On November 22,

2019, we issued a promissory note to an affiliate of the Note Holder and Affiliated Note Holder, 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 note.

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

$15,000 that we agreed to pay to this note holder to cover its legal fees, accounting costs, due diligence, monitoring and

other transaction costs.

In exchange for the note, St.

George 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 note.

December 31 2019, the outstanding balance of the note was approximately $962,873.

Under the terms of the 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.

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”);

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

The Nasdaq listing

rules required the Company to obtain stockholder approval 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 (as defined in the Purchase Agreement) (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 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 as defined above.

August 2019 Financing

On August 12, 2019, the Company sold an

aggregate of (i) 144,387 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 384,387 shares of common stock at an exercise price per share of $12.4875, 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.

As of December 31, 2019, there were 0 shares of Series 6 Convertible Preferred

Stock outstanding.

At-The-Market Program

During the year ended December 31, 2019 under an at-the-market

(“ATM”) program, we sold an aggregate of 1,470,900 shares of common stock, at a weighted average price of approximately

$4.42 per share resulting in gross proceeds of approximately $6.5 million and net proceeds of approximately $5.9 million to us

after deduction of sales commissions equal to 4.5% of the gross sales and other offering expenses.

Accounting Policies and Estimates

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.

Our significant accounting

policies are discussed in Note 2 of the audited consolidated financial statements for the years ended December 31, 2019 and 2018

which are included elsewhere in this Annual Report on Form 10-K.

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.

have been no changes to estimates during the periods presented in the filing.

Historically changes in management estimates have

not been material.

March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations”, in April 2016, the FASB

issued ASU No.

2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing”

and in May 9, 2016, the FASB issued ASU No.

2016-12, “Revenue from Contracts with Customers (Topic 606)”, or ASU 2016-12.

This update provides clarifying guidance regarding the application of ASU No.

2014-09 - Revenue From Contracts with Customers

(Topic 606), (“ASU 2014-09”).

These new standards provide for a single, principles-based model for revenue recognition

that replaces the existing revenue recognition guidance.

In July 2015, the FASB deferred the effective date of ASU 2014-09 until

annual and interim periods beginning on or after December 15, 2017 and has replaced most existing revenue recognition guidance

ASU 2016-12 may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as

of the date of adoption.

We have adopted ASU 2016-12 using a modified retrospective approach and will be applied prospectively

in our financial statements from January 1, 2018 forward.

Revenues under ASU 2016-12 are required to be recognized either at a

“point in time”

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

be evaluated using a five-step model.

The adoption of Topic 606 did not have a material impact on our consolidated financial statements,

neither at initial implementation nor will it have a material impact on an ongoing basis.

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.

and Implementation Revenue Recognition

and implementation 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.

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 years ended December 31, 2019 and 2018, the

Company did not incur any such losses.

These amounts are based on known and estimated factors.

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

We record a receivable when revenue

is recognized prior to payment and we have an unconditional right to payment.

Alternatively, when payment precedes the provision

of the related services, we record deferred revenue until the performance obligations are satisfied.

The Company had deferred

revenue of approximately $912,000 and $234,000 as of December 31, 2019 and 2018, 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.

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);

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.”

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 years ended December 31, 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.

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 years ended December 31, 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.

and Indefinite-lived Assets

We have recorded goodwill

and other indefinite-lived assets in connection with our acquisitions of Shoom, Locality and Jibestream.

Goodwill, which represents

the excess of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is not amortized.

Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination.

The recoverability

of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the carrying amount may not

be recoverable.

analyze goodwill first to assess qualitative factors to determine whether it is more likely than not that the fair value of a

reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed

goodwill impairment test as required.

The more-likely-than-not threshold is defined as having a likelihood of more than 50%.

The Company has determined that the reporting unit is the entire company, due to the integration of the Company’s

and circumstances for an entity to consider in conducting the qualitative assessment are:

Macroeconomic conditions

such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange

rates, or other developments in equity and credit markets.

Industry and market

considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment,

a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in

the market for an entity’s products or services, or a regulatory or political development.

Cost factors such

as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows.

Overall financial

performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual

and projected results of relevant prior periods.

Other relevant entity-specific

events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation.

Events affecting

a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation

of selling or disposing of all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group

within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is

a component of a reporting unit.

If applicable, a

sustained decrease in share price (considered in both absolute terms and relative to peers).

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 year ended December 31, 2019.

In accordance with

ASC 740 “Income Taxes”

(“ASC 740”), management routinely evaluates the likelihood of the realization of

its income tax benefits and the recognition of its deferred tax assets.

In evaluating the need for any valuation allowance, management

will assess whether it is more likely than not that some portion, or all, of the deferred tax asset may not be realized on a jurisdictional

Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those

periods in which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized.

In performing

its analyses, management considers both positive and negative evidence including historical financial performance, previous earnings

patterns, future earnings forecasts, tax planning strategies, economic and business trends and the potential realization of net

operating loss carry-forwards within a reasonable timeframe.

To this end, management considered (i) that we have had historical

losses in the prior years and cannot anticipate generating a sufficient level of future profits in order to realize the benefits

of our deferred tax asset;

(ii) tax planning strategies;

and (iii) the adequacy of future income as of and for the year ended

December 31, 2019, based upon certain economic conditions and historical losses through December 31, 2019.

After consideration

of these factors, management deemed it appropriate to establish a full valuation allowance with respect to the deferred tax assets

for Inpixon and Inpixon Canada.

liability for “unrecognized tax benefits”

is recorded for any tax benefits claimed in the Company’s tax filings

that do not meet these recognition and measurement standards.

As of December 31, 2019 and 2018, no liability for unrecognized

tax benefits was required to be reported.

The guidance also discusses the classification of related interest and penalties on

income taxes.

The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income

No interest or penalties were recorded during the years ended December 31, 2019 and 2018.

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 December 31, 2019 and December 31, 2018, reserves for credit losses included a reserve for doubtful accounts of approximately

$646,000 and $464,000, respectively, due to the aging of the items greater than 90 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.

principal assumptions used in applying the Black-Scholes model along with the results from the model were as follows:

the Years Ended

Risk-free interest rate

Expected life of option grants

Expected volatility of underlying stock

49.48-106.16 %

45.64-46.18 %

Dividends assumption

the year ended December 31, 2019 and 2018, the Company recorded a charge of $3,247,000 and $949,000, respectively, for the amortization

of employee stock options.

of Operations

Ended December 31, 2019 compared to the Year Ended December 31, 2018

following table sets forth selected consolidated financial data as a percentage of our revenue and the percentage of period-over-period

For the Years Ended

(in thousands, except percentages)

Cost of revenues

Operating expenses

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 year ended December 31, 2019 were $6.3 million compared to $3.8 million for the comparable period in the prior year for

an increase of $2.5 million, or approximately 68%.

Revenues increased from the comparable period due to an increase in our IPA product

and services revenues and by approximately $750,000 of mapping product revenue.

revenues for the year ended December 31, 2019 include our IPA and other product lines that remain following the spin-off.

revenues do not include the revenues of our historical infrastructure business, as such business was part of the spin-off of Sysorex.

of revenues for the year ended December 31, 2019 were $1.6 million compared to $1.1 million for the comparable period in the prior

This increase of $533,000, or approximately 50%, was primarily attributable the increase in IPA revenue and revenues from

the Jibestream acquisition during the year ended December 31, 2019.

gross profit margin for the year ended December 31, 2019 was 74% compared to 71% for the year ended December 31, 2018.

This increase

in margin is primarily due to the sales mix of products and services sold during the year ended December 31, 2019.

expenses for the year ended December 31, 2019 were $25.5 million and $21.1 million for the comparable period ended December 31,

This increase of $4.4 million is primarily attributable to $1.2 million of higher acquisition costs, approximately

$1.2 million of Jibestream’s operating expenses, approximately $2.0 million of higher stock based compensation expense offset

by $690,000 of deconsolidation costs of the Sysorex entities that was incurred in the year ended December 31, 2018.

From Operations

from operations for the year ended December 31, 2019 was $20.8 million as compared to $18.4 million for the comparable period

in the prior year.

This increase of $2.4 million was primarily attributable to the higher operating expenses during the year ended

December 31, 2019 as discussed in the reporting caption above.

Income/Expense

Other income/expense for the year ended December 31, 2019 was a loss

of $13.8 million compared to a loss of $1.4 million for the comparable period in the prior year.

This increase in loss of $12.4

million is primarily attributable to a $10.6 million fair value adjustment related to the uncertainty of being repaid in connection

with that certain note receivable from Sysorex, which has been classified as “held for sale”

and for which the

Company has established a full valuation allowance, the interest income from a related party note offset by an increase in interest

expense and debt discount on promissory notes in the year ended December 31, 2019.

The need for future fair value adjustments in

connection with our note receivable from Sysorex will be dependent on Sysorex’s performance vis-à-vis its current

financial projections.

for Income Taxes

There was an income tax benefit of $584,000 for the year ended

December 31, 2019 related to the acquisition of intangibles and net operating losses of Locality and Jibestream.

There was no provision

for income taxes for the year ended December 31, 2018 as the Company was in a net taxable loss position.

Deferred tax assets resulting

from such losses are fully reserved as of December 31, 2019 and 2018 for Inpixon and Inpixon Canada 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.

Gain Attributable To Non-Controlling Interest

gain attributable to non-controlling interest for the years ended December 31, 2019 and 2018 was $9,000 and $11,000, respectively.

Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders for the year ended December

31, 2019 was $34.0 million compared to $24.6 million for the comparable period in the prior year.

This increase in loss of $9.4

million was primarily attributable to the $10.6 million fair value adjustment related to the uncertainty of being repaid in connection

with that certain note receivable from Sysorex, which has been classified as “held for sale”

and for which the

Company has established a full valuation allowance, higher operating and interest expense offset by higher margin IPA revenue during

the year ended December 31, 2019.

Financial information

is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization.

Adjusted EBITDA is used by our management as the matrix in which it manages the business.

It is defined as EBITDA plus adjustments

for other income or expense items, non-recurring items and non-cash stock-based compensation.

EBITDA for the year ended December 31, 2019 was a loss of $11.1 million compared to a loss of $15.0 million for the prior

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 years ended December 31, 2019 and 2018 (in thousands):

For the Years Ended

Net loss attributable to common stockholders

Non-recurring one-time charges:

Impairment of goodwill

Write off project expenses

Gain on earnout

Gain on the sale of Sysorex Arabia

Change in the fair value of derivative liability

Gain on the sale of contracts

Gain on the settlement of obligations

Provision for valuation allowance on held for sale loan

Loss on exchange of debt for equity

Settlement of litigation

Acquisition transaction/financing costs

Costs associated with public offering

Provision for doubtful accounts

Deemed dividend to preferred stockholders

Deemed dividend for triggering of warrant down round feature

Stock-based compensation - compensation and related benefits

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:

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

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:

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 the public offering.

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.

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:

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

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

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

Basic and diluted net loss per share for the year ended December

31, 2019 was ($47.52) compared to ($2,600.77) for the prior year period.

The decreased loss per share in 2019 was attributable

to the changes discussed in our results of operations.

non-GAAP net income (loss) per share is used by our Company’s management as an evaluation tool as it manages the business

and is defined as net income (loss) per basic and diluted share adjusted for 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 the public

non-GAAP net loss per basic and diluted common share for the year ended December 31, 2019 was ($18.75) compared to a loss of ($1,087.66)

per share for the prior year period.

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 Years Ended

(thousands, except per share data)

Net loss attributable to common stockholders

Non-recurring one-time charges:

Impairment of goodwill

Write off of project expenses

Gain on earnout

Gain on the sale of Sysorex Arabia

Change in the fair value of derivative liability

Gain on the sale of contracts

Gain on the settlement of obligations

Loss on the exchange of debt for equity

Provision for valuation allowance on held for sale loan

Settlement of litigation

Acquisition transaction/financing costs

Costs associated with public offering

Provision for doubtful accounts

Deemed dividend to preferred stockholders

Deemed dividend for triggering of warrant down round feature

Stock-based compensation - compensation and related benefits

Amortization of intangibles

Proforma non-GAAP net loss

Proforma non-GAAP net loss per basic and diluted common share

$ (1,087.66 )

Weighted average basic and diluted common shares outstanding

rely on proforma non-GAAP net loss per share, which is a non-GAAP financial measure:

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.

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 the public offering.

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.

and Capital Resources as of December 31, 2019

current capital resources and operating results as of and through December 31, 2019, consist of:

an overall working

capital deficit of $7.0 million;

cash of $4.8 million;

the Payplant credit

facility which we may borrow against based on eligible assets of which approximately $150,000 is utilized;

net cash used by

operating activities for the year ended December 31, 2019 of $10.7 million.

breakdown of our overall working capital deficit is as follows (in thousands):

Working Capital

Cash and cash equivalents

Accounts receivable, net / accounts payable

Operating lease obligation

Prepaid licenses and maintenance contracts/deferred revenue

Notes and other receivables / Short-term debt

Net cash used in operating activities during the year ended

December 31, 2019 of $10.7 million consists of net loss of $34.0 million offset by non-cash adjustments of approximately $21.6

million less net cash changes in operating assets and liabilities of approximately $1.7 million.

Company’s capital resources as of December 31, 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 higher margin business line expansion

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.

Concern and Management Plans

consolidated financial statements as of December 31, 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 consolidated

financial statements as of December 31, 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 consolidated financial statements as of December 31, 2019 do not include any adjustments that might result from the outcome

of this uncertainty.

and Capital Resources –

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.

On August 31, 2018,

in connection with the Spin-off, Inpixon, Sysorex, including its wholly owned subsidiary, 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.

of December 31, 2019, the principal amount outstanding under the Loan Agreement was $150,000.

and Capital Resources as of December 31, 2019 Compared With December 31, 2018

Company’s net cash flows used in operating, investing and financing activities for the years ended December 31, 2019 and

2018 and certain balances as of the end of those periods are as follows (in thousands):

the Years Ended

Net cash provided by (used in) operating

Net cash used in investing activities

Net cash (used in) provided by financing activities

Effect of foreign exchange

rate changes on cash

Net increase (decrease) in

Cash and cash equivalents

Working capital (deficit)

Activities for the year ended December 31, 2019

cash used in operating activities during the years ended December 31, 2019 was $10.7 million.

The cash flows related to the year

ended December 31, 2019 consisted of the following (in thousands):

Non-cash income and expenses

Net change in operating assets and liabilities

Net cash used in operating activities

The non-cash income and expense of $21.6 million consisted primarily

of the following (in thousands):

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

Amortization of technology

Stock-based compensation

expense attributable to warrants and options issued as part of Company operations and for the Jibestream acquisition

Loss on exchange of

debt for equity

Amortization of debt

Provision for the valuation allowance held for sale loan

Income tax benefit

Provision for doubtful

Total non-cash expenses

net cash provided in the change in operating assets and liabilities aggregated $1.7 million and consisted primarily of the following

(in thousands):

Decrease in accounts receivable and

other receivables

Increase in inventory, other current assets and

Increase in accounts payable

Increase in accrued liabilities and other liabilities

Decrease in deferred revenue

Net cash provided in the changes

in operating assets and liabilities

Activities for the year ended December 31, 2018

cash used in operating activities during the years ended December 31, 2018 was $26.8 million.

The cash flows related to the year

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

Non-cash income and expenses

Net change in operating assets

and liabilities

Net cash used in operating

non-cash income and expense of $7.0 million consisted primarily of the following (in thousands):

Depreciation and amortization expenses

(including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, and LightMiner and operations, which

were acquired effective August 31, 2013, April 16, 2014, and November 21, 2016, respectively and Lilien and Integrio operations

through August 31, 2018, the date of the spin-off.

Impairment of goodwill

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 obligations of vendor liabilities

Amortization of debt discount

Gain on the sale of Sysorex Arabia

Provision for doubtful accounts

Total non-cash expenses

net use of cash in the change in operating assets and liabilities aggregated $9.2 million and consisted primarily of the following

(in thousands):

in accounts receivable and other receivables

Increase in prepaid

licenses and maintenance contracts

Decrease in inventory,

other current assets and other assets

Decrease in accounts

Decrease in accrued

liabilities and other liabilities

Increase in deferred

Net use of cash

in the changes in operating assets and liabilities

Flows from Investing Activities as of December 31, 2019 and 2018

cash flows used in investing activities during 2019 was $5.1 million compared to net cash flows used in investing activities during

2018 of $1.4 million.

Cash flows related to investing activities during the year ended December 31, 2019 include $89,000 for the

purchase of property and equipment, $927,000 investment in capitalized software, $250,000 for cash paid for the GTX asset acquisition,

$204,000 for cash paid for the Locality acquisition, $70,000 of cash acquired in the Locality acquisition, $3.7 million for cash

paid for the Jibestream acquisition, and $6,000 of cash acquired in the Jibestream acquisition.

Cash flows related to investing

activities during the year ended December 31, 2018 include $88,000 for the purchase of property and equipment, $804,000 investment

in capitalized software, $175,000 for the investment in our IPA Pod technology, and $362,000 related to the deconsolidation activity.

Flows from Financing Activities as of December 31, 2019 and 2018

cash flows provided by financing activities during the year ended December 31, 2019 was $19.4 million.

Net cash flows provided

by financing activities during the year ended December 31, 2018 was $29.0 million.

During the year ended December 31, 2019, the

Company received incoming cash flows of $20.7 million from the issuance of common stock, preferred stock and warrants, $1.8 million

of repayments from a related party note, $7.5 million from promissory notes and $127,000 of net proceeds from a bank facility,

offset by $10.3 million of loans to related party, $210,000 repayments of an acquisition liability, $141,000 loan to Jibestream,

$50,000 loan to GTX, $31,000 of advances to a related party and $70,000 repayments of notes payable.

During the year ended December

31, 2018, the Company received incoming cash flows of $29.0 million from the issuance of common stock, preferred stock and warrants,

$1.0 million of repayments from a related party, $3.5 million from promissory notes offset by $3.2 million of loans to related

party, $1.1 million of net repayments to the credit line and $181,000 repayments of notes payable.

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

a discussion of recently issued accounting pronouncements, please see Note 2 to our financial statements, which are included in

this report beginning on page F-1.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

a smaller reporting company, we are not required to provide this information.

As a smaller reporting company, we are not required to provide this information.

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-K

Item 5. Market for Registrant’s Common Equity