What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-17 · 179 added, 111 removed, 368 unchanged (44% of the section changed)

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Our Indoor Intelligence products secure, digitize and optimize the interior of any premises with indoor positioning and data analytics that provide rich positional information, similar to a global positioning system, and browser-like intelligence for the indoors.

We experienced a net loss of approximately $12.5 million and $6.2 million for the three months ended March 31, 2021 and 2020, respectively.

We experienced net income of approximately $14.5 million and a net loss of approximately $7.3 million for the three months ended June 30, 2021 and 2020, respectively.

We experienced net income of approximately $2.0 million and a net loss of $13.5 million for the six months ended June 30, 2021 and 2020, respectively.

The net income for each of the 2021 periods include a gain on the settlement of the Sysorex debt with the issuance of the Sysorex securities to the Company on April 14, 2021 offset by the unrealized loss on the related investment in equity securities as of June 30, 2021.

See further details in financial statement notes 14, 22 and 24 included elsewhere in this document.

.We cannot assure that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable.

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Corporate Strategy Update

Since 2019, management has pursued a corporate strategic acquisition strategy focused on building and developing its business as the Indoor Intelligence TM provider with the ability to provide end to end solutions ranging from the collection of data to delivering insights from that data to our customers with a focus on securing, digitizing and optimizing premises with our

indoor positioning, mapping and analytics solutions for businesses and governments.

In furtherance of this strategy, we have completed a series of strategic transactions to enhance our products and solution offerings, including, the acquisition of (1) technologies allowing for wireless device positioning and radio frequency augmentation of video surveillance systems;

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(5) IoT solutions for real-time location systems (RTLS) and indoor and outdoor positioning solutions utilizing both industry-standard technologies, such as ultra-wideband (UWB), and patented proprietary wireless communication technologies, such as Chirp Spread Spectrum (CSS);

and most recently (6) a suite of augmented reality, computer vision, localization, navigation, mapping, and 3D reconstruction technologies, including patents, trademarks, software and related intellectual property, and (7) 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.

(6) a suite of augmented reality, computer vision, localization, navigation, mapping, and 3D reconstruction technologies, including patents, trademarks, software and related intellectual property, and (7) 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.

We believe these transactions have positioned us as a market leader with a comprehensive suite of products and solutions allowing us to provide organizations with actionable indoor intelligence to make their indoor spaces smarter, safer and more secure.

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Our success will depend on our ability to develop expertise with these new products, product enhancements, services and distribution methods and to implement solutions that anticipate and respond to rapid changes in technology, the industry, and customer needs.

As a result, in order to continue to respond to rapid changes and required technological advancements we may continue to evaluate various strategic transactions including acquisitions of companies with technologies and intellectual property in order to continue to maintain pace with industry demands and if we believe that it will complement our goals in offering a comprehensive Indoor Intelligence platform.

As a result, in order to continue to respond to rapid changes and required technological advancements we intend to continue to evaluate various strategic transactions including acquisitions of companies with technologies and intellectual property in order to continue to maintain pace with industry demands and if we believe that it will complement our goals in offering a comprehensive Indoor Intelligence platform or otherwise increase shareholder value.

Candidates with proven technologies that complement our overall strategy may come from anywhere in the world, as long as there are strategic and financial reasons to make the acquisition.

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In addition, the investor exercised its purchase rights for 3 million shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021.

On February 12, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 7,000,000 shares of our 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 $27.8 million after deducting placement agent commissions and offering expenses.

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 $27.8 million after deducting placement agent commissions and offering expenses.

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 five years from the issuance date.

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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, our Chief Executive Officer and a member of our 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.

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, our Chief Executive Officer and a member of our board of directors, resigned as a director of Sysorex, as of May 14, 2021.

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.

Visualix Asset Purchase Agreement

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We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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For fixed fee contracts including maintenance service provided by in house personnel, we recognize revenue evenly over the service period using a time-based measure because we are providing continuous service.

Because our contracts have an expected duration of one year or less, we have elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about the remaining performance obligations.

Because our contracts have an expected duration of one year or less, we have elected the practical expedient

in ASC 606-10-50-14(a) to not disclose information about the remaining performance obligations.

Anticipated losses are recognized as soon as they become known.

For the three months ended March 31, 2021 and 2020, we did not incur any such losses.

For the three and six months ended June 30, 2021 and 2020, we 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.

License Revenue Recognition

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.

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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 our revenue recognition related to the SAVES revenue stream is dependent on whether the software licensing agreement entered into represents a good or service.

The timing of our revenue recognition related to the license 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.

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Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.

The Company had deferred revenue of approximately $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 had deferred revenue of approximately $2.8 million and $1.9 million as of June 30, 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.

Long-lived Assets

We account for our long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“ASC 360”), which requires that long-lived assets be evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

We account for our long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, Accounting for the Impairment or Disposal of Long-Lived Assets (“ASC 360”), which requires that long-lived assets be evaluated whenever

events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

Some of the events or changes in circumstances that would trigger an impairment test include, but are not limited to:

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In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge.

Based on our evaluation we did not record a charge for impairment for the three months ended March 31, 2021 and 2020.

Based on our evaluation we did not record a charge for impairment for the three and six months ended June 30, 2021 and 2020.

The benefits to be derived from our acquired intangibles, will take additional financial resources to continue the development of our technology.

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If the estimated remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be amortized prospectively over that revised remaining useful life.

We have determined that there were no events or circumstances during the three months ended March 31, 2021 and 2020, which would indicate a revision to the remaining amortization period related to any of our long-lived assets.

We have determined that there were no events or circumstances during the three or six months ended June 30, 2021 and 2020, which would indicate a revision to the remaining amortization period related to any of our long-lived assets.

Accordingly, we believe that the current estimated useful lives of long-lived assets reflect the period over which they are expected to contribute to future cash flows and are therefore deemed appropriate.

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In accordance with authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts.

Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly.

Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and

amortized accordingly.

If the IPR&D asset is abandoned, the remaining carrying value is written off.

agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron.

Our IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, and Nanotron, which was valued on the date of the acquisition.

During fiscal year 2014, we acquired IPR&D through the acquisition of AirPatrol, in 2015 through the acquisition of the assets of LightMiner, in 2019 through the acquisitions of Locality, Jibestream and certain assets of GTX, in 2020 through the SYSTAT licensing agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron and in 2021 through the acquisition of CXApp, Game Your Game and certain assets of Visualix.

Our IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, Nanotron, CXApp, Game Your Game and Visualix, which was valued on the date of the acquisition.

It will take additional financial resources to continue development of these technologies.

We continue to seek additional resources, through both capital raising efforts and meeting with industry experts, for further development of the AirPatrol, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, and Nanotron technologies.

Through March 31, 2021, we have made some progress with raising capital since these acquisitions, building our pipeline and getting industry acknowledgment.

Through June 30, 2021, we have made some progress with raising capital since these acquisitions, building our pipeline and getting industry acknowledgment.

We have been recognized by leading industry analysts in a report on leading indoor positioning companies and were also awarded the IoT Security Excellence award by TMC and Crossfire Media.

Management remains focused on growing revenue from these products and continues to pursue efforts to recognize the value of the AirPatrol, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, and Nanotron technologies.

Although there can be no assurance that these efforts will be successful, we intend to allocate financial and personnel resources when deemed possible and/or necessary.

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Goodwill and Indefinite-lived Assets

We have recorded goodwill and other indefinite-lived assets in connection with our acquisitions of Shoom, Locality, Jibestream, GTX, the Systat Parties, and Nanotron.

We have recorded goodwill and other indefinite-lived assets in connection with our acquisitions of Shoom, Locality, Jibestream, GTX, the Systat Parties, Nanotron, Game Your Game and CXApp.

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

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We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived assets, including our intangible assets, may not be recoverable.

When such events or

changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows.

When such events or changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows.

If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

We did not recognize any intangible asset impairment charges for the three months ended March 31, 2021 and 2020.

We did not recognize any intangible asset impairment charges for the three and six months ended June 30, 2021 and 2020.

See “Acquired In-Process Research and Development (“IPR&D”)” for further information.

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Management’s determination of the adequacy of the reserve for credit losses for our accounts and notes receivable is based on the age of the receivable balance, the customer’s credit quality rating, an evaluation of historical credit losses, current economic conditions, and other relevant factors.

As of March 31, 2021 and December 31, 2020, reserves for credit losses included a reserve for doubtful accounts of approximately $234,000 and $235,000, respectively, due to the aging of the items greater than 90 days outstanding and other potential non-collections.

As of June 30, 2021 and December 31, 2020, reserves for credit losses included a reserve for doubtful accounts of approximately $234,000 and $235,000, respectively, due to the aging of the items greater than 90 days outstanding and other potential non-collections.

Business Combinations

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

For the Three Months Ended March 31, 2021

For the Six Months Ended June 30, 2021

Risk-free interest rate 0.59%

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Dividends assumption --

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.

During the three months ended June 30, 2021 and 2020, the Company recorded a charge of $0.3 million and $0.3, million respectively, for the amortization of employee stock options.

During the six months ended June 30, 2021 and 2020, the Company recorded a charge of $0.8 million and $0.7 million, respectively, for the amortization of employee stock options.

R ESULTS OF O PERATIONS

Three Months Ended March 31, 2021 compared to the Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020

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

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except percentages) Amount % of

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Loss from operations $ (13,293) (385) % $ (5,128) (477) % $ 8,165 159 %

Net loss $ (12,539) (424) % $ (6,168) (342) % $ 6,371 103 %

Net loss attributable to stockholders of Inpixon $ (12,557) (425) % $ (6,158) (341) % $ 6,399 104 %

Net income (loss) $ 14,506 420 % $ (7,304) (679) % $ (21,810) (299) %

Net income (loss) attributable to stockholders of Inpixon $ 14,759 427 % $ (7,323) (681) % $ (22,082) (302) %

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands.

Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

Revenues for the three months ended March 31, 2021 were $3.0 million compared to $1.8 million for the comparable period in the prior year for an increase of approximately $1.2 million, or approximately 64%.

This increase is primarily attributed to sales related to the Systat and RTLS product lines.

Revenues for the three months ended June 30, 2021 were $3.5 million compared to $1.1 million for the comparable period in the prior year for an increase of approximately $2.4 million, or approximately 221%.

This increase is primarily attributable to an approximate $1.5 million increase in Indoor Intelligence sales and an increase of approximately $0.7 million of SAVES sales.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2021 were $0.9 million compared to $0.5 million for the comparable period in the prior year.

Cost of revenues for the three months ended June 30, 2021 were $0.9 million compared to $0.3 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $0.6 million, or approximately 194%, was primarily attributable to the increased sales during the quarter.

The gross profit margin for the three months ended March 31, 2021 was 70% compared to 72% for the three months ended March 31, 2020.

This decrease in margin is primarily due to lower gross profit margins from the RTLS product line.

The gross profit margin for the three months ended June 30, 2021 was 74% compared to 72% for the three months ended June 30, 2020.

This increase in margin is primarily due to a higher mix of gross profit from the Indoor Intelligence products.

Operating Expenses

Operating expenses for the three months ended March 31, 2021 were $14.5 million and $6.9 million for the comparable period ended March 31, 2020.

This increase of $7.6 million is primarily attributable to increased operating expenses, including approximately $2.0 million from the Systat licensing agreement and Nanotron acquisition and approximately $4.7 million of stock based compensation expense.

Operating expenses for the three months ended June 30, 2021 were $15.9 million and $5.9 million for the comparable period ended June 30, 2020.

This increase of approximately $10.0 million is primarily attributable to increased operating expenses, including approximately $2.6 million of Indoor Intelligence operating costs from the CXApp, Game your Game and Nanotron acquisitions, and approximately $0.1 million of SAVES operating costs from the Systat licensing agreement, $0.7 million of additional amortization of intangibles, additional $0.4 million of acquisition costs, approximately $2.0 million of accrued earnout compensation expense and approximately $1.8 million of additional stock based compensation expense.

Loss From Operations

Loss from operations for the three months ended March 31, 2021 was $12.42 million as compared to $5.57 million for the comparable period in the prior year.

Loss from operations for the three months ended June 30, 2021 was $13.3 million as compared to $5.1 million for the comparable period in the prior year.

This increase in loss of approximately $8.2 million was primarily attributable to increased operating expenses described above offset by higher gross profit.

Other Expense

Other expense for the three months ended March 31, 2021 was a loss of $0.1 million compared to a loss of $0.7 million for the comparable period in the prior year.

This decrease in loss of approximately $0.6 million is primarily attributable to lower interest expense and the unrealized gain on the Inpixon Canada note.

Other Income (Expense)

Other income/expense for the three months ended June 30, 2021 was income of $30.0 million compared to a loss of $2.2 million for the comparable period in the prior year.

This increase in income of approximately $32.2 million is primarily attributable to a discounted net gain of approximately $20.9 million on the Sysorex note, a $7.5 million release of the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note.

Provision for Income Taxes

There was income tax expense of approximately $9,000 for the three months ended March 31, 2021 related to the gross profit of Inpixon India.

There was an income tax benefit for the three months ended March 31, 2020 of approximately $87,000 due to the acquisition of intangibles and net operating losses of Locality and Jibestream.

There was a net income tax expense of approximately $2.2 million for the three months ended June 30, 2021 primarily related to a current income tax expense of $6.7 million offset by a $4.5 million deferred tax benefit related to the acquisition intangibles of Design Reactor.

There was no income tax benefit or expense for the three months ended June 30, 2020.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income (loss) attributable to non-controlling interest for the three months ended March 31, 2021 and 2020 was income of $18,000 and a loss of $10,000, respectively.

This increase of $28,000 was attributable to a larger profit from the Inpixon India subsidiary.

Net Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders of Inpixon for the three months ended March 31, 2021 was $12.6 million compared to $6.2 million for the comparable period in the prior year.

Net income (loss) attributable to non-controlling interest for the three months ended June 30, 2021 and 2020 was a loss of $253,000 and a income of $19,000, respectively.

This increase in loss of $272,000 was primarily attributable to the loss of Game Your Game.

Net Income (Loss) Attributable To Stockholders of Inpixon

Net income (loss) attributable to stockholders of Inpixon for the three months ended June 30, 2021 was income of $14.8 million compared to a loss of $7.3 million for the comparable period in the prior year.

This increase in income of approximately $22.1 million was primarily attributable to higher gross profit, the discounted net gain on the Sysorex note, the release of the valuation allowance on the Sysorex note, offset by the increased operating expenses described above.

Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

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

For the Six Months Ended June 30,

(in thousands, except percentages) Amount % of

Revenues Amount % of

Revenues $ Change %

Revenues $ 6,407 100 % $ 2,880 100 % $ 3,527 122 %

Cost of revenues $ 1,780 28 % $ 814 28 % $ 966 119 %

Gross profit $ 4,627 72 % $ 2,066 72 % $ 2,561 124 %

Operating expenses $ 30,340 474 % $ 12,759 443 % $ 17,581 138 %

Loss from operations $ (25,713) (401) % $ (10,693) (371) % $ (15,020) 140 %

Net income (loss) $ 1,967 31 % $ (13,469) (468) % $ 15,436 (115) %

Net income (loss) attributable to stockholders of Inpixon $ 2,202 34 % $ (13,478) (468) % $ 15,680 (116) %

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands.

Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

Revenues for the six months ended June 30, 2021 were $6.4 million compared to $2.9 million for the comparable period in the prior year for an increase of approximately $3.5 million, or approximately 122%.

This increase is primarily attributable to an approximate $2.0 million increase in Indoor Intelligence sales and an increase of approximately $1.5 million of SAVES sales.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2021 were $1.8 million compared to $0.8 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $1.0 million, or approximately 119%, was primarily attributable to the increased sales during the quarter.

The gross profit margin for the six months ended June 30, 2021 and 2020 was 72%.

Operating Expenses

Operating expenses for the six months ended June 30, 2021 were $30.3 million and $12.8 million for the comparable period ended June 30, 2020.

This increase of $17.6 million is primarily attributable to increased operating expenses including approximately $3.8 million of Indoor Intelligence operating costs from the CXApp, Game Your Game and Nanotron acquisitions, and approximately $0.3 million of SAVES operating costs from the Systat licensing agreement, additional $0.8 million of acquisition costs, approximately $2.0 million of accrued earnout compensation expense and approximately $6.5 million of additional stock based compensation expense.

Loss From Operations

Loss from operations for the six months ended June 30, 2021 was $25.7 million as compared to $10.7 million for the comparable period in the prior year.

This increase in loss of approximately $15.0 million was primarily attributable to increased operating expenses described above offset by higher gross profit.

Other Income (Expense)

Other income/expense for the six months ended June 30, 2021 was income of $29.9 million compared to a loss of $2.9 million for the comparable period in the prior year.

This increase in income of approximately $32.7 million is primarily attributable to a discounted net gain of approximately $20.9 million on the Sysorex note, a $7.5 million release of the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note.

Provision for Income Taxes

There was an income tax provision of approximately $2.2 million for the six months ended June 30, 2021 related to a current income tax expense of $6.7 million offset by a $4.5 million deferred tax benefit primarily related to acquisition intangibles of Design Reactor.

There was an income tax benefit for the six months ended June 30, 2020 of approximately $87,000 due to the acquisition intangibles and net operating losses of Locality and Jibestream.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income (loss) attributable to non-controlling interest for the six months ended June 30, 2021 and 2020 was a loss of $235,000 and income of $9,000, respectively.

This increase in loss of $244,000 was attributable to the loss of the Game Your Game entity.

Net Income (Loss) Attributable To Stockholders of Inpixon

Net income or loss attributable to stockholders of Inpixon for the six months ended June 30, 2021 was income of $2.2 million compared to a loss of $13.5 million for the comparable period in the prior year.

This increase in income of approximately $15.7 million was primarily attributable to higher gross profit, the discounted net gain on the Sysorex note, the release of valuation allowance on the Sysorex note, offset by the increased operating expenses described above.

Non-GAAP Financial information

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It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation.

Adjusted EBITDA for the three months ended March 31, 2021 was a loss of $5.6 million compared to a loss of $3.9 million for the prior year period.

The following table presents a reconciliation of net income/loss attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Net loss attributable to common stockholders $ (12,557) $ (6,158)

Adjusted EBITDA for the three months ended June 30, 2021 was a loss of $6.3 million compared to a loss of $3.9 million for the prior year period.

Adjusted EBITDA for the six months ended June 30, 2021 was a loss of $11.8 million compared to a loss of $7.8 million for the prior year period.

The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the six months ended June 30, 2021 and 2020 (in thousands):

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) attributable to common stockholders $ 14,759 $ (7,323) $ 2,202 $ (13,478)

Non-recurring one-time charges:

Loss on exchange of debt for equity — 47 30 132

Provision for valuation allowance on held for sale loan 117 —

Professional service fees 349 —

(Recovery) provision for valuation allowance on held for sale loan (7,462) 835 (7,345) 835

Provision for the valuation allowance related party receivable 648 — 648

Gain on related party loan held for sale (49,817) — (49,817) —

Unrealized loss on equity securities 28,965 — 28,965 —

Acquisition transaction/financing costs 535 169 1,005 196

Unrealized gain/loss on note (363) —

Earnout compensation expense 2,059 — 2,059 —

Professional service fees 422 — 771 —

Unrealized gain on note (128) — (491) —

Stock-based compensation - compensation and related benefits 2,053 286 7,149 685

Interest expense, net (1,555) 777 (1,206) 1,397

Income tax benefit 9 (87)

Income tax provision (benefit) 2,195 — 2,204 (87)

Depreciation and amortization 1,695 682 2,638 1,908

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We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.

Proforma Non-GAAP Net Loss per Share

Basic and diluted net loss per share for the three months ended March 31, 2021 was $0.16 compared to a loss of $1.22 for the prior year period.

Proforma Non-GAAP Net Income (Loss) per Share

Basic and diluted net income (loss) per share for the for the three months ended June 30, 2021 was income of $0.13 compared to a loss of $0.32 for the prior year period.

Basic and diluted net income (loss) per share for the six months ended June 30, 2021 was income of $0.02 compared to a loss of $0.97 for the prior year period.

The decreased loss per share in 2021 was attributable to the changes discussed in our results of operations.

Proforma non-GAAP net income (loss) per share is used by our Company’s management as an evaluation tool as it manages the business and is defined as net income (loss) per basic and diluted share adjusted for non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.

Proforma non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2021 was $0.08 compared to a loss of $0.92 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the for the three months ended June 30, 2021 was a loss of $0.07 per share compared to a loss of $0.21 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the six months ended June 30, 2021 was a loss of $0.14 per share compared to a loss of $0.68 per share for the prior year period.

The following table presents a reconciliation of net loss per basic and diluted share, which is our GAAP operating performance measure, to proforma non-GAAP net loss per share for the periods reflected (in thousands, except per share data):

For the Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(thousands, except per share data) 2021 2020 2021 2020

Net loss attributable to common stockholders $ (12,557) $ (6,158)

Net income (loss) attributable to common stockholders $ 14,759 $ (7,323) $ 2,202 $ (13,478)

Non-recurring one-time charges:

Loss on the exchange of debt for equity — 47 30 132

Provision for valuation allowance on held for sale loan 117 —

Professional service fees 349 — —

(Recovery) provision for valuation allowance on held for sale loan (7,462) 835 (7,345) 835

Provision for the valuation allowance related party receivable — 648 — 648

Gain on related party loan held for sale (49,817) — (49,817) —

Unrealized loss on equity securities 28,965 — 28,965 —

Acquisition transaction/financing costs 535 169 1,005 196

Earnout compensation expense 2,059 — 2,059 —

Professional service fees 422 — 771 —

Unrealized gain/loss on note (128) — (491) —

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Proforma non-GAAP net loss (7,253) (4,830) (13,461) (9,458)

Proforma non-GAAP net loss per basic and diluted common share $ (0.08) $ (0.92)

Weighted average basic and diluted common shares outstanding 78,942,697 5,038,515

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

Proforma non-GAAP net loss per share - Basic (0.07) (0.21) (0.14) (0.68)

Proforma non-GAAP net loss per share - Diluted (0.07) (0.21) (0.14) (0.68)

Weighted Average Shares Outstanding

Basic 110,040,532 22,823,976 94,577,520 13,931,245

Diluted 110,041,378 22,823,976 94,591,619 13,931,245

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

• To review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment Reporting;

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• To evaluate internally the performance of our personnel.

We have presented proforma non-GAAP net loss per share above because we believe it conveys useful information to investors regarding our operating results.

We have presented proforma non-GAAP net income (loss) per share above because we believe it conveys useful information to investors regarding our operating results.

We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss), and that by including this information we can provide investors with a more complete understanding of our business.

Specifically, we present proforma non-GAAP net loss per share as supplemental disclosure because:

• We believe proforma non-GAAP net loss per share is a useful tool for investors to assess the operating performance of our business without the effect of non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.

Specifically, we present proforma non-GAAP net income (loss) per share as supplemental disclosure because:

• We believe proforma non-GAAP net income (loss) per share is a useful tool for investors to assess the operating performance of our business without the effect of non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs,

provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.

• We believe that it is useful to provide to investors a standard operating metric used by management to evaluate our operating performance;

• We believe that the use of proforma non-GAAP net loss per share is helpful to compare our results to other companies.

Liquidity and Capital Resources as of March 31, 2021

Our current capital resources and operating results as of and through March 31, 2021, consist of:

• We believe that the use of proforma non-GAAP net income (loss) per share is helpful to compare our results to other companies.

Liquidity and Capital Resources as of June 30, 2021

Our current capital resources and operating results as of and through June 30, 2021, consist of:

1) an overall working capital surplus of approximately $54.2 million;

2) cash of approximately $24.9 million and short-term investments of approximately $45.3 million;

3) net cash used by operating activities for the three months ended March 31, 2021 of $5.7 million.

3) net cash used by operating activities for the six months ended June 30, 2021 of $14.2 million.

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

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Accrued liabilities $ — $ 5,717 $ (5,717)

Income tax liabilities $ — 6,750 $ (6,750)

Operating lease obligation $ — $ 602 $ (602)

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Total $ 76,481 $ 22,266 $ 54,215

Net cash used in operating activities during the year ended March 31, 2021 of $5.7 million consists of net loss of $12.5 million offset by non-cash adjustments of approximately $6.2 million less net cash changes in operating assets and liabilities of approximately $0.6 million.

During the three months ended March 31, 2021 we raised net proceeds of approximately $77.9 million from the sale of our securities in connection with registered direct offerings and the exercise of warrants.

Net cash used in operating activities during the six months ended June 30, 2021 of $14.2 million consists of net income of $2.0 million offset by non-cash adjustments of approximately $24.4 million less net cash changes in operating assets and liabilities of approximately $8.2 million.

During the six months ended June 30, 2021 we raised net proceeds of approximately $77.9 million from the sale of our securities in connection with registered direct offerings and the exercise of warrants.

Given our current cash balances and budgeted cash flow requirements, the Company believes such funds are sufficient to support ongoing operations for the next 12 months from the issuance date of the financial statements.

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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 for compliance with new rules and regulations resulting from the pandemic, customer facilities were partially or fully closed during 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 three months ending March 31, 2021 when compared to the first quarter of 2020, as a result of the addition of the SAVES product line and the addition of the RTLS (Nanotron) 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.

Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the six months ended June 30, 2021 when compared to the six months ended June 30, 2020 as a result of the addition of the SAVES product line, the addition of the RTLS (Nanotron) product line in the fourth quarter of 2020 and the acquisition of the CXApp product line in the second quarter of 2021.

be materially adversely effected.

The Company may continue to pursue strategic transactions and may raise such additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each acquisition.

Liquidity and Capital Resources as of March 31, 2021 Compared With March 31, 2020

The Company’s net cash flows used in operating, investing and financing activities for the three months ended March 31, 2021 and 2020 and certain balances as of the end of those periods are as follows (in thousands):

Three Months Ended March 31,

Liquidity and Capital Resources as of June 30, 2021 Compared With June 30, 2020

The Company’s net cash flows used in operating, investing and financing activities for the six months ended June 30, 2021 and 2020 and certain balances as of the end of those periods are as follows (in thousands):

For the Six Months Ended June 30,

Net cash used in operating activities $ (14,163) $ (10,369)

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Net increase in cash and cash equivalents $ 6,916 $ 34,681

As of March 31,

As of June 30,

2021 As of December 31,

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Working capital surplus $ 54,215 $ 18,208

Operating Activities for the three months ended March 31, 2021

Net cash used in operating activities during the three months ended March 31, 2021 was approximately $5.7 million.

The cash flows related to the three months ended March 31, 2021 consisted of the following (in thousands):

Net loss $ (12,539)

Operating Activities for the six months ended June 30, 2021

Net cash used in operating activities during the six months ended June 30, 2021 was approximately $14.2 million.

The cash flows related to the six months ended June 30, 2021 consisted of the following (in thousands):

Net income (loss) $ 1,967

Non-cash income and expenses $ (24,359)

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The non-cash income and expense of approximately $24.4 million consisted primarily of the following (in thousands):

$ 943 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, Jibestream, Systat, Ten Degrees and Nanotron, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, August 15, 2019, June 30, 2020, August 19, 2020 and October 6, 2020, respectively.

$ 2,632 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, Jibestream, Systat, Ten Degrees, Nanotron, Game Your Game, Visualix and CXApp, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, August 15, 2019, June 30, 2020, August 19, 2020, October 6, 2020, April 9, 2021, April 23, 2021 and April 30, 2021, respectively.

$ 370 Amortization of right of use asset

5,096 Stock-based compensation expense attributable to warrants and options issued as part of Company operations

$ 7,149 Stock-based compensation expense attributable, warrants, restricted stock grants and options issued as part of Company operations

$ 30 Loss on exchange of debt for equity

$ 224 Amortization of debt discount

(363) Related party note, gain of foreign currency transaction

117 Provision for the valuation allowance - held for sale loan

9 Income tax expense

$ (7,345) Recovery for valuation allowance for held for sale loan

(1,627) Accrued interest income, related party

$ (49,817) Gain on settlement of related party note and receivable

$ (4,507) Income tax benefit

28,965 Unrealized loss on equity securities

$ (433) Other

$ (24,359) Total non-cash expenses

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$ 2,590 Increase in accrued liabilities and other liabilities

6,711 Increase in income tax liabilities

$ (364) Decrease in operating lease liabilities

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$ 8,229 Net cash used in the changes in operating assets and liabilities

Operating Activities for the three months ended March 31, 2020

Net cash used in operating activities during the three months ended March 31, 2020 was approximately $4.5 million.

The cash flows related to the three months ended March 31, 2020 consisted of the following (in thousands):

Net loss $ (6,168)

Operating Activities for the six months ended June 30, 2020

Net cash used in operating activities during the six months ended June 30, 2020 was approximately $10.4 million.

The cash flows related to the six months ended June 30, 2020 consisted of the following (in thousands):

Net income (loss) $ (13,469)

Non-cash income and expenses 6,375

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1,909 Amortization of debt discount

835 Provision for the valuation allowance for held for sale loan

648 Provision for the valuation allowance for related party receivable

$ (32) Accrued interest income, related party

$ (87) Income tax benefit

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$ (3,275) Net use of cash used in the changes in operating assets and liabilities

Cash Flows from Investing Activities as of March 31, 2021 and 2020

Net cash flows used in investing activities during the three months ended March 31, 2021 was approximately $43.3 million compared to net cash flows used in investing activities during the three months ended March 31, 2020 of approximately $0.2 million.

Cash flows related to investing activities during the three months ended March 31, 2021 include $109,000 for the purchase of property and equipment, $253,000 for investment in capitalized software, $42.1 million for short term investments, and $0.9 million for cash paid for the Systat License Agreement.

Cash flows related to investing activities during the three months ended March 31, 2020 include $16,000 for the purchase of property and equipment and $193,000 investment in capitalized software.

Cash Flows from Financing Activities as of March 31, 2021 and 2020

Net cash flows provided by financing activities during the three months ended March 31, 2021 was $77.3 million.

Net cash flows provided by financing activities during the three months ended March 31, 2020 was $6.1 million.

During the three months ended March 31, 2021, the Company received incoming cash flows of $77.9 million for the issuance of common stock, loaned $0.1 million to related parties, and paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality.

During the three months ended March 31, 2020, the Company received incoming cash flows of $1.3 million from the issuance of common stock, $5.0 million of proceeds from promissory notes, and $0.2 million of repayments from related parties offset by $0.2 million of loans to related party, and $0.2 of net repayments to bank facility.

Cash Flows from Investing Activities as of June 30, 2021 and 2020

Net cash flows used in investing activities during the six months ended June 30, 2021 was approximately $53.8 million compared to net cash flows used in investing activities during the six months ended June 30, 2020 of approximately $0.5 million.

Cash flows related to investing activities during the six months ended June 30, 2021 include $149,000 for the purchase of property and equipment, $373,000 for investment in capitalized software, $63.4 million for the purchase of treasury bills, $28.0 million sales of treasury bills, $184,000 from the acquisition of Game Your Game, $15.2 million for the acquisition of CXApp, $900,000 for the purchase of the Systat licensing agreement and $61,000 for acquisition of Visualix.

Cash flows related to investing activities during the six months ended June 30, 2020 include $39,000 for the purchase of property and equipment and $433,000 investment in capitalized software.

Cash Flows from Financing Activities as of June 30, 2021 and 2020

Net cash flows provided by financing activities during the six months ended June 30, 2021 was $74.9 million.

Net cash flows provided by financing activities during the six months ended June 30, 2020 was $45.5 million.

During the six months ended June 30, 2021, the Company received incoming cash flows of $77.9 million for the issuance of common stock and warrants, loaned $117,000 to related parties, paid $1.7 million of taxes related to the net share settlement of restricted stock units, paid a $137,000 liability related to the CXApp acquisition, paid a $467,000 acquisition liability to the pre-acquisition shareholders of Nanotron and paid a $500,000 acquisition liability to the pre-acquisition shareholders of Locality.

During the six months ended June 30, 2020, the Company received incoming cash flows of $41.8 million from the issuance of common stock, $5.0 million of proceeds from promissory notes, and $0.2 million of repayments from related parties offset by $1.0 million of loans to related party, $0.2 of net repayments to bank facility and paid a $250,000 acquisition liability to the pre-acquisition shareholders of Locality.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis