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Item 1A. Risk Factors

2022-03-16 compared with 2021-03-31 · 199 added, 118 removed, 516 unchanged (38% of the section changed)

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If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize, that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial condition could be materially adversely affected.

In that event, the trading price of our common stock

could decline, and investors in our common stock may lose all or part of their investment in our shares.

In that event, the trading price of our common stock could decline, and investors in our common stock may lose all or part of their investment in our shares.

The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Summary Risk Factors

The following summarizes the risks and uncertainties that could materially adversely affect our business, financial condition, results of operation and stock price.

You should read this summary together with the more detailed description of each risk factor contained below.

Risks Related to Our Operations

• W e have completed several strategic transactions, which may make it difficult for potential investors to evaluate our future business, and, due to the risks and uncertainties related to the acquisition of new businesses, any such acquisition does not guarantee that we will be able to attain profitability.

• We may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future into our ongoing business operations.

• The risks arising with respect to the historic business and operations of our recent acquisition targets may be different from what we anticipate, which could significantly increase the costs and decrease the benefits of the acquisition and materially and adversely affect our operations going forward.

• The effects of the COVID-19 pandemic could adversely affect us, and the extent to which the effects of the pandemic will impact us remains uncertain.

• Our ability to successfully execute our business plan may require additional debt or equity financing, which may otherwise not be available on reasonable terms or at all.

• Failure to manage or protect growth may be detrimental to our business because our infrastructure may not be adequate for expansion.

• We have a history of operating losses and working capital deficiency and there is no assurance that we will be able to achieve profitability or raise additional financing.

• The shares of our Series 7 Convertible Preferred Stock are subject to a holder’s redemption right and requires us to maintain a minimum cash balance.

• Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results.

• We have been subject to regulatory and other government or regulatory investigations or inquiries and may be required to comply with data requests, or requests for information by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

• If we do not adequately protect our intellectual property rights, our business may be harmed.

• The growth of our business is dependent on increasing sales to our existing customers and obtaining new customers, which, if unsuccessful, could limit our financial performance.

Risks Related to the Spin-off

• The Spin-off could give rise to disputes or other unfavorable effects, which could have a material adverse effect on our business, financial position and results of operations.

• Changes in the value of the Sysorex common stock we own may result in material fluctuations (increases or decreases) in our total asset value and net income on a quarterly basis.

Risks Related to Our Securities

• Our common stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements in the future.

• Our stock price may be volatile.

• Sales of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.

• We do not intend to pay cash dividends to our stockholders, so it is unlikely that stockholders will receive any return on their investment in our Company prior to selling our stock.

• If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud.

Any inability to report and file our financial results accurately and timely could harm our reputation and adversely affect the trading price of our common stock.

• Some provisions of Nevada law, our Articles of Incorporation and bylaws may deter takeover attempts, which may inhibit a takeover that stockholders consider favorable and limit the opportunity of our stockholders to sell their shares at a favorable price.

Risks Related to Our Operations

We have a strategic acquisition strategy and since 2014 have completed several strategic transactions.

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In August 2018, we completed the Spin-off of our VAR business, which included the businesses acquired from Lilien and Integrio, while in 2019 we acquired Locality and Jibestream, in addition to certain assets from GTX.

Lastly, in 2020, we completed several additional strategic transactions including, the acquisition of the Nanotron business, an exclusive license for the distribution and marketing of the SAVES software and the acquisition of certain assets and technologies comprising our "blue dot" technology from Ten Degrees.

In 2020, we completed several additional strategic transactions including, the acquisition of the Nanotron business, an exclusive license for the distribution and marketing of the SAVES software expanding our operations in the United Kingdom and Germany and the acquisition of certain assets and technologies comprising our "blue dot" technology from Ten Degrees.

In 2021, we acquired a suite of augmented reality, computer vision, localization, navigation, mapping, and 3D reconstruction technologies, including patents, trademarks, software and related intellectual property from Visualix GmbH, 100% of the outstanding capital stock of Design Reactor, Inc., including its 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, and 100% of the outstanding capital stock of IntraNav GmbH, an industrial IoT (IIoT), real-time location system (RTLS), and sensor data services provider.

Our limited operating history after such acquisitions and divestiture makes it difficult for potential investors to evaluate our business or prospective operations or the merits of an investment in our securities.

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We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially and adversely affect our business, liquidity, capital resources or results of operations.

The effects of the COVID-19 pandemic could adversely affect our business, operations, financial condition and results of operations, and the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain.

The United States and the global community we serve are facing unprecedented challenges posed by the COVID-19 pandemic.

The pandemic, and the preventative measures taken in response (including “shelter-in-place” or “stay-at-home” and similar orders issued by international, federal, state or local authorities), have resulted in, and are expected to continue to result in, significant volatility and business and economic disruptions and uncertainty.

General economic or other conditions resulting from COVID-19 or other events materially may impact the liquidity of our common stock or our ability to continue to access capital from the sale of our securities to support our growth plans.

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 as a result of new rules and regulations resulting from the pandemic, customer facilities being 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.

We have taken steps to protect our employees and we continue to operate all of our services, but the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations is uncertain, rapidly changing and hard to predict and will depend on numerous evolving factors that we may not be able to control or predict, including:

● the duration and scope of the pandemic;

● the extent and effectiveness of responsive actions by authorities and the impact of these and other factors on our employees, customers and vendors;

● the impact of the pandemic on our employees, including key personnel;

● the extent to which we are able to maintain and replace critical internet infrastructure components, when necessary;

● any disruption of our supply chain and the impact of such disruptions on our suppliers or our ability to deliver products and services to our customers;

● our continued ability to execute on business continuity plans for the maintenance of our critical internet infrastructure, while most of our employees continue to work remotely;

● any negative impact on the demand for our services and products resulting from the economic disruption caused by the pandemic and responses thereto.

If we are unable to successfully respond to and manage the impact of the pandemic, and the resulting responses to it, our business, operations, financial condition and results of operations could be adversely impacted.

A significant portion of the purchase price related to our strategic acquisitions are allocated to goodwill and intangible assets that are subject to periodic impairment evaluations.

An impairment loss could have a material adverse impact on our financial condition and results of operations.

The Company acquired approximately $1.2 million of goodwill and approximately $2.8 million of intangible assets relating to our acquisition of Shoom, approximately $7.4 million of goodwill and approximately $13.3 million of intangible assets relating to our acquisition of AirPatrol, approximately $3.5 million of intangible assets relating to our acquisition of LightMiner, approximately $0.7 million of goodwill and approximately $1.7 million of intangible assets relating to our acquisition of Locality, $2,000 of goodwill and approximately $0.9 million of intangibles relating to our acquisition of GTX, approximately $1.5 million of goodwill and approximately $4.9 million of intangible assets relating to our acquisition of Jibestream, approximately $0.5 million of goodwill and approximately $2.4 million of intangible assets relating to the acquisition of the Systat license, approximately $2.1 million of intangible assets relating to our acquisition of Ten Degrees, and

approximately $3.8 million of goodwill and approximately $3.6 million of intangible assets relating to our acquisition of Nanotron.

A significant portion of the purchase price related to our strategic acquisitions are allocated to goodwill and intangible assets that are subject to periodic impairment evaluations.

An impairment loss could have a material adverse impact on our financial condition and results of operations.

As of December 31, 2021 we had approximately $7.7 million of goodwill and the net book value of our intangible assets is approximately $33.5 million in connection with the various acquisitions that we have consummated.

As required by current accounting standards, we review intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable.

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When impairment charges are triggered, they tend to be material due to the size of the assets involved.

Our business would be adversely affected, and impairment of goodwill could be triggered, if any of the following were to occur:

higher attrition rates than planned as a result of the competitive environment or our inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates by customers, higher-than-expected expense levels to provide services to customers, and changes in our business model that may impact one or more of these variables.

During the years ended December 31, 2019 and December 31, 2020 we did not record a goodwill or intangibles impairment charge.

Our business could be adversely affected, and impairment of goodwill could be triggered, if any of the

following were to occur:

higher attrition rates than planned as a result of the competitive environment or our inability to provide products and services that are competitive in the marketplace, lower-than-planned adoption rates by customers, higher-than-expected expense levels to provide services to customers, sustained declines in our stock price and related market capitalization and changes in our business model that may impact one or more of these variables.

D uring the years ended December 31, 2021 and December 31, 2020 we recorded a goodwill impairment charge of $14.8 million and $0, respectively.

Our acquisitions may expose us to additional liabilities, and insurance and indemnification coverage may not fully protect us from these liabilities.

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We have a history of operating losses and working capital deficiency.

We have incurred net losses of approximately $29.2 million and $34.0 million for the fiscal years ended December 31, 2020 and 2019, respectively, which includes a $2.4 million and $10.6 million valuation allowance on that certain secured promissory note (the “Sysorex Note”) issued to us by Sysorex for the years ended December 31, 2020 and 2019, respectively.

We have incurred net losses attributable to the stockholders of Inpixon of approximately $69.2 million and $29.2 million for the fiscal years ended December 31, 2021 and 2020, respectively.

This increase in loss of approximately $39.9 million was primarily attributable to the increase in operating expenses of $53.8 million offset by the higher gross margin of $4.9 million and reduced other loss of $6.6 million.

The continuation of our Company is dependent upon attaining and maintaining profitable operations and raising additional capital as needed, but there can be no assurance that we will be able to raise any further financing.

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If additional funds are raised through the issuance of equity securities or convertible debt securities, it will be dilutive to our stockholders and could result in a decrease in our stock price.

The shares of our Series 7 Convertible Preferred Stock are subject to a holder’s redemption right and requires us to maintain a minimum cash balance.

At any time beginning on the 6-month anniversary of the original issue date of the Series 7 Convertible Preferred Stock and ending ninety (90) days thereafter, each holder of such shares may require us to redeem all or part of the Series 7 Convertible Preferred Stock then held by such holder in cash for a redemption price per share equal to the stated value plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses, or amounts due in respect of such shares (the “Redemption Amount”), provided that in certain instances of our default more particularly described in the Certificate of Designation for the Series 7 Convertible Preferred Stock, the Redemption Amount is increased to 110% of the stated value plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses, or amounts due in respect of such shares.

If we fail to pay the full Redemption Amount timely, we will be obligated to pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from the due date

until the Redemption Amount and all interest thereon are paid in full.

Until the earlier of the conversion or redemption of all shares of Series 7 Convertible Preferred Stock and June 14, 2022, we will maintain a cash balance (in the form of cash and cash equivalents equal to the sum of (i) the stated value of all of the shares of Series 7 Convertible Preferred Stock then outstanding, (ii) the aggregate amount of any debt (including trade payables) and other securities that are issued that are senior to, or pari passu with, the Series 7 Convertible Preferred Stock, and (iii) the aggregate amount of monetary judgments with respect to us and our subsidiaries or any of their respective property or assets.

As a result, we will be limited in the amount of cash that we utilize until such requirement lapses.

Any limitation in our ability to deploy capital as needed could have a material adverse effect on our business and operating results.

Our business depends on experienced and skilled personnel, and if we are unable to attract and integrate skilled personnel, it will be more difficult for us to manage our business and complete contracts.

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Our business is labor intensive and our success depends on our ability to attract, retain, train and motivate highly skilled employees, including employees who may become part of our organization in connection with our acquisitions.

increase in demand for consulting, technology integration and managed services has further increased the need for employees with specialized skills or significant experience in these areas.

The increase in demand for consulting, technology integration and managed services has further increased the need for employees with specialized skills or significant experience in these areas.

Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilled employees and to retain our employees and the employees of companies that we have acquired.

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Although we maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels and attempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance or the warranties, performance guarantees or risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments that may be required in the future.

We have a significant amount of debt outstanding.

We have outstanding debt.

Such indebtedness, along with the other contractual commitments of our Company, could adversely affect our business, financial condition and results of operations.

As of March 3, 2022, we have an outstanding principal and interest balance of approximately $3.5 million underlying the promissory note issued to Iliad Research and Trading, L.P.

which originally matures in March 2021, but was extended on March 17, 2021 to March 18, 2022.

In addition, Iliad Research and Trading, L.P may, subject to current standstill agreements, require us to redeem 1/3 of the initial principal balance of their promissory note each month in cash.

which originally matured in March 2021, but was extended on March 17, 2021 to March 18, 2022 and extended on March 16, 2022 to March 18, 2023.

In addition, Iliad Research and Trading, L.P may require us to redeem 1/3 of the initial principal balance of their promissory note each month in cash.

The ability to meet payment and other obligations under this note depends on our ability to generate significant cash flow in the future.

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If new debt or other liabilities are added to our current consolidated debt levels, the related risks that we now face could intensify.

We may be required to consolidate the financial results of our former subsidiary, Sysorex, which could have a material adverse effect on our operating results and financial condition.

On August 31, 2018, we completed the spin-off of our value-added reseller business from its indoor positioning analytics business by way of a distribution of all the shares of common stock of its wholly-owned subsidiary, Sysorex, to its stockholders of record as of August 21, 2018 and certain warrant holders.

As of such time, Sysorex’s financial results was deconsolidated from the Company’s financial statements.

As of the date of this Annual Report on Form 10-K, the Company has concluded that Sysorex does not meet the definition of a variable interest entity (“VIE”);

however, in the event that in the future Sysorex meets the definition of a VIE under applicable accounting rules, and we are deemed to be the primary beneficiary, we will be required to consolidate line by line Sysorex’s financial results in our consolidated financial statements for reporting purposes.

If Sysorex’s financial results were negative, this would have a corresponding negative impact on our operating results for reporting purposes and could have a material adverse effect on our operating results and financial condition.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis.

In the past, we have made strategic investments in certain securities, including our purchase of interests in Cardinal Venture Holdings LLC, a Delaware limited liability company (“CVH”), which owns certain interests in the sponsor entity (the “Sponsor”) to a special purpose acquisition company, as well as our holdings in Sysorex.

Although we have made these strategic investments, we do not currently believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

We intend to conduct our operations so that we will not be deemed an investment company.

However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Our Chief Executive Officer and director, Nadir Ali, has an interest in CVH that may create, or appear to create, conflicts of interest.

Nadir Ali, our Chief Executive Officer and director, is also a controlling member of 3AM, LLC which is a member of CVH, which may, in certain circumstances, be entitled to manage the affairs of CVH.

Ali’s relationship may create, or appear to create, conflicts of interest between Mr.

Ali’s obligations to our company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM.

For example, Mr.

Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders.

We may be subject to damages resulting from claims that the Company or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

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A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain products, which could severely harm our business.

We have been and may continue to be subject to regulatory and other government or regulatory investigations or inquiries and may be required to comply with data requests, or requests for information by government authorities and regulators in

the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us .

We have been subject to regulatory and other government or regulatory investigations or inquiries and may be required to comply with data requests, or requests for information by government authorities and regulators in the United States or other jurisdictions in which we operate and any resulting enforcement action could have a materially adverse effect on us.

As a publicly trading reporting company with operations in the United States and internationally, we interact regularly with regulatory and self-regulatory agencies in the United States or other jurisdictions in which we operate, including the SEC and the Nasdaq Stock Market.

We have been, are currently and may in the future be the subject of SEC and other regulatory investigations and are and may continue to be required to comply with informal or formal orders or other requests for information or documentation from such government authorities and regulators regarding our compliance with laws and regulations, including the rules and regulations under the Securities Act and the Exchange Act.

We have been and may in the future be the subject of SEC and other regulatory investigations and may be required to comply with informal or formal orders or other requests for information or documentation from such

government authorities and regulators regarding our compliance with laws and regulations, including the rules and regulations under the Securities Act and the Exchange Act.

Responding to requests for information from regulators in connection with any such investigations or inquiries could have a materially adverse effect on our business through, among other things, significantly increased legal fees and the time and attention required of the Company’s management and employees to be diverted from our normal business operations and growth plans.

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In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business.

Our property and business interruption insurance may be

inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our future results could be adversely affected.

Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our future results could be adversely affected.

Systems failures could damage our reputation and adversely affect our revenues and profitability.

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Lack of customer demand, a change in marketing strategy and changes to our pricing models could dramatically alter our financial results.

Unless we are able to release location based products that meet a significant market demand, we will not be able to improve our financial condition or the results of our future operations.

Unless we are

able to release location based products that meet a significant market demand, we will not be able to improve our financial condition or the results of our future operations.

If we unable to sell additional products and services to our customers and increase our overall customer base, our future revenue and operating results may suffer.

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Digital threats such as cyber-attacks, data protection breaches, computer viruses or malware may disrupt our operations, harm our operating results and damage our reputation, and cyber-attacks or data protection breaches on our customers’ networks, or in cloud-based services provided by or enabled by us, could result in liability for us, damage our reputation or otherwise harm our business.

Despite our implementation of network security measures, the products and services we sell to customers, and our servers, data centers and the cloud-based solutions on which our data, and data of our customers, suppliers and business partners are stored, are vulnerable to cyber-attacks, data protection breaches, computer viruses, and similar disruptions from unauthorized tampering or human error.

partners are stored, are vulnerable to cyber-attacks, data protection breaches, computer viruses, and similar disruptions from unauthorized tampering or human error.

Any such event could compromise our networks or those of our customers, and the information stored on our networks or those of our customers could be accessed, publicly disclosed, lost or stolen, which could subject us to liability to our customers, business partners and others, and could have a material adverse effect on our business, operating results, and financial condition and may cause damage to our reputation.

Efforts to limit the ability of malicious third parties to disrupt the operations of the Internet or undermine our own security efforts may be costly to implement and meet with resistance, and may not be successful.

Breaches of network security in our customers’ networks, or in cloud-based services

provided by or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, could result in liability for us, damage our reputation or otherwise harm our business.

Breaches of network security in our customers’ networks, or in cloud-based services provided by or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, could result in liability for us, damage our reputation or otherwise harm our business.

Any failures or interruptions in our services or systems could damage our reputation and substantially harm our business and results of operations.

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Our top three customers accounted for approximately 16% and 43% of our gross revenue during the years ended December 31, 2021 and 2020, respectively.

One customer accounted for 26% of our gross revenue in 2020 and 42% in 2019;

however, this customer may or may not continue to be a significant contributor to revenue in 2021.

No customer accounted for more than 10% of our gross revenue, one customer accounted for 8% of our gross revenue in 2021 and a separate customer accounted for 26% in 2020;

however, each of these customers may or may not continue to be a significant contributor to revenue in 2022.

The loss of a significant amount of business from one of our major customers would materially and adversely affect our results of operations until such time, if ever, as we are able to replace the lost business.

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The timely collection of our receivables allows us to generate cash flow, provide working capital and continue our business operations.

Our customers may fail to pay or delay the payment of

invoices for a number of reasons, including financial difficulties resulting from macroeconomic conditions or lack of an approved budget.

Our customers may fail to pay or delay the payment of invoices for a number of reasons, including financial difficulties resulting from macroeconomic conditions or lack of an approved budget.

An extended delay or default in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts receivable.

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With respect to political factors, the United Kingdom’s 2016 referendum, commonly referred to as “Brexit,” has created economic and political uncertainty in the European Union.

Also, the European Union’s General Data Protection Regulation imposes significant new requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance.

European Union’s General Data Protection Regulation imposes significant new requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance.

Any of the above risks, should they occur, could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.

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Weak economic conditions generally, sustained uncertainty about global economic conditions, or a prolonged or further tightening of credit markets could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or cash flows.

Concerns over inflation, energy costs, geopolitical issues and

the availability of credit, in the U.S.

Concerns over inflation, energy costs, geopolitical issues and the availability of credit, in the U.S.

have contributed to increased volatility and diminished expectations for the economy and the markets going forward.

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social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently do business or any resulting negative sentiments towards the United States could adversely affect our supply chain economics, consolidated revenue, earnings and cash flow.

We intend to use and leverage open source technology in our IPA platform which may create risks of security weaknesses.

Some parts of our technology may be based on open-source technology, including the technology that we may use in our Indoor Intelligence platform.

We intend to use and leverage open source technology in which may create risks of security weaknesses.

Some parts of our technology may be based on open-source technology, including, but not limited to the technology that we may use in our Indoor Intelligence products.

There is a risk that the development team or other third parties may intentionally or unintentionally introduce weaknesses or bugs into the core infrastructure elements of our technology solutions interfering with the use of such technology or causing loss to the Company.

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In addition, data protection laws, such as the GDPR, foreign court judgments or regulatory actions could affect our ability to transfer, process and/or receive transnational data that is critical to our operations, including data relating to users, customers, or partners outside the United States.

For instance, the GDPR restricts transfers of personal data outside of the European Economic Area, including to the United States, subject to certain requirements.

For instance, the GDPR restricts transfers of personal data outside of the European Economic Area, including to the United States, subject to certain

requirements.

Such data protection laws, judgments or actions could affect the manner in which we provide our services or adversely affect our financial results if foreign customers and partners are not able to lawfully transfer data to us.

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Among other things, the court could require our stockholders to return to us some or all of the shares of Sysorex common stock issued in the Spin-off or require us to fund liabilities of Sysorex for the benefit of creditors.

We entered into a loan arrangement with Sysorex and there can be no guarantee Sysorex will be able to repay any amounts borrowed.

We entered into a note purchase agreement with Sysorex, as amended from time to time, pursuant to which we agreed to loan Sysorex up to an aggregate principal amount of $10,000,000 on a revolving credit basis.

Changes in the value of the Sysorex common stock we own may result in material fluctuations (increases or decreases) in our total asset value and net income on a quarterly basis.

On March 1, 2020, we agreed to extend the maturity date of the note from December 31, 2020 to December 31, 2022.

In accordance with the terms of the License Agreement, we partitioned an aggregate of $5.3 million of principal and interest under the Sysorex Note as consideration for the License as of December 31, 2020.

During the year ended December 31, 2020, an additional amount of approximately $2.6 million was advanced under the Sysorex Note and approximately $200,000 was repaid.

The amount owed for principal and accrued interest by Sysorex to the Company as of December 31, 2020 and 2019 was approximately $7.7 million and $10.6 million, respectively.

These amounts exclude an $275,000 of additional interest that the Company is contractually entitled to accrue from October 1, 2019 through December 31, 2019 and approximately $1.1 million of additional interest from January 1, 2020 through December 31, 2020 in accordance with the terms of the Sysorex Note, but did not accrue due to the uncertainty of repayment.

On March 19, 2021, an additional $1 million of the principal balance under the Sysorex Note was partitioned into a new note and assigned to Systat pursuant to the Assignment Agreement.

Pursuant to Accounting Standards Codification 310 - Receivables, the Sysorex Note has been classified as “held for sale” as of December 31, 2019.

In connection with such classification, the Company, with the assistance of a third-party valuation firm, estimated the fair value of using Sysorex financial projections, a discounted cash flow model and a 12.3% discount rate.

Following such valuation, the Company established a full valuation allowance as of December 31, 2019.

During the year ended December 31, 2020, the Company re-evaluated the carrying value of the Sysorex Note and established an additional valuation allowance of approximately $2.4 million for the net increase to the Sysorex Note during the year due to to the uncertainty of repayment.

We are required to periodically re-evaluate the carrying value of the Sysorex Note and the related valuation allowance based on various factors, including, but not limited to, Sysorex’s performance and collectability of the note.

Sysorex’s performance against those financial projections will directly impact future assessments of the fair value of the Sysorex Note.

There are no assurances that Sysorex will be able to repay any amounts borrowed when due, and there can be no guarantee that the collateral against which the Sysorex Note is secured pursuant to the loan arrangement, which is subordinated to other creditors, including Systat, would be sufficient to cover any borrowed amounts in the event of a default.

If Sysorex were to default, it could have an adverse material impact on our financial condition and cash flows.

On April 14, 2021,

we entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), with Sysorex, whereby it agreed to satisfy in full its outstanding debt, in the aggregate amount of $9,088,176 as of March 31, 2021, owed to the Company, including but, not limited to, amounts outstanding under the Sysorex Note (the “Debt Settlement”).

To effect the Debt Settlement, Sysorex agreed to issue to us (i) pursuant to the terms of the SSA, 12,972,189 shares of its common stock and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA.

The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc.

The Company recorded $7.5 million for the release of the previously recorded valuation allowance related to the Sysorex Note, $1.6 million of interest income, and a gain on settlement of $49.8 million equal to the difference in the carry value of the Sysorex Note, including interest, and the value of the common stock and rights to acquire additional shares received in the settlement.

As of December 31, 2021, the value of these securities decreased to $1.8 million from the prior quarter as a result of the corresponding decrease in Sysorex's common stock price.

Accordingly, the unrealized loss on the Sysorex note increased to $57.1 million for the year ended December 31, 2021 as compared to an unrealized loss of $51.3 million for the nine months ended September 30, 2021.

Consequently, the shares of common stock of Sysorex we own, which are inherently volatile.

Accordingly, the value of our total assets and as a consequence, the price of our common stock may decline or increase regardless of our operating performance, which may result in losses for investors purchasing shares of our common stock.

Further, to the extent that we experience unrealized losses in connection with such securities from declines in securities values that management determines to be other than temporary, the book value of those securities will be adjusted to their estimated recovery value and we will recognize a charge to earnings in the quarter during which we make that determination.

Additionally, the Company has no control over the price the Company will eventually receive as a result of the disposition of such assets and may be unable to sell the aforementioned securities at favorable prices quickly or when desired.

Risks Related to Our Securities

Our common stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements in the future.

If we fail to maintain compliance with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively affected.

Our common stock currently trades on the Nasdaq Capital Market under the symbol “INPX.” This market has continued listing standards that we must comply with in order to maintain the listing of our common stock.

The continued listing standards include, among others, a minimum bid price requirement of $1.00 per share and any of:

(i) a minimum stockholders’ equity of $2.5 million;

(ii) a market value of listed securities of at least $35.0 million;

or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in the two of the last three fiscal years.

Our results of operations and fluctuating stock price directly affect our ability to satisfy these continued listing standards.

In the event we are unable to maintain these continued listing standards, our common stock may be subject to delisting from the Nasdaq Capital Market.

In several instances in the past, including as recently as on October 25, 2021, we received written notification from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for continued listing on Nasdaq under the Nasdaq Listing Rules.

Each time, we were given a period of 180 days from the date of the notification to regain compliance with Nasdaq’s listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for at least 10 consecutive trading days.

While we have regained compliance within the applicable time periods in the past but not in connection with the October 25, 2021 notice.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until April 25, 2022, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period.

In the event that we do not regain compliance within this 180-day period, we may be

eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide notice to us that our common stock will be subject to delisting.

If our common stock is delisted from The Nasdaq Capital Market, the exercise of the Warrants by U.S.

holders may not be exempt from state securities laws.

As a result, depending on the state of residence of a holder of the Warrants, a U.S.

holder may not be able to exercise its Warrants unless we comply with any state securities law requirements necessary to permit such exercise or an exemption applies.

Although we plan to use our reasonable efforts to assure that U.S.

holders will be able to exercise their Warrants under applicable state securities laws if no exemption exists, there is no assurance that we will be able to do so.

As a result, your ability to exercise the Warrants may be limited.

The value of the Warrants may be significantly reduced if U.S.

holders are not able to exercise their Warrants under applicable state securities laws.

Delisting could adversely affect our ability to raise additional capital through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock.

Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

Our stock price may be volatile.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

• our ability to execute our business plan and complete prospective acquisitions;

• changes in our industry;

• competitive pricing pressures;

• our ability to obtain working capital financing;

• additions or departures of key personnel;

• limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;

• sales of our common stock;

• operating results that fall below expectations;

• regulatory developments;

• economic and other external factors;

• period-to-period fluctuations in our financial results;

• our inability to develop or acquire new or needed technologies;

• the public’s response to press releases or other public announcements by us or third parties, including filings with the SEC;

• changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;

• the development and sustainability of an active trading market for our common stock;

• any future sales of our common stock by our officers, directors and significant stockholders.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.

These market fluctuations may also materially and adversely affect the market price of our common stock.

Your investment may suffer a decline in value as a result of the volatility of our stock.

The closing market price for our common stock has varied between a high of $1.39 on March 1, 2021, and a low of $0.31 on February 23, 2022, in the twelve-month period ended February 26, 2022.

During this time, the price per share of common stock has ranged from an intra-day low of $0.31 per share to an intra-day high of $1.59 per share.

As a result of

fluctuations in the price of our common stock, you may be unable to sell your shares at or above the price you paid for them.

The market price of our common stock is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market, industry and other factors, including the other risk factors described in this section.

The market price of our common stock may also be dependent upon the valuations and recommendations of the analysts who cover our business.

If the results of our business do not meet these analysts’ forecasts, the expectations of investors or the financial guidance we provide to investors in any period, the market price of our common stock could decline.

In addition, the stock markets in general, and the markets for technology stocks in particular, have experienced significant volatility that has often been unrelated to the financial condition or results of operations of particular companies.

These broad market fluctuations may adversely affect the trading price of our common stock and, consequently, adversely affect the price at which you could sell the shares that you purchase in this offering.

In the past, following periods of volatility in the market or significant price declines, securities class-action litigation has often been instituted against companies.

Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall.

The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

In general, a non-affiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our common stock all of their shares, subject to the Company being current in its periodic reports filed with the SEC.

As of March 3, 2022, a significant portion of our outstanding shares of common stock outstanding are free trading.

Sales of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.

Sales of our common stock or other securities, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.

For example, in June 2021, the SEC declared effective a shelf registration statement filed by us.

This shelf registration statement allows us to issue any combination of our common stock, preferred stock, warrants, units, debt securities and subscription rights from time to time until expiry in June 2021 for an aggregate initial offering price of up to $350 million, subject to certain limitations.

As of March 3, 2022, we had an aggregate remaining amount of $232.5 million available for the issuance of securities in offerings under this registration statement.

The specific terms of future offerings, if any, under this shelf registration statement would be established at the time of such offering.

Depending on a variety of factors, including market liquidity of our common stock, the sale of shares under this shelf registration statement may cause the trading price of our common stock to decline.

The sale of a substantial number of shares of our common stock under this shelf registration statement, or anticipation of such sales, could cause the trading price of our common stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire.

We had outstanding 150,324,038 shares of common stock as of March 3, 2022 of which 215,516 were issued as restricted stock grants to employees and subject to forfeitures in accordance with their terms.

In addition, as March 3, 2022, there were 5 shares issuable upon conversion of 1 share of Series 4 Convertible Preferred Stock, 841 shares of common stock issuable upon conversion of 126 shares of Series 5 Convertible Preferred Stock, 39,400,000 shares issuable upon conversion of 49,250 shares of Series of Series 7 Preferred Stock;

47,093,250 shares subject to outstanding warrants, 28,543,072 shares subject to outstanding options under the Company’s equity incentive plans, 1 share subject to an option not under such plans and up to an additional 14,456,998 shares of common stock which may be issued under the Company’s 2018 Employee Stock

Incentive Plan that will become, or have already become, eligible for sale in the public market to the extent permitted by any applicable vesting requirements, lock-up agreements, if any, Rule 144 under the Securities Act or in connection with their registration under the Securities Act.

The issuance or sale of such shares could depress the market price of our common stock.

In the future, we also may issue our securities if we need to raise additional capital.

The number of new shares of our common stock issued in connection with raising additional capital could constitute a material portion of the then-outstanding shares of our common

Historically, we have used our shares of common stock to satisfy our outstanding debt obligations, and, in the future, we expect to continue to issue our securities to raise additional capital or satisfy outstanding debt obligations.

The number of new shares of our common stock issued in connection with raising additional capital or satisfying our outstanding debt obligations could constitute a material portion of the then-outstanding shares of our common stock.

There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.

We are generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.

Our articles of incorporation allows us to issue up to 2,000,000,000 shares of our common stock, par value $0.001 per share, and to issue and designate the rights of, without stockholder approval, up to 5,000,000 shares of preferred stock, par value $0.001 per share.

To raise additional capital, we may in the future sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that are lower than the prices paid by existing stockholders, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders, which could result in substantial dilution to the interests of existing stockholders.

The market price of our common stock could decline as a result of sales of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive common stock or the perception that such sales could occur.

We do not intend to pay cash dividends to our stockholders, so it is unlikely that stockholders will receive any return on their investment in our Company prior to selling our stock.

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Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in identification of additional material weaknesses or significant deficiencies, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements.

Furthermore, if

we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

Public company compliance may make it more difficult to attract and retain officers and directors.

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As a public company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly.

As a public company, these rules and regulations may make it more difficult and expensive for us to maintain our director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

and coverage or incur substantially higher costs to obtain the same or similar coverage.

As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers, and to maintain insurance at reasonable rates, or at all.

Our stock price may be volatile.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

• our ability to execute our business plan and complete prospective acquisitions;

• changes in our industry;

• competitive pricing pressures;

• our ability to obtain working capital financing;

• additions or departures of key personnel;

• limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;

• sales of our common stock (particularly following effectiveness of this registration statement);

• operating results that fall below expectations;

• regulatory developments;

• economic and other external factors;

• period-to-period fluctuations in our financial results;

• our inability to develop or acquire new or needed technologies;

• the public’s response to press releases or other public announcements by us or third parties, including filings with the SEC;

• the development and sustainability of an active trading market for our common stock;

• any future sales of our common stock by our officers, directors and significant stockholders.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.

These market fluctuations may also materially and adversely affect the market price of our common stock.

Your investment may suffer a decline in value as a result of the volatility of our stock.

The closing market price for our common stock has varied between a high of $2.84 on February 12, 2020, and a low of $1.00 on October 28, 2020, in the twelve-month period ended February 11, 2021.

During this time, the price per share of common stock has ranged from an intra-day low of $0.921 per share to an intra-day high of $3.23 per share.

As a result of fluctuations in the price of our common stock, you may be unable to sell your shares at or above the price you paid for them.

The market price of our common stock may also be dependent upon the valuations and recommendations of the analysts who cover our business.

In the past, following periods of volatility in the market or significant price declines, securities class-action litigation has often been instituted against companies.

litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

As of February 16, 2021, except for approximately 14 shares, which are subject to control restrictions, the remainder of our shares of common stock outstanding were free trading.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.

For example, in June 2018, the SEC declared effective a shelf registration statement filed by us.

The specific terms of future offerings, if any, under this shelf registration statement would be established at the time of such offering.

In addition, as of March 5, 2021, there were 5 shares issuable upon conversion of 1 share of Series 4 Convertible Preferred Stock, 841 shares of common stock issuable upon conversion of 126 shares of Series 5 Convertible Preferred Stock, 49,398,338 shares subject to outstanding warrants, 7,029,475 shares subject to outstanding options under the Company’s equity incentive plans, 1 share subject to options not under such plans, an additional 5,317,769 shares reserved for future issuance under the Company’s Amended and Restated 2011 Employee Stock Incentive Plan and up to an additional 8,700,682 shares of common stock which may be issued under the Company’s 2018 Employee Stock Incentive Plan that will become, or have already become, eligible for sale in the public market to the extent permitted by any applicable vesting requirements, lock-up agreements, if any, Rule 144 under the Securities Act or in connection with their registration under the Securities Act.

Our common stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements in the future.

The continued listing standards include, among others, a minimum bid price requirement of $1.00 per share and any of:

(i) a minimum stockholders’ equity of $2.5 million;

(ii) a market value of listed securities of at least $35.0 million;

or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in the two of the last three fiscal years.

Our results of operations and fluctuating stock price directly affect our ability to satisfy these continued listing standards.

In the event we are unable to maintain these continued listing standards, our common stock may be subject to delisting from the Nasdaq Capital Market.

Between November 2015 and May 2019, we received five deficiency letters from Nasdaq indicating that we did not comply with certain Nasdaq continued listing requirements.

Such deficiencies were later cured.

While the Company is currently compliance with all continued listing rules and it believes that it will be able to maintain compliance with Nasdaq’s continued listing rules, there are no assurances that it will be able to meet all continued listing requirements to maintain its listing.

There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.

We are generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.

Our articles of incorporation allows us to issue up to 250,000,000 shares of our common stock, par value $0.001 per share, and to issue and designate the rights of, without stockholder approval, up to 5,000,000 shares of preferred stock, par value $0.001 per share.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

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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-K

Item 1A. Risk Factors