What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 125 added, 121 removed, 426 unchanged (37% of the section changed)

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We are an indoor intelligence company.

Our business and government customers use our solutions to secure, digitize and optimize their indoor spaces with our positioning, mapping and analytics products.

We capture and turn indoor data into indoor intelligence for smarter, safer and more secure environments for our customers.

Our clients use our solutions to secure, digitize and optimize their indoor spaces with our smart office and events apps, positioning, mapping, asset tracking 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.

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We also offer digital tear-sheets with optional invoice integration, digital ad delivery, and an e-edition designed for reader engagement for the media, publishing and entertainment industry.

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

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.

We experienced a net loss of approximately $33.9 million and $7.5 million for the three months ended September 30, 2021 and 2020, respectively.

We experienced a net loss of approximately $32.0 million and $20.9 million for the nine months ended September 30, 2021 and 2020, respectively.

The net income/loss 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 September 30, 2021.

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

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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, customer facilities were closed partially or fully due to local regulations related to managing the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.

Despite these challenges, we were able to realize growth in revenue for the three months of 2021 when compared to the same periods of 2020 as a result of an increase in sales associated with our indoor intelligence platform, including our sensors, in addition to additional revenue from the sale of Systat software licenses.

Despite these challenges, we were able to realize growth in revenue for the first three quarters of 2021 when compared to the same periods of 2020 as a result of an increase in sales associated with our indoor intelligence platform and additional revenue from the sale of Systat software licenses.

We expect that supply chain matters constraints will continue to be a challenge for our hardware products and the impact that COVID-19 will have on general economic conditions is continuously evolving and the ultimate impact the pandemic will 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.

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Risk Factors.

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.

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;

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;

(2) GPS tracking products, software, technologies, and related intellectual property to provide ground positioning, asset tracking, and situational awareness monitoring for those whose intelligence needs expand outdoors;

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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 five years from the issuance date.

The January 2021 Pre-funded Warrants were exercised in full as of February 8th, 2021.

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.

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.

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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The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021.

On September 13, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 58,750 shares of its newly designated Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 47,000,000 shares of common stock (the “Warrants”).

Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $920, representing an original issue discount of 8% of the Stated Value for an aggregate subscription amount of $54.1 million.

The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $50.6 million.

Game Your Game Acquisition of Controlling Interest

On March 25, 2021, we entered into a Stock Purchase Agreement (the “GYG Purchase Agreement”) with Game Your Game, Inc., a Delaware corporation (“GYG”), and certain selling shareholders (the "Selling Shareholders"), pursuant to which we acquired on April 9, 2021 an aggregate of 522,000 shares of common stock of GYG (the “GYG Shares”), representing 52.2% of the outstanding shares of common stock of GYG on a fully diluted basis, in exchange for $1,666,932 in cash (the “Cash Consideration”), and issued an aggregate of 1,179,077 shares of its common stock, par value $0.001 per share (the “Buyer Shares”) for an aggregate purchase price equal to $1,403,103.

On March 25, 2021, we entered into a Stock Purchase Agreement (the “GYG Purchase Agreement”) with Game Your Game, Inc., a Delaware corporation (“GYG”), and certain selling shareholders (the "Selling Shareholders"), pursuant to which we acquired on April 9, 2021 an aggregate of 522,000 shares of common stock of GYG (the “GYG Shares”), representing 52.2% of the outstanding shares of common stock of GYG on a fully diluted basis, in exchange for $1,666,932 in cash (the “Cash Consideration”), and issued an aggregate of 1,179,077 shares of its common stock, par value $0.001 per share with a value of $1,403,103 (the “Buyer Shares”) for an aggregate purchase price equal to $3,070,035.

The Cash Consideration will be used for working capital purposes and to satisfy certain outstanding payroll obligations of GYG.

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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.

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.

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, resigned as a director of Sysorex, as of May 14, 2021.

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generally accepted accounting principles (“GAAP”).

In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures.

and the related disclosures.

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.

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.

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

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

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We have elected the practical expedient to recognize revenue for the right to invoice because our 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, 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.

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.

Anticipated losses are recognized as soon as they become known.

For the three and six months ended June 30, 2021 and 2020, we did not incur any such losses.

For the three and nine months ended September 30, 2021 and 2020, we did not incur any such losses.

These amounts are based on known and estimated factors.

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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 $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 had deferred revenue of approximately $4.5 million and $1.9 million as of September 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

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 and six months ended June 30, 2021 and 2020.

Based on our evaluation we did not record a charge for impairment for the three and nine months ended September 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 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.

We have determined that there were no events or circumstances during the three or nine months ended September 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.

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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, Nanotron, CXApp, Game Your Game and Visualix technologies.

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

Through September 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.

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

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

We did not recognize any intangible asset impairment charges for the three and nine months ended September 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 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.

As of September 30, 2021 and December 31, 2020, reserves for credit losses included a reserve for doubtful accounts of approximately $0.3 million and $0.2 million, 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 Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Risk-free interest rate 0.59% - 0.75%

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Dividends assumption --

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.

During the three months ended September 30, 2021 and 2020, the Company recorded a charge of $0.6 million and $0.3 million, million respectively, for the amortization of employee stock options.

During the nine months ended September 30, 2021 and 2020, the Company recorded a charge of $1.4 million and $0.9 million, respectively, for the amortization of employee stock options.

R ESULTS OF O PERATIONS

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

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

Three Months Ended September 30,

(in thousands, except percentages) Amount % of

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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 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.

Revenues for the three months ended September 30, 2021 were $4.5 million compared to $2.6 million for the comparable period in the prior year for an increase of approximately $1.9 million, or approximately 74%.

This increase is primarily attributable to an approximate $1.8 million increase in Indoor Intelligence sales, including our recently acquired smart office app and real time location based technologies, and an increase of approximately $0.1 million of SAVES sales.

Cost of Revenues

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.

Cost of revenues for the three months ended September 30, 2021 were $1.2 million compared to $0.6 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $0.5 million, or approximately 84%, was primarily attributable to the increased sales during the quarter.

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.

The gross profit margin for the three months ended September 30, 2021 was 73% compared to 75% for the three months ended September 30, 2020.

This decrease in margin is primarily due to the sales mix during the quarter.

Operating Expenses

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.

Operating expenses for the three months ended September 30, 2021 were $15.7 million and $8.2 million for the comparable period ended September 30, 2020.

This increase of approximately $7.6 million is primarily attributable to approximately $3.2 million of Indoor Intelligence operating costs from the CXApp, Game your Game and Nanotron acquisitions, $1.1 million of additional amortization of intangibles and approximately $0.8 million of accrued earn-out compensation expense and approximately $1.4 million of additional stock based compensation expense.

Loss From Operations

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.

Loss from operations for the three months ended September 30, 2021 was $12.46 million as compared to $6.25 million for the comparable period in the prior year.

This increase in loss of approximately $6.2 million was primarily attributable to increased operating expenses described above offset by higher gross profit.

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.

Other income/expense for the three months ended September 30, 2021 was a loss of $22.3 million compared to a loss of $1.2 million for the comparable period in the prior year.

This increase in loss of approximately $21.1 million is primarily attributable to the unrealized loss of approximately $22.3 million on the Sysorex note.

Provision for Income Taxes

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.

There was a net income tax benefit of approximately $0.9 million for the three months ended September 30, 2021 primarily related to the reduction in estimated taxes payable due to the losses incurred during the quarter.

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

Net Income (Loss) Attributable To Non-Controlling Interest

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.

Net income (loss) attributable to non-controlling interest for the three months ended September 30, 2021 and 2020 was a loss of $309,000 and income of $16,000, respectively.

This increase in loss of $325,000 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

Net loss attributable to stockholders of Inpixon for the three months ended September 30, 2021 was $33.6 million compared to a loss of $7.5 million for the comparable period in the prior year.

This increase in loss of approximately $26.2 million was primarily attributable to the $22.3 million unrealized loss on the Sysorex note and increased operating expenses as described above, offset by the higher gross profit.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 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,

For the For the Nine Months Ended September 30,

(in thousands, except percentages) Amount % of

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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.

Revenues for the nine months ended September 30, 2021 were $10.86 million compared to $5.43 million for the comparable period in the prior year for an increase of approximately $5.4 million, or approximately 100%.

This increase is primarily attributable to an approximate $3.8 million increase in Indoor Intelligence sales, including our recently acquired smart office app and real time location based technologies, and an increase of approximately $1.6 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.

Cost of revenues for the nine months ended September 30, 2021 were $3.0 million compared to $1.5 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $1.5 million, or approximately 103%, 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%.

The gross profit margin for the nine months ended September 30, 2021 and 2020 was 73%.

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.

Operating expenses for the nine months ended September 30, 2021 were $46.06 million and $20.91 million for the comparable period ended September 30, 2020.

This increase of $25.15 million is primarily attributable to increased operating expenses including approximately $6.8 million of Indoor Intelligence operating costs from the CXApp, Game Your Game and Nanotron acquisitions, additional $0.6 million of acquisition costs, additional $1.3 million of amortization of intangibles, approximately $2.9 million of accrued earnout compensation expense, approximately $7.9 million of additional stock based compensation expense and additional wages, professional fees and infrastructure expenditures as we are scaling for growth.

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.

Loss from operations for the nine months ended September 30, 2021 was $38.2 million as compared to $16.9 million for the comparable period in the prior year.

This increase in loss of approximately $21.2 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.

Other income/expense for the nine months ended September 30, 2021 was income of $7.5 million compared to a loss of $4.1 million for the comparable period in the prior year.

This increase in other income of approximately $11.6 million is primarily attributable to a discounted net gain of approximately $49.8 million on the Sysorex note, a $7.5 million benefit from the release of the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note offset by the $51.3 unrealized loss 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.

There was an income tax provision of approximately $1.4 million for the nine months ended September 30, 2021 related to a current income tax expense of $5.9 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 nine months ended September 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.

Net income (loss) attributable to non-controlling interest for the nine months ended September 30, 2021 and 2020 was a loss of $544,000 and income of $25,000, respectively.

This increase in loss of $569,000 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.

Net income or loss attributable to stockholders of Inpixon for the nine months ended September 30, 2021 was a loss of $31.4 million compared to a loss of $20.9 million for the comparable period in the prior year.

This increase in loss of approximately $10.5 million was primarily attributable to the increased operating expenses of approximately $24.8 million as described above offset by the $3.9 million higher gross profit and the $7.5 million release of the valuation allowance on the Sysorex note.

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 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,

Adjusted EBITDA for the three months ended September 30, 2021 was a loss of $6.7 million compared to a loss of $4.6 million for the prior year period.

Adjusted EBITDA for the nine months ended September 30, 2021 was a loss of $18.5 million compared to a loss of $12.4 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 nine months ended September 30, 2021 and 2020 (in thousands):

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

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Professional service fees 418 — 1,189 —

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

Unrealized gains on notes, loans, investments (6) — (497) —

Bad debts expense/provision 100 444 100 444

Reserve for inventory obsolescense 300 — 300 —

Stock-based compensation - compensation and related benefits 1,664 256 8,813 941

Severance Costs 210 — 210 —

Interest expense, net 15 537 (1,191) 1,934

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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.

Basic and diluted net income (loss) per share for the for the three months ended September 30, 2021 was a loss of $0.29 compared to a loss of $0.18 for the prior year period.

Basic and diluted net income (loss) per share for the nine months ended September 30, 2021 was a loss of $0.31 compared to a loss of $0.90 for the prior year period.

The increased 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 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.

Proforma non-GAAP net loss per basic and diluted common share for the for the three months ended September 30, 2021 was a loss of $0.05 per share compared to a loss of $0.13 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the nine months ended September 30, 2021 was a loss of $0.19 per share compared to a loss of $0.64 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):

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

Three Months Ended September 30, For the Nine Months Ended September 30,

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

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

Net loss attributable to common stockholders $ (33,640) $ (7,467) $ (31,438) $ (20,944)

Non-recurring one-time charges:

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Professional service fees 418 — 1,189 —

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

Unrealized gains on notes, loans, investments (6) — (497) —

Bad debts expense/provision 100 444 100 444

Reserve for inventory obsolescense 300 — 300 —

Stock-based compensation - compensation and related benefits 1,664 256 8,813 941

Severance Costs 210 — 210 —

Amortization of intangibles 1,560 288 3,571 1,811

Proforma non-GAAP net loss (6,181) (5,456) (19,643) (14,914)

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)

Proforma non-GAAP net loss per common share - Basic and Diluted (0.05) (0.13) (0.19) (0.64)

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

Basic and Diluted 117,753,206 41,544,961 102,387,641 23,203,004

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

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

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 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 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:

Liquidity and Capital Resources as of September 30, 2021

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

1) an overall working capital surplus of approximately $96.8 million;

2) cash of approximately $66.8 million and short-term investments of approximately $43.2 million;

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

3) net cash used by operating activities for the nine months ended September 30, 2021 of $24.0 million.

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

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Total $ 116,988 $ 20,174 $ 96,814

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.

Net cash used in operating activities during the nine months ended September 30, 2021 of $24.0 million consists of a net loss of $32.0 million offset by non-cash adjustments of approximately $2.0 million less net cash changes in operating assets and liabilities of approximately $6.0 million.

During the nine months ended September 30, 2021 we raised net proceeds of approximately $128.4 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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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 cost increases and constraints and delays in the receipt of certain components of our products impacting delivery times for our products.

While we have been able to continue operations remotely, we have and continue to experience supply chain cost increases and 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 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 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.

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 nine months ended September 30, 2021 when compared to the nine months ended September 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.

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 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,

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

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

For the Nine Months Ended September 30,

Net cash used in operating activities $ (24,018) $ (15,550)

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Net increase in cash and cash equivalents $ 48,789 $ 26,527

As of June 30,

As of September 30,

2021 As of December 31,

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Working capital surplus $ 96,814 $ 18,208

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):

Operating Activities for the nine months ended September 30, 2021

Net cash used in operating activities during the nine months ended September 30, 2021 was approximately $24.0 million.

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

Net income (loss) $ (31,982)

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(1,627) Accrued interest income, related party

100 Provision for doubtful accounts

300 Provision for inventory obsolescence

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

$ (4,507) Income tax benefit

$ (4,507) Deferred income tax

51,250 Unrealized loss on equity securities

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The net cash used in the change in operating assets and liabilities aggregated approximately $6.0 million and consisted primarily of the following (in thousands):

$ 532 Decrease in accounts receivable and other receivables

$ (678) Increase in accounts receivable and other receivables

$ (369) Increase in inventory, other current assets and other assets

$ (331) Increase in accounts payable

$ (653) Decrease in accounts payable

$ 3,510 Increase in accrued liabilities and other liabilities

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$ (519) Decrease in operating lease liabilities

$ (238) Decrease in deferred revenue

$ 1,214 Increase in deferred revenue

$ 5,976 Net cash used in the changes in operating assets and liabilities

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):

Operating Activities for the nine months ended September 30, 2020

Net cash used in operating activities during the nine months ended September 30, 2020 was approximately $15.6 million.

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

Net income (loss) $ (20,919)

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$ (32) Accrued interest income, related party

$ (87) Income tax benefit

$ (87) Deferred income tax

$ 8,281 Total non-cash expenses

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$ (1,111) Increase in accounts receivable and other receivables

(896) Decrease in inventory, other current assets and other assets

(848) Increase in inventory, other current assets and other assets

(1,359) Decrease in accounts payable

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$ (2,912) Net use of cash used in the changes in operating assets and liabilities

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.

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

Net cash flows used in investing activities during the nine months ended September 30, 2021 was approximately $52.7 million compared to net cash flows used in investing activities during the nine months ended September 30, 2020 of approximately $4.9 million.

Cash flows related to investing activities during the nine months ended September 30, 2021 include $258,000 for the purchase of property and equipment, $857,000 for investment in capitalized software, $63.4 million for the purchase of treasury bills, $2.0 million for the purchase of short term investments, $2.0 million sale of short term investments, $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, $268,000 for the issuance of a note receivable and $61,000 for acquisition of Visualix.

Cash flows related to investing activities during the nine months ended September 30, 2020 include $2.2 million payment for the Systat Licensing Agreement, $1.5 million payment for the Ten Degrees acquisition, $0.5 million for the purchase of property and equipment and $0.7 million investment in capitalized software.

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

Net cash flows provided by financing activities during the nine months ended September 30, 2021 was $125.4 million.

Net cash flows provided by financing activities during the nine months ended September 30, 2020 was $47.1 million.

During the nine months ended September 30, 2021, the Company received incoming cash flows of $77.9 million for the issuance of common stock and warrants, received incoming cash flows of $50.6 million for the issuance of preferred 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 $241,000 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 nine months ended September 30, 2020, the Company received incoming cash flows of $44.0 million from the issuance of common stock, $5.0 million of proceeds from promissory notes, and $0.3 million of repayments from related parties offset by $1.8 million of loans to related party, $0.2 million of net repayments to bank facility and paid a $0.3 million 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