XTI Aerospace, Inc. 10-Q

ITEM 1: 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 presented. The results for the period ended March 31, 2021 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 December 31, 2020 and 2019 included in the annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2021. iv Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and par value data) As of March 31, 2021 As of December 31, 2020 (Unaudited) (Audited) Assets Current Assets Cash and cash equivalents $ 46,273 $ 17,996 Accounts receivable, net of allowances of $ 234 and $ 235 , respectively 1,240 1,739 Notes and other receivables 160 152 Inventory 1,492 1,243 Short-term investments 50,057 7,998 Prepaid expenses and other current assets 1,222 1,197 Total Current Assets 100,444 30,325 Property and equipment, net 1,438 1,445 Operating lease right-of-use asset, net 1,948 2,077 Software development costs, net 1,769 1,721 Long-term investments 2,500 2,500 Intangible assets, net 14,199 14,203 Goodwill 6,370 6,588 Other assets 160 152 Total Assets $ 128,828 $ 59,011 The accompanying notes are an integral part of these financial statements F-1 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) As of March 31, 2021 As of December 31, 2020 (Unaudited) (Audited) Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 1,377 $ 908 Accrued liabilities 3,131 2,739 Operating lease obligation, current 637 647 Deferred revenue 1,667 1,922 Short-term debt 4,251 5,401 Acquisition liability 500 500 Total Current Liabilities 11,563 12,117 Long Term Liabilities Operating lease obligation, noncurrent 1,339 1,457 Other liabilities, noncurrent 7 7 Acquisition liability, noncurrent — 750 Total Liabilities 12,909 14,331 Commitments and Contingencies Stockholders’ Equity Preferred Stock -$ 0.001 par value; 5,000,000 shares authorized Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 issued, and 1 as of March 31, 2021 and December 31, 2020, respectively — — Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 issued and 126 outstanding as of March 31, 2021 and December 31, 2020, respectively. — — Common Stock - $ 0.001 par value; 250,000,000 shares authorized; 101,382,448 and 53,178,462 issued and 101,382,447 and 53,178,461 outstanding as of March 31, 2021 and December 31, 2020, respectively. 102 53 Additional paid-in capital 310,013 225,613 Treasury stock, at cost, 1 share ( 695 ) ( 695 ) Accumulated other comprehensive (loss)/income ( 11 ) 660 Accumulated deficit ( 193,549 ) ( 180,992 ) Stockholders’ Equity Attributable to Inpixon 115,860 44,639 Non-controlling Interest 59 41 Total Stockholders’ Equity 115,919 44,680 Total Liabilities and Stockholders’ Equity $ 128,828 $ 59,011 The accompanying notes are an integral part of these financial statements F-2 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Three Months Ended March 31, 2021 2020 (Unaudited) (Unaudited) Revenues 2,954 1,804 Cost of Revenues 884 510 Gross Profit 2,070 1,294 Operating Expenses Research and development 2,708 1,334 Sales and marketing 1,639 691 General and administrative 9,171 3,791 Acquisition-related costs 470 28 Amortization of intangibles 502 1,016 Total Operating Expenses 14,490 6,860 Loss from Operations ( 12,420 ) ( 5,566 ) Other Income (Expense) Interest expense, net ( 349 ) ( 621 ) Loss on exchange of debt for equity ( 30 ) ( 86 ) Provision for valuation allowance on related party loan - held for sale ( 117 ) — Other income 386 18 Total Other Expense ( 110 ) ( 689 ) Net Loss, before tax ( 12,530 ) ( 6,255 ) Income tax (provision) benefit ( 9 ) 87 Net Loss ( 12,539 ) ( 6,168 ) Net Income (Loss) Attributable to Non-controlling Interest 18 ( 10 ) Net Loss Attributable to Stockholders of Inpixon $ ( 12,557 ) $ ( 6,158 ) Net Loss Per Share - Basic and Diluted $ ( 0.16 ) $ ( 1.22 ) Weighted Average Shares Outstanding Basic and Diluted 78,942,697 5,038,515 The accompanying notes are an integral part of these financial statements F-3 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) For the Three Months Ended March 31, 2021 2020 Net Loss $ ( 12,539 ) $ ( 6,168 ) Unrealized foreign exchange loss from cumulative translation adjustments ( 671 ) ( 613 ) Comprehensive Loss $ ( 13,210 ) $ ( 6,781 ) The accompanying notes are an integral part of these financial statements F-4 INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands) Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Shares Amount Balance - January 1, 2021 1 $ — 126 $ — 53,178,462 $ 53 $ 225,613 ( 1 ) $ ( 695 ) $ 660 $ ( 180,992 ) $ 41 $ 44,680 Common shares issued for registered direct offering — — — — 15,800,000 16 74,058 — — — — — $ 74,074 Common shares issued for extinguishment of debt — — — — 893,921 1 1,499 — — — — — $ 1,500 Common shares issued for cashless stock options exercised — — — — 4,977 — — — — — — — $ — Common shares issued for net proceeds from warrants exercised — — — — 31,505,088 32 3,747 — — — — — $ 3,779 Stock options granted to employees and consultants for services — — — — — — 5,096 — — — — — $ 5,096 Cumulative Translation Adjustment — — — — — — — — — ( 671 ) — — $ ( 671 ) Net loss — — — — — — — — — — ( 12,557 ) 18 $ ( 12,539 ) Balance - March 31, 2021 1 — 126 — 101,382,448 $ 102 $ 310,013 ( 1 ) $ ( 695 ) $ ( 11 ) $ ( 193,549 ) $ 59 $ 115,919 The accompanying notes are an integral part of these financial statements F-5 INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) (In thousands, except per share data) Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Series 6 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance - January 1, 2020 1 $ — 126 $ — — $ — 4,234,923 $ 4 $ 158,383 ( 1 ) $ ( 695 ) $ 96 $ ( 151,762 ) $ 26 $ 6,052 Stock options granted to employees and consultants for services — — — — — — — — 399 — — — — — 399 Common Shares issued for net cash proceeds of a public offering — — — — — — 937,010 1 1,251 — — — — — 1,252 Common shares issued for extinguishment of debt — — — — — — 1,896,557 2 4,192 — — — — — 4,194 Cumulative Translation Adjustment — — — — — — — — — — — ( 613 ) — ( 1 ) ( 614 ) Net loss — — — — — — — — — — — — ( 6,158 ) ( 10 ) ( 6,168 ) Balance - March 31, 2020 1 $ — 126 $ — — $ — 7,068,490 $ 7 $ 164,225 ( 1 ) $ ( 695 ) $ ( 517 ) $ ( 157,920 ) $ 15 $ 5,115 The accompanying notes are an integral part of these financial statements F-6 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Three Months Ended March 31, 2021 2020 Cash Flows Used in Operating Activities Net loss $ ( 12,539 ) $ ( 6,168 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 293 210 Amortization of intangible assets 650 1,016 Amortization of right of use asset 181 157 Stock based compensation 5,096 399 Loss on exchange of debt for equity 30 86 Amortization of debt discount 224 868 Accrued interest income, related party — ( 16 ) Related party note, gain on foreign currency transaction ( 363 ) — Provision for the valuation allowance - held for sale loan 117 — Income tax expense (benefit) 9 ( 87 ) Other expenses — 29 Changes in operating assets and liabilities: Accounts receivable and other receivables 426 ( 416 ) Inventory ( 279 ) 29 Prepaid expenses and other current assets 135 65 Other assets ( 227 ) ( 16 ) Accounts payable 480 ( 568 ) Accrued liabilities 421 ( 113 ) Deferred revenue ( 235 ) 31 Operating lease obligation ( 176 ) ( 156 ) Other liabilities 96 115 Total Adjustments 6,878 1,633 Net Cash Used in Operating Activities ( 5,661 ) ( 4,535 ) Cash Flows Used in Investing Activities Purchase of property and equipment ( 109 ) ( 16 ) Capitalized software ( 253 ) ( 193 ) Investment in short term investment ( 42,059 ) — Purchase of Systat Licensing Agreement ( 900 ) — Net Cash Flows Used in Investing Activities ( 43,321 ) ( 209 ) Cash Flows From Financing Activities Net repayments to bank facility — ( 150 ) Net proceeds from issuance of common stock and warrants 77,853 1,252 Net proceeds from notes payable — 1 Loans to related party ( 117 ) ( 184 ) Repayments from related party — 185 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Net proceeds from promissory notes — 5,000 Repayment of acquisition liability to Locality shareholders ( 467 ) — Net Cash Provided By Financing Activities 77,269 6,104 Effect of Foreign Exchange Rate on Changes on Cash ( 10 ) ( 27 ) Net Increase in Cash, Cash Equivalents and Restricted Cash 28,277 1,333 Cash, Cash Equivalents and Restricted Cash - Beginning of period 17,996 4,849 Cash, Cash Equivalents and Restricted Cash - End of period (Note 3) $ 46,273 $ 6,182 Supplemental Disclosure of cash flow information: Cash paid for: Interest $ — $ 2 Income Taxes $ — $ — Non-cash investing and financing activities Common shares issued for extinguishment of debt $ 1,500 $ 4,194 Right of use asset obtained in exchange for lease liability $ — $ 6 The accompanying notes are an integral part of these financial statements F-8 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 1 - Organization and Nature of Business Inpixon, and its wholly-owned subsidiaries, Inpixon Canada, Inc. (“Inpixon Canada”) and Jibestream, Inc. (“Jibestream”), which was amalgamated into Inpixon Canada on January 1, 2020, Inpixon Limited (“Inpixon UK”), Inpixon GmbH ("Inpixon Germany"), as well as Inpixon Germany's wholly-owned subsidiary, Nanotron GmbH ("Nanotron"), and its majority-owned subsidiary Inpixon India Limited (“Inpixon India”) (unless otherwise stated or the context otherwise requires, the terms “Inpixon” “we,” “us,” “our” and the “Company” 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, RTLS (real time location systems) and analytics products. Our indoor intelligence platform uses sensor technology to detect accessible cellular, Wi-Fi, Bluetooth, ultra-wide band (“UWB”) and chirp 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 and a comprehensive set of data analytics and statistical visualization solutions with its SAVES product line catering to the needs of engineers and scientists. The Company is headquartered in Palo Alto, California, and has subsidiary offices in Coquitlam, Canada, New Westminster, Canada, Toronto, Canada, Slough, United Kingdom, Ratingen, Germany, Berlin, Germany, Bangalore, India and Hyderabad, India. Liquidity As of March 31, 2021, the Company has a working capital surplus of approximately $ 88.9 million and cash of of approximately $ 46.3 million. For the three months ended March 31, 2021, the Company incurred a net loss of approximately $ 12.5 million. On March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up to $ 50 million, which was increased on June 19, 2020 to $ 150 million pursuant to an amendment to the EDA, from time to time through Maxim, acting exclusively as the Company’s sales agent. The Company issued 33,416,830 shares of common stock during the year ended December 31, 2020 in connection with the ATM resulting in net proceeds to the Company of approximately $ 46.1 million after deduction of sales commissions and other offering expenses. The EDA was terminated by the parties on February 12, 2021. On November 25, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor, pursuant to which it sold in a registered direct offering, 5,000,000 shares of its common stock, and warrants to purchase up to 8,000,000 shares of common stock at an exercise price of $ 1.25 per share (the “2020 Purchase Warrants”) for a combined purchase price of $ 1.25 per share and pre-funded warrants to purchase up to 3,000,000 shares of common stock ("2020 Pre-funded Warrants") at an exercise price of $ 0.001 per share at a purchase price of $ 1.249 per share for net proceeds of $ 9.2 million after deduction of sales commissions and other offering expenses. On January 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 5,800,000 shares of its common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $ 1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $ 1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 1.549 per share for net proceeds of approximately $ 27.8 million. Each January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The January 2021 Pre-funded Warrants were exercised in full as of February 8, 2021. In addition, the investor exercised its purchase rights for 3,000,000 shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021. F-9 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 1 - Organization and Nature of Business (continued) On February 12, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 7,000,000 shares of its common stock, and warrants to purchase up to 15,000,000 shares of common stock at an exercise price of $ 2.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $ 2.00 per share and pre-funded warrants to purchase up to 8,000,000 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 1.999 per share for net proceeds of approximately $ 27.8 million. Each First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021. On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $ 2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $ 2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 2.009 per share for net proceeds of $ 18.5 million after deducting placement agent commissions and offering expenses. Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date. The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021. Risks and Uncertainties The Company cannot assure you 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. Our business has been impacted by the COVID-19 pandemic and may continue to be impacted. While we have been able to continue operations remotely, we have and continue to experience supply chain constraints and delays in the receipt of certain components of our products impacting delivery times for our products. We have also seen some impact in the demand of certain products and delays in certain projects and customer orders either because they require onsite services which could not be performed while shelter in place orders were in effect, compliance with new rules and regulations resulting from the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology. Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the year ended December 31, 2020 when compared to the year ended 2019, as a result of the addition of new product lines including a full year of sales associated with our mapping product, the addition of the SAVES product lines following the second quarter of 2020 and the addition of the RTLS product line in the fourth quarter of 2020. The total impact that COVID-19 will have on general economic conditions is continuously evolving and the impact it may continue to have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected. A further discussion of the impact of the COVID-19 pandemic on our business is set forth below in Part II, Item 1A. Risk Factors. There are no assurances that we will be able to continue to experience the same growth or not be materially adversely affected. F-10 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 2 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”), which are the accounting principles that are generally accepted in the United States of America. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the Company’s operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021. 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, 2020 and 2019 included in the annual report on Form 10-K filed with the SEC on March 31, 2021. Note 3 - Summary of Significant Accounting Policies The Company's complete accounting policies are describes in Note 2 to the Company's audited consolidated financial statements and notes for the years ended December 31, 2020 and 2019. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“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 and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of: • the valuation of stock-based compensation; • the valuation of the assets and liabilities acquired of Systat, Ten Degrees, and Nanotron as described in Note 4, Note 5, and Note 6 respectively, as well as the valuation of the Company’s common shares issued in the transaction; • the allowance for doubtful accounts; • The valuation of loans receivable; • the valuation allowance for deferred tax assets; and • impairment of long-lived assets and goodwill. F-11 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 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. As of March 31, 2021, there was no balance of restricted cash as all amounts related to the Shoom acquisition were released from escrow and paid to the Shoom pre-acquisition stockholders prior to that date. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets that sum to the total of the same amounts show in the statement of cash flows. As of March 31, (in thousands) 2021 2020 Cash and cash equivalents $ 46,273 $ 6,111 Restricted cash — 71 Total cash, cash equivalents, and restricted cash in the balance sheet $ 46,273 $ 6,182 Short-term investments Investments with maturities greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of US Treasury Bills. Accrued interest on US Treasury bills are also classified as short term investment. Our short-term investments are considered available for use in current operations, are classified as available-for-sale securities. Available for sale securities are carried at fair value, with an unrealized loss of approximately $ 2,000 for the three months ended March 31, 2021. No unrealized gain or loss was recorded on available for sale securities for the three months ended March 31, 2020. Revenue Recognition The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems. Hardware and Software Revenue Recognition For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer. This is when the customer has title to the product and the risks and rewards of ownership. The delivery of products to Inpixon's customers occurs in a variety of ways, including (i) as a physical product shipped from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer. Accordingly, the Company is the principal in the transaction with the customer and records revenue on a gross basis. The Company receives fixed consideration for sales of hardware and software products. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year. Software As A Service Revenue Recognition F-12 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 With respect to sales of the Company’s maintenance, consulting and other service agreements including the Company’s 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. Professional Services Revenue Recognition The Company’s professional services include milestone, fixed fee and time and materials contracts. Professional services under milestone contracts are 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. Professional services are also contracted on the fixed fee and time and materials basis. 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 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 obligations. Anticipated losses are recognized as soon as they become known. For the three months ended March 31, 2021 and 2020, the Company did not incur any such losses. These amounts are based on known and estimated factors. SAVES by Inpixon Revenue Recognition SAVES by Inpixon ("SAVES", formerly Systat) is a comprehensive set of data analytics and statistical visualization solutions for engineers and scientists. The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software. The contracts provide for either (i) a one year stated term with a one year renewal option, (ii) a perpetual term or (iii) a two year term for students with the option to upgrade to a perpetual license at the end of the term. The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract. Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. The timing of the Company's revenue recognition related to the SAVES revenue stream is dependent on whether the software licensing agreement entered into represents a good or service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. A software arrangement that is provided through an access code or key represents the transfer of a good. Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional F-13 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. Therefore, the Company recognizes revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period. The Company recognizes revenue related to Maintenance Services evenly over the service period using a time-based measure because the Company is providing continuous service and the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are performed. Contract Balances The 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 $ 1,667,000 and $ 1,922,000 as of March 31, 2021 and December 31, 2020, 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. Disaggregation of Revenue Revenues consisted of the following (in thousands): For the Three Months Ended March 31, 2021 2020 Recurring revenue $ 1,409 862 Non-recurring revenue $ 1,545 942 Totals $ 2,954 $ 1,804 Stock-Based Compensation The 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. Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period. 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 period. Forfeitures of unvested stock options are recorded when they occur. The Company incurred stock-based compensation charges of approximately $ 5.1 million and $ 0.4 million for each of the three months ended March 31, 2021 and 2020, respectively, which are included in general and administrative expenses. The following table summarizes such charges for the periods then ended (in thousands): For the Three Months Ended March 31, 2021 2020 Compensation and related benefits $ 5,096 $ 399 Totals $ 5,096 $ 399 F-14 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 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. 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. 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 three months ended March 31, 2021 and 2020: For the Three Months Ended March 31, 2021 2020 Options 7,012,891 120,796 Warrants 49,398,338 93,252 Convertible preferred stock 846 846 Restricted Stock Award 5,250,000 — ATM sales of common stock to be issued — 639,142 Totals 61,662,075 854,036 Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and short-term debt. The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodologies. These financial instruments, except for short-term debt, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. Short-term debt approximates market value based on similar terms available to the Company in the market place. Recently Issued and Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) 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. ASU 2019-12 is effective for the Company beginning January 1, 2021. The new guidance was effective upon issuance of this final accounting standards update. The Company has adopted this standard and the adoption did not have a material impact on its condensed consolidated financial statements or disclosures. In October 2020, the FASB issued ASU 2020-10, "Codification Improvements" ("ASU 2020-10"), which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The effective date of the standard will be for interim and annual reporting periods beginning after December 15, 2020 for public entities. The Company will adopt ASU 2020-10 as of the reporting period beginning January 1, 2021. The new guidance was effective upon issuance of this final accounting standards update. The Company has adopted this standard and the adoption did not have a material impact on its condensed consolidated financial statements or 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. F-15 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 4 - Systat Licensing Agreement On June 19, 2020, the Company entered into an exclusive license with Cranes Software International Ltd. and Systat Software, Inc. (together the “Systat Parties”) to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (the “License Grant”) pursuant to the terms and conditions of that certain Exclusive Software License and Distribution Agreement, deemed effective as of June 1, 2020 (the “Effective Date”), and amended on June 30, 2020 (as amended, the “License Agreement”). In accordance with Rule 11-01(d) and ASC 805, the transaction was deemed to be the acquisition of a business and accounted for as a business combination with an acquisition date of June 30, 2020 (the “Closing Date”). In accordance with the terms of the License Agreement, on the Closing Date, we partitioned a portion of that certain promissory note (the “Sysorex Note”) issued to us by Sysorex, Inc. (“Sysorex”), into a new note in an amount equal to $ 3.0 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat Software, Inc. in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement. An additional $ 3.3 million of the principal balance underlying the Sysorex Note was partitioned and assigned to Systat Software, Inc. as consideration payable for the rights granted under the license as follows: (i) $ 1.3 million on the three month anniversary of the Closing Date; (ii) $ 1.0 million on the six month anniversary of the Closing Date; and (iii) $ 1.0 million on March 19, 2021. In addition, the cash consideration of $ 2.2 million was delivered on July 8, 2020. In connection with the License Grant, the Systat Parties provided Inpixon with equipment to use at no additional cost for a minimum period of six months following the Closing Date. The Company is also entitled to any customer maintenance revenue, new license fees, or license renewal fees, received by any of the Systat Parties after June 1, 2020 in connection with the Systat Customer Contracts and/or Systat Distribution Agreements (as such terms are defined in the License Agreement) assigned to and assumed by us in connection with the License Agreement. The net amount owed to the Company for this period is included in the Other Receivable line item listed in the assets acquired below. The License Grant will remain in effect for a period of 15 years years following the Closing Date, unless terminated sooner upon mutual written consent of Systat Software, Inc. and us or upon termination by either for the other party’s specified breach. In connection with the License Grant, the Company expanded its operations into the United Kingdom and Germany. As a result of such expansion, the Company formed Inpixon Limited, a new wholly owned subsidiary in the United Kingdom, and established Inpixon GmbH, a wholly owned subsidiary incorporated under the laws of Germany. The total recorded purchase price for the transaction was $ 2.2 million, which consisted of the $ 2.2 million cash consideration as a full valuation allowance was retained against the Sysorex Note. The purchase price is allocated as follows (in thousands): Fair Value Allocation Assets Acquired: Other receivable $ 44 Developed technology 1,200 Customer relationships 395 Tradename & Trademarks 279 Non-compete agreements 495 Goodwill 520 $ 2,933 Liabilities Assumed: Deferred Revenue $ 733 733 Total Purchase Price $ 2,200 F-16 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 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. The financial data of the License Grant is included in the Company’s financial statements as of deemed acquisition date of June 30, 2020. On February 22, 2021, the Company entered into a Second Amendment to the License Agreement to allow for the exercise of the purchase option in whole or in part anytime during the Purchase Option Period and to provide for cash consideration in lieu of an assignment of the Note at our option. In addition, we exercised our option to purchase a portion of the underlying assets, including certain software, trademarks, solutions, domain names and websites from Systat in exchange for consideration in an amount equal to $ 900,000 . The Second Amendment was accounted for as a business combination in accordance with ASC 805. 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. A final valuation of the assets and purchase price allocation has not been completed as of the end of this reporting period as the third party valuation as not been finalized. Consequently, the purchase price was preliminarily allocated based on the Company's best estimates at the time of this filing. These amounts are subject of revision upon completion of the valuation. The preliminary purchase price is allocated as follows (in thousands): Intangible assets: Trademarks $ 296 Webstores & Websites 404 Goodwill 200 Total net assets acquired 900 Proforma information has not been presented as it has been deemed immaterial. F-17 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 5 - Ten Degrees Acquisition On August 19, 2020, in accordance with the terms and conditions of that certain Asset Purchase Agreement ("APA"), by and among the Company, Ten Degrees Inc. (“TDI”), Ten Degrees International Limited (“TDIL”), mCube International Limited (“MCI”), and the holder of a majority of the outstanding capital of TDIL and mCube, Inc., and the sole shareholder of 100 % of the outstanding capital stock of MCI (“mCube,” together with TDI, TDIL, and MCI collectively, the “Transferors”), the Company acquired a suite of on-device “blue-dot” indoor location and motion technologies, including patents, trademarks, software and related intellectual property from the Transferors (collectively, the “TDI Assets”). In accordance with Rule 11-01(d) and ASC 805, the transaction was deemed to be the acquisition of a group of assets, and not to be accounted for as a business combination, with an asset acquisition date of August 19, 2020. The TDI Assets were acquired for consideration consisting of (i) $ 1.5 million in cash and (ii) 480,000 shares of the Company's common stock. In accordance with the terms of the APA, commencing as of the date of the APA, the Transferors, and their affiliates, have agreed to not compete with our business associated with the TDI Assets for a period of five years from the closing date. In addition, each party agreed to not solicit any employees from the other party for a period of one year from the closing date, subject to certain exceptions. The total recorded purchase price for the transaction was $ 2.1 million, which consisted of the cash paid of $ 1.5 million and $ 600,000 representing the value of the stock issued upon closing. The preliminary purchase price is allocated as follows (in thousands): Fair Value Allocation Assets Acquired: Developed technology $ 1,701 Non-compete agreements 399 Total Purchase Price $ 2,100 The value of the intangibles were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The developed technology and non-compete agreements acquired are included in the consolidated balance of intangible assets as of March 31, 2021. There was no goodwill acquired or recognized as a result of the acquisition of Ten Degrees. Note 6 – Nanotron Acquisition On October 6, 2020, the Company, through its wholly-owned subsidiary, Inpixon GmbH, a limited liability company incorporated under the laws of Germany, completed the acquisition of all the outstanding capital stock of Nanotron, a limited liability company incorporated under the laws of Germany, pursuant to the terms and conditions of that certain Share Sale and Purchase Agreement, dated as of October 5, 2020, among the Company, Nanotron and Sensera Limited (the "Seller", and the owner of all outstanding shares of Nanotron), a stock corporation incorporated under the laws of Australia and the sole shareholder of Nanotron. As a result of the acquisition, the Company now owns 100 % of Nanotron. Nanotron’s business consists of developing and manufacturing location-aware IoT systems and solutions. The total paid to Nanotron was an aggregate purchase price of $ 8.7 million in cash (less the Holdback Funds (as defined below) and certain other closing adjustments) for the outstanding shares of Nanotron. The price was subject to certain post-Closing adjustments based on actual working capital as of the closing as described in the Purchase Agreement. Inpixon retained $ 750,000 (the “Holdback Funds”) from the purchase price to secure Nanotron’s obligations under the purchase agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18 months after the Closing Date. As discussed above, the certain adjustments to the Purchase Price are adjustments for severance payments and calculations of Net Working Capital versus the Working Capital Target (calculation defined as “Net Working Capital Adjustment”). The adjustment for severance payments includes a $ 214,000 reduction in purchase price for severance payments due after the closing date offset by a return credit of $ 50,000 for severance payments owed by Sensera Limited. As for Net Working Capital F-18 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 6 – Nanotron Acquisition (continued) Adjustment, Net Working Capital was determined to be less than the Working Capital Target by an amount of $ 30,000 , resulting in a reduction in the purchase price of $ 30,000 . Inpixon Germany paid the purchase price from funds received in connection with a capital contribution from Inpixon, and a portion of the purchase price was used by the Seller to satisfy outstanding loans payable by Sensera Limited to obtain the release of certain existing security interests on Nanotron’s assets. On February 24, 2021, the Company entered into an amendment to the Nanotron share sale and purchase agreement pursuant to which we agreed to the early release of the Holdback Funds, in exchange for a reduction in the total amount payable to the Seller by $ 225,000 . In addition, the amount payable was further reduced by $ 59,157 in connection with a post closing working capital adjustment and the satisfaction of a claim related to a customer dispute. A balance of $ 465,843 was paid to the Seller in full satisfaction of the Holdback Funds payable by the Purchaser to the Seller pursuant to the Purchase Agreement. The preliminary purchase price is allocated as follows (in thousands): Fair Value Allocation Assets acquired: Cash and cash equivalents 301 Trade and other receivables 576 Inventory 827 Prepaid expenses and other current assets 103 Operating lease right-of-use asset 557 Property, plant, and equipment 433 Tradename 51 Proprietary Technology 1,213 Customer Relationships 1,055 Non-compete Agreements 610 In-Process R&D 505 IP Agreement 178 Goodwill 3,501 Total assets acquired $ 9,910 Liabilities assumed: Accounts payable 526 Lease liabilities 557 Restructuring Costs 214 Accrued Liabilities 361 Total liabilities assumed 1,658 Estimated fair value of net assets acquired: $ 8,252 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 goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not tax deductible for local tax purposes, but will be amortizable in the computation of the shareholder’s U.S. tax liability. Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 7 - Proforma Financial Information Nanotron Proforma Financial Information The following unaudited proforma financial information presents the consolidated results of operations of the Company and Nanotron for the three months ended March 31, 2020, as if the acquisition had occurred as of the beginning of the first period presented instead of on October 6, 2020. 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. The proforma financial information for the Company and Nanotron is as follows (in thousands): For the Three Months Ended March 31, 2020 Revenues $ 3,209 Net loss attributable to common stockholders $ ( 6,223 ) Net loss per basic and diluted common share $ ( 1.24 ) Weighted average common shares outstanding: Basic and Diluted 5,038,515 Note 8 - Inventory Inventory as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands): As of March 31, 2021 As of December 31, 2020 Raw materials $ 493 $ 210 Work-in-process 131 138 Finished goods 1,006 1,033 Subtotal inventory 1,630 1,381 Inventory obsolescence reserve ( 138 ) ( 138 ) Total Inventory $ 1,492 $ 1,243 Note 9 - Debt Debt as of March 31, 2021 and December 31, 2020 consisted of the following (in thousands): Short-Term Debt Maturity Principal March 31, 2021 December 31, 2020 March 2020 10 % Note 3/18/2022 $ 4,251 $ 4,251 5,655 Unamortized Debt discount — — ( 254 ) Other short term debt — — — Total Short-Term Debt $ 4,251 $ 5,401 (A) Notes Payable March 2020 10 % 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 10 % 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. F-20 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 9 - Debt (continued) In exchange for the March 2020 Note, the holder paid an aggregate purchase price of $ 5,000,000 . Interest 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; 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 March 2020 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 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. On September 17, 2020, we amended the one time monitoring fee applicable in the event the note was outstanding on the date that was 6 months from the issuance date, from ( 10 %) to 5 % which was added to the March 2020 Note balance. On March 17, 2021, we extended the maturity date of the March 2020 Note from March 18, 2021 to March 18, 2022. On February 11, 2021, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 Note equal to $ 1.5 million and then cause the outstanding balance of the March 2020 Note to be reduced by $ 1.5 million; and (ii) exchange the partitioned note for the delivery of 893,921 shares of the Company’s Common Stock, at an effective price per share equal to $ 1.678 . The Company analyzed the exchange of the principal under the March 2020 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 approximately a $ 30,000 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, 2021. Note 10 - Capital Raises March 2020 Distribution Agreement On March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) 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, which was increased on June 19, 2020 to $ 150 million pursuant to an amendment to the EDA, from time to time through Maxim, acting exclusively as our sales agent. The Company intends to use the net proceeds of the ATM 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 filing. Maxim will be entitled to compensation at a fixed commission rate of 4.0 % of the gross sales price per share sold for the initial $ 50 million of shares and 3.25 % for any sales in excess of such amount. In addition, 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. The Company is not obligated to make any sales of the shares under the EDA and no assurance can be given that the Company will sell any shares under the EDA, 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 EDA will continue until the earliest of (i) December 3, 2021, (ii) the sale of shares having an aggregate offering price of $ 150 million, and (iii) the termination by either Maxim or the Company upon the provision of 15 days written notice or otherwise pursuant to the terms of the EDA. The EDA was mutually terminated by the parties on February 12, 2021. F-21 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 10 - Capital Raises (continued) Registered Direct Offerings On January 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 5,800,000 shares of its common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $ 1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $ 1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 1.549 per share for net proceeds of approximately $ 27.8 million. Each January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The January 2021 Pre-funded Warrants were exercised in full as of February 8, 2021. In addition, the investor exercised its purchase rights for 3,000,000 shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021. On February 12, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 7,000,000 shares of its common stock, and warrants to purchase up to 15,000,000 shares of common stock at an exercise price of $ 2.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $ 2.00 per share and pre-funded warrants to purchase up to 8,000,000 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 1.999 per share for net proceeds of approximately $ 27.8 million. Each First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021. On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $ 2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $ 2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $ 0.001 per share, at a purchase price of $ 2.009 per share for net proceeds of $ 18.5 million after deducting placement agent commissions and offering expenses. Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date. The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021. Note 11 - Common Stock During the three months ended March 31, 2021, the Company issued 893,921 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1,499,106 under partitioned notes. (See Note 9). During the three months ended March 31, 2021, the Company issued 15,800,000 shares of common stock in connection with registered direct offerings at per share prices between $ 1.55 and $ 2.01 , resulting in net proceeds to the Company of approximately $ 74.06 million after subtracting sales commissions and other offering expenses (See Note 10 ). During the three months ended March 31, 2021, the Company issued 4,977 shares of common stock issued for stock options exercised. During the three months ended March 31, 2021, the Company issued 31,505,088 shares of common stock in connection with the exchange of Pre-Funded Warrants (as defined in Note 13) offered under the Securities Purchase Agreement, resulting in net proceeds of $ 3,747,000 . See Note 10 and Note 13 for further details. Note 12 - Stock Award Plans and Stock-Based Compensation 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. 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. F-22 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 12 - Stock Award Plans and Stock-Based Compensation (continued) 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 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). 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 . The aggregate number of shares that may be awarded under the 2011 Plan as of March 31, 2021 is 5,317,853 and awarded under the 2018 Plan as of March 31, 2021 is 15,730,073 . As of March 31, 2021, 12,262,891 of stock options and restricted stock were granted to employees, directors and consultants of the Company (including 1 share outside of our plan) and 8,785,036 options were available for future grant under the Option Plans. Employee Stock Options During the three months ended March 31, 2021, the Company granted options under the 2018 Plan for the purchase of 1,600,500 shares of common stock to employees and consultants of the Company. These options are 100 % vested or vest pro-rata over 12 , 24 or 36 months, have a life of ten months and an exercise price of $ 1.83 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 $ 1.0 million. The fair value of the common stock as of the grant date was determined to be $ 1.83 per share. On February 5, 2021, the Company issued 4,977 shares of common stock in connection with the cashless exercise of 14,583 employee stock options. During the three months ended March 31, 2021 and 2020, the Company recorded a charge of $ 498,000 and $ 399,000 , respectively, for the amortization of employee stock options. As of March 31, 2021, the intrinsic value of of the plan and non-plan stock options was approximately $ 529 ,000 and the fair value of non-vested stock options totaled approximately $ 2.1 million, which will be amortized to expense over the weighted average remaining term of 0.99 years. The fair value of each employee 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 three months ended March 31, 2021 were as follows: For the Three Months Ended March 31, 2021 Risk-free interest rate 0.59 % Expected life of option grants 5 years Expected volatility of underlying stock 38.15 % 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 assumptions was $ 0 as the Company historically has not declared any dividends and does not expect to. F-23 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 12 - Stock Award Plans and Stock-Based Compensation (continued) Restricted Stock Awards On February 19, 2021, the Company granted 5,250,000 restricted stock awards to employees of the Company. These stock awards vest either 25 % on the Grant Gate and 25 % on each one year anniversary of Grant Date or 50 % on Grant Gate and 50 % on the one year anniversary. During the three months ended March 31, 2021 the Company recorded a charge of $ 4.6 million for the amortization of vested restricted stock awards. The Company determined the fair value of these grants based on the closing price of the Company’s common stock on the respective grant dates. The compensation expense is being amortized over the respective vesting periods. Note 13 - Warrants During the three months ended March 31, 2021, the Company issued 3,000,000 shares of common stock in connection with the exercise of 3,000,000 warrants at $ 0.001 per share. On January 24, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 5,800,000 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 19,354,838 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 1.55 per share. The Purchase Warrants have an exercise price of $ 1.55 per share. Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date. The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 3,000,000 shares of common stock (the “Pre-Funded Warrants” and, together with the 5,800,000 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 1.549 , and the exercise price of each Pre-Funded Warrant is $ 0.001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. During the three months ended ended March 31, 2021, the Company issued 13,554,838 shares of common stock in connection with the exercise of 13,554,838 warrants at $ 0.001 per share. On February 12, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 7,000,000 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 15,000,000 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 2.00 per share. The Purchase Warrants have an exercise price of $ 2.00 per share. Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date. The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 8,000,000 shares of common stock (the “Pre-Funded Warrants” and, together with the 7,000,000 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 1.999 , and the exercise price of each Pre-Funded Warrant is 0.001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. During the three months ended ended March 31, 2021, the Company issued 8,000,000 shares of common stock in connection with the exercise of 8,000,000 warrants at $ 0.001 per share. F-24 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 13 - Warrants (continued) On February 16, 2021, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 3,000,000 shares of the Company’s common stock, par value 0.001 per share, and warrants to purchase up to 9,950,250 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 2.01 per share. The Purchase Warrants have an exercise price of $ 2.01 per share. Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date. The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 6,950,250 shares of common stock in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 2.009 , and the exercise price of each Pre-Funded Warrant is 0.001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. During the three months ended March 31, 2021, the Company issued 6,950,250 shares of common stock in connection with the exercise of 6,950,250 pre-funded warrants at $ 0.001 per share. 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, UK subsidiary, German subsidiaries and its majority-owned India subsidiary. Cash in foreign financial institutions as of March 31, 2021 and December 31, 2020 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 three months ended March 31, 2021 and 2020 (in thousands): For the Three Months Ended March 31, 2021 For the Three Months Ended March 31, 2020 $ % $ % Customer A — — % 500 28 % Customer B 313 11 % 305 17 % As of March 31, 2021, Customer C represented approximately 10 % and Customer B represented approximately 7 % of total accounts receivable. As of March 31, 2021, two vendors represented approximately 35 % of total gross accounts payable. Purchases from these vendors during the three months ended March 31, 2021 was $ 478,176 . For the three months ended March 31, 2021 three vendors represented approximately 33 %, 18 %, and 25 % of total purchases. For the three months ended March 31, 2020, five vendors represented approximately 28 %, 21 %, 17 %, 16 %, and 15 % of total purchases. F-25 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 15 - Fair Value of Financial Instruments The Company's assets valued at fair value consisted of the following at March 31, 2021: Fair Value at March 31, 2021 Total Level 1 Level 2 Level 3 Assets: Short-term investments 50,057 — 50,057 — Total assets $ 50,057 $ — $ 50,057 $ — Note 16 - Foreign Operations The Company’s operations are located primarily in the United States, Canada, India, Germany, and the United Kingdom. Revenues by geographic area are attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands): United States Canada India Germany United Kingdom Eliminations Total For the Year Ended Three Months Ended March 31, 2021: Revenues by geographic area $ 1,661 $ 755 $ 441 $ 895 $ 78 $ ( 876 ) $ 2,954 Operating income (loss) by geographic area $ ( 10,568 ) $ ( 1,213 ) $ 113 $ ( 747 ) $ ( 5 ) $ — $ ( 12,420 ) Net income (loss) by geographic area $ ( 10,947 ) $ ( 959 ) $ 102 $ ( 725 ) $ ( 10 ) $ — $ ( 12,539 ) For the Year Ended Three Months Ended March 31, 2020: Revenues by geographic area $ 1,179 $ 1,348 $ 128 $ — $ — $ ( 851 ) $ 1,804 Operating income (loss) by geographic area $ ( 5,376 ) $ ( 135 ) $ ( 55 ) $ — $ — $ — $ ( 5,566 ) Net income (loss) by geographic area $ ( 6,069 ) $ ( 43 ) $ ( 56 ) $ — $ — $ — $ ( 6,168 ) As of March 31, 2021: Identifiable assets by geographic area $ 137,397 $ 9,236 $ 670 $ 18,233 $ 206 $ ( 36,914 ) $ 128,828 Long lived assets by geographic area $ 8,191 $ 6,610 $ 261 $ 4,273 $ 19 $ — $ 19,354 Goodwill by geographic area $ 697 $ 2,165 $ — $ 3,508 $ — $ — $ 6,370 As of December 31, 2020: Identifiable assets by geographic area $ 61,469 $ 9,652 $ 661 $ 19,379 $ 212 $ ( 32,362 ) $ 59,011 Long lived assets by geographic area $ 7,756 $ 6,775 $ 280 $ 4,610 $ 25 $ — $ 19,446 Goodwill by geographic area $ 522 $ 2,135 $ — $ 3,931 $ — $ — $ 6,588 F-26 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 17 - Related Party Transactions Sysorex Note Purchase Agreement Nadir Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, is also a member of the Board of Directors of Sysorex. 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. 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 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. In accordance with the terms of the Systat License Agreement (see Note 4), on June 30, 2020, the Company partitioned a portion of the outstanding balance of the Secured Note into a new note in an amount equal to $ 3 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement ("Assignment Agreement"). An additional $ 2.3 million of the principal balance underlying the Sysorex Note was partitioned into a new note and assigned to Systat as consideration payable for the rights granted under the license as of March 31, 2021. During the year ended December 31, 2020, an additional amount of approximately $ 2.6 million was advanced under the Secured Note and approximately $ 200,000 was repaid. The amount owed for principal as of March 31, 2021 and accrued interest through September 30, 2019 by Sysorex to the Company as of March 31, 2021 and December 31, 2020 was approximately $ 6.8 million and $ 7.7 million, respectively. These amounts exclude $ 275,000 of additional interest that the Company is contractually entitled to accrue from October 1, 2019 through December 31, 2019 and approximately $ 1.1 million of additional interest from January 1, 2020 through December 31, 2020 in accordance with the terms of the Sysorex Note, but did not accrue due to the uncertainty of repayment. An additional $ 1 million of the principal balance under the Secured Note was assigned to Systat on March 19, 2021, as the final portion of the total consideration due in connection with the license. The Secured Note has been classified as “held for sale” and the Company, with the assistance of a third party valuation firm, the Company estimated the fair value of the Secured Note as of December 31, 2019, using Sysorex financial projections, a discounted cash flow model and a 12.3 % discount rate. Following such valuation, the Company established a $ 7.7 million valuation allowance as of December 31, 2019 due to the uncertainty of repayment. During the three months ended March 31, 2021, the Company re-evaluated the carrying value of the note and established an additional valuation allowance of approximately $ 0.1 million for the net increase to the note during the year. We are 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 F-27 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 collectability of the note. Sysorex’s performance against those financial projections will directly impact future assessments of the fair value of the note. Sysorex Receivable On 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 as of March 31, 2021 of $ 89,062 . The total owed to the Company for this settlement as of March 31, 2021 and December 31, 2020 was $ 648,183 . The Company had a full valuation allowance against this balance as of March 31, 2021. Systat License Agreement Nadir Ali, our Chief Executive Officer and a member of our Board, is a related party in connection with the acquisition of the Licenses as a result of his service as a director of Sysorex, the issuer of the Sysorex Note that was assigned in accordance with the terms and conditions of the License Agreement. In addition, Tanveer Khader and Kareem Irfan, members of our Board, are also related parties in connection with the acquisition of the Licenses as a result of their respective employment relationships with the Systat Parties. (See Note 4). Inpixon Canada 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, 2020. However, upon the acquisition of Jibestream by Inpixon Canada, Inpixon Canada assumed the loan through consolidation. This note is recorded as a current note receivable on the Company books, however, it is eliminated in the consolidated financial statements. As of March 31, 2021, the balance of the note including principal and interest was $ 12,850,602 . Cardinal Ventures Holdings Investment Nadir Ali, our Chief Executive Officer and director, is also a controlling member of 3AM, LLC which is a member of Cardinal Ventures Holdings ("CVH"), which may, in certain circumstances, be entitled to manage the affairs of CVH. Mr. Ali’s relationship may create conflicts of interest between Mr. Ali’s obligations to our company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM. For example, Mr. Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders. F-28 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 18 - Leases The Company has operating leases for administrative offices in the United States (California), Canada, India, United Kingdom and Germany. The Company terminated the lease in Ratingen, Germany during January 31, 2021. The Company entered into two new operating leases for its administrative offices in Ratingen, Germany, both from February 1, 2021 through January 1, 2023. The monthly lease rate is 2,510 EUR and 1,010 EUR per month. The Company has no other operating or financing leases with terms greater than 12 months. Right-of-use assets is summarized below (in thousands): As of March 31, 2021 Palo Alto, CA Office $ 631 Encino, CA Office 194 Hyderabad, India Office 365 Coquitlam, Canada Office 98 Westminster, Canada Office 11 Toronto, Canada Office 961 Ratingen, Germany Office 93 Berlin, Germany Office 556 Slough, United Kingdom Office 34 Less accumulated amortization ( 995 ) Right-of-use asset, net $ 1,948 Lease 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. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statement of income for the three months ended March 31, 2021 was $ 0.3 million. During the three months ended March 31, 2021, the Company recorded $ 165,121 as rent expense to the right-of-use assets. Lease liability is summarized below (in thousands): As of March 31, 2021 Total lease liability $ 1,976 Less: short term portion ( 637 ) Long term portion $ 1,339 F-29 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 18 - Leases (continued) Maturity analysis under the lease agreement is as follows (in thousands): Year ending December 31, 2021 $ 539 Year ending December 31, 2022 661 Year ending December 31, 2023 368 Year ending December 31, 2024 273 Year ending December 31, 2025 258 Year ending December 31, 2026 108 Total $ 2,207 Less: Present value discount ( 231 ) Lease liability $ 1,976 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 842. As of March 31, 2021, the weighted average remaining lease term is 3.81 and the weighted average discount rate used to determine the operating lease liabilities was 8.0 %. Note 19 - Commitments and Contingencies Litigation 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. F-30 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Note 20 - Subsequent Events Sysorex Securities Settlement Agreement On April 14, 2021, the Company entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), each with Sysorex, whereby Sysorex agreed to satisfy in full its outstanding debt, in the aggregate amount of $ 9,088,176 as of March 31, 2021, owed to the Company under that certain secured promissory note, originally dated December 31, 2018, as amended from time to time, and in connection with that certain settlement agreement, dated February 20, 2019, by and among the Company, Sysorex and Atlas Technology Group, LLC (the “Debt Settlement”). To effect the Debt Settlement, Sysorex agreed to issue to the Company (i) pursuant to the terms of the SSA, 12,972,189 shares of its common stock, $ 0.00001 par value per share, and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA. The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc. In connection with the Debt Settlement, the Company also entered into a Registration Rights Agreement, dated as of April 14, 2021 (the “RRA”), with Sysorex and certain other shareholders of Sysorex (the “Holders”). Pursuant to the terms of the RRA, Sysorex must, subject to certain limitations, register the resale of the shares of common stock held by the Company and the Holders, with the U.S. Securities and Exchange Commission (the “SEC”), during the period that begins on the 90th day following April 14, 2021. In the event Sysorex fails to register such shares within that timeframe, or otherwise fails to meet its obligations under the RRA, then, subject to certain limitations, the Company and the Holders may be entitled to receive from Sysorex an amount in cash equal to the product of 1.5 % multiplied by the value of their shares (as set forth in the RRA), which amount is payable each month for so long as the failure continues. Also, under the RRA, if Sysorex determines to prepare and file with the SEC a registration statement relating to an offering of any of its equity securities, for its own account or the account of others, then the Company and the Holders will have the right, subject to certain limitations, to require Sysorex to include in such registration statement all or any part of the shares of common stock held by them. Nadir Ali, the Company’s Chief Executive Officer and a member of the Company’s board of directors, is also a director of Sysorex, although Mr. Ali expects to resign as a director of Sysorex within thirty (30) days of April 14, 2021. In addition, Nadir Ali entered into a consulting agreement with Sysorex, pursuant to which he agreed to provide certain business services specified in the agreement for the benefit of Sysorex in exchange for shares of Sysorex’s common stock. Game Your Game Acquisition On April 9, 2021 (the “Closing Date”), the Company acquired (the “Acquisition”) 522,000 shares of common stock (the “Purchased Shares”) of Game Your Game, Inc., a Delaware corporation (“GYG”), which represent 52.2 % of the outstanding shares of common stock of GYG on a fully diluted basis, pursuant to that certain Stock Purchase Agreement, dated as of March 25, 2021 (the “Purchase Agreement”), with GYG, Rick Clemmer (“Clemmer”) and Martin Manniche (“Manniche,” and, together with Clemmer, the “Sellers”). GYG’s business consists of developing and providing solutions using sports data and analytics. At the closing of the Acquisition, the Company acquired the Purchased Shares from GYG and the Sellers as follows: (i) GYG issued 283,473 Purchased Shares to the Company, and in exchange, the Company paid GYG $ 1,666,932 in cash, and (ii) the Sellers sold an aggregate of 238,527 Purchased Shares to the Company, and in exchange, the Company issued an aggregate of 1,179,077 shares of its common stock, par value $ 0.001 per share (the “Buyer Shares”), to the Sellers. In addition, at the closing, Nadir Ali, the Company’s Chief Executive Officer and member of the Company’s board of directors, was appointed as the sole member of GYG’s board of directors. F-31 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 Visualix Asset Purchase Agreement On April 23, 2021, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) by and among the Company, Visualix GmbH i.L. (the “Visualix”), Darius Vahdat-Pajouh and Michal Bucko (each, a “Founder,” and collectively, the “Founders”), and Future Energy Ventures Management GmbH (“FEVM”) pursuant to which we acquired certain computer vision, robust localization, large-scale navigation, mapping, and 3D reconstruction software technologies and intellectual property (collectively, the “Visualix Assets"). In accordance with the terms of the Asset Purchase Agreement, the Company purchased the Visualix Assets and certain patent applications related to the Visualix Assets from FEVM. In consideration of the transactions contemplated by the Asset Purchase Agreement, the Company: (i) remitted a cash payment in the amount of Fifty Thousand Euros (EUR 50,000 ) to Visualix; (ii) issued 316,768 shares of Common Stock to Visualix; and (iii) issued 52,795 to shares of Common Stock to FEVM. The board of the Company approved 344,826 restricted stock grants to certain employees of the Company which vest proportionally every 6 months either over a 1 or 2 year period. CXApp Acquisition On April 30, 2021 (the “Closing Date”), the Company completed the acquisition (the “Acquisition”) of over 99.9 % of the outstanding capital stock of Design Reactor, Inc., dba The CXApp, a California corporation (“The CXApp”), pursuant to the terms of that certain Stock Purchase Agreement, dated as of the Closing Date (the “Purchase Agreement”), by and among the Company, The CXApp, the sellers set forth on the signature page thereto and each other person who owns outstanding capital stock of The CXApp (“CXApp Shares”) and executes a Joinder to Stock Purchase Agreement (collectively, the “Sellers”), and Leon Papkoff, as Sellers’ Representative (the “Sellers’ Representative”). The CXApp is a leading SaaS app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events. On the Closing Date, the Sellers sold all of their CXApp Shares to the Company in exchange for consideration of (i) approximately $ 22,500,000 in cash, minus The CXApp’s transaction expenses, plus The CXApp’s closing cash, minus stock option payouts, minus the amount that equals 70 % of deferred revenue as of the Closing Date, subject to such other adjustments set forth in the Purchase Agreement, including a post-closing working capital adjustment (such amount, the “Cash Purchase Price”), and (ii) 8,820,239 shares of common stock of the Company, which were valued at approximately $ 10,000,000 based on a share price of $ 1.13 , which was the closing price of common stock of the Company immediately prior to executing the Purchase Agreement (such shares, the “Purchaser Shares” and together with the Cash Purchase Price, the “Consideration”). In addition, the Company agreed to pay up to $ 12,500,000 in contingent earnout payments, subject to certain adjustments (the “Earnout Payment” and together with the Cash Purchase Price and the Purchaser Shares, the “Aggregate Purchase Price”). As of the Closing Date, there was one holder of CXApp Shares that did not sign the Purchase Agreement (the “Non-Signing Seller”). On May 10, 2021, the Company, The CXApp and the Non-Signing Seller executed a Joinder to Stock Purchase Agreement pursuant to which the Company purchased such Non-Signing Seller's CXApp Shares in exchange for approximately $ 50,000 in cash and 29,299 shares of common stock of the Company. As of such time, the Company now owns 100% of The CXApp. F-32