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Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-03-31 · 215 added, 291 removed, 258 unchanged (66% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements, due to a number of factors, including but not limited to, risks described in the section entitled “Risk Factors.”

Except where indicated, all share and per share data in this section, as well as the consolidated financial statements, reflect the 1-for-45 reverse split of our common stock effective on January 7, 2020 (the “Reverse Split”).

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

Overview of Our Business

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.

Our indoor intelligence platform uses sensor technology to detect accessible cellular, Wi-Fi, Bluetooth, ultra-wide band ("UWB") and chirp signals emitted from devices within a venue providing positional information similar to what global positioning system (“GPS”) satellite systems provide for the outdoors.

Combining this positional data with our dynamic and interactive mapping solution and a high-performance analytics engine, yields near real time insights to our customers providing them with increased visibility, security and business intelligence throughout their indoor spaces.

Our highly configurable platform can also ingest data from our customers’ and other third party sensors, Wi-Fi access points, Bluetooth beacons, video cameras, and big data sources, among others to maximize indoor intelligence.

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.

Revenues increased in the year ended December 31, 2020 over the same period in 2019 by approximately 48% due to revenue earned of approximately $1.2 million from the Systat licensing agreement, approximately $0.9 million from the Nanotron acquisition and approximately $0.9 million from existing product lines over the prior comparable period.

Inpixon is the Indoor Intelligence™ company.

Our solutions and technologies help organizations create and redefine exceptional workplace experiences that enable smarter, safer and more secure environments.

We leverage our positioning, mapping, analytics and app technologies to achieve higher levels of productivity and performance, increase safety and security,

improve worker and employee satisfaction rates and drive a more connected workplace.

We have focused our corporate strategy on being the primary provider of the full range of foundational technologies needed in order to offer a comprehensive suite of solutions that make indoor data available and meaningful to organizations and their employees.

Our Indoor Intelligence solutions are used by our customers for a variety of use cases including, but not limited to, employee and visitor experience enhancement through a customer branded app with features such as desk booking, wayfinding and navigation, and the delivery of content to tens of thousands of attendees in hybrid events.

Our real time location (RTLS) and asset tracking products offer manufacturing and warehouse logistics optimization and automation, increase workforce productivity, and enhance worker safety and security.

In addition to our Indoor Intelligence technologies and solutions, we also offer:

• Digital solutions (eTearsheets;

eInvoice, adDelivery) or cloudbased applications and analytics for the advertising, media and publishing industries y advertising management platform referred to as Shoom by Inpixon;

• A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists referred to as SAVES by Inpixon.

We report financial results for three segments:

Indoor Intelligence, Shoom and SAVES.

For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services.

For Shoom and SAVES we generate revenue from the sale of software licenses.

Revenues increased in the year ended December 31, 2021 over the same period in 2020 by approximately $6.7 million which is primarily attributable to an approximate $5.0 million increase in Indoor Intelligence sales, including our smart office app and real time location based technologies, and an increase of approximately $1.7 million of SAVES sales.

We expect to continue to grow our Indoor Intelligence product line in 2022.

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We experienced a net loss of approximately $70.1 million and $29.2 million for the years ended December 31, 2021 and 2020, respectively.

This increase in loss of approximately $40.9 million was primarily attributable to the increase in operating expenses of $53.8 million primarily as a result of increased operating expenses related to the acquisitions completed in 2021, stock based compensation and a goodwill impairment offset by the higher gross margin of $4.9 million and reduced other loss of $6.6 million.

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

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Recent Events

On November 25, 2020, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 5,000,000 shares of our common stock, and warrants to purchase up to 8,000,000 shares of common stock at an exercise price of $1.25 per share (the “2020 Purchase Warrants”) for a combined purchase price of $1.25 per share and pre-funded warrants to purchase up to 3,000,000 shares of common stock ("2020 Pre-funded Warrants") at an exercise price of $0.001 per share at a purchase price of $1.249 per share for net proceeds of $9.2 million after deducting placement agent commissions and offering expenses.

Each 2020 Purchase Warrant and 2020 Pre-funded warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date.

On December 23, 2020, the 2020 Pre-funded Warrants were exercised in full.

On January 24, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 5,800,000 shares of our common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.549 per share for net proceeds of $27.8 million after deducting placement agent commissions and offering expenses.

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.

2021 Financings

On January 24, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued in a registered direct offering, 5,800,000 shares of our common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.549 per share.

At closing, the Company received $27.8 million in net proceeds after deducting placement agent commissions and offering expenses.

The January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is or was immediately exercisable for

one share of common stock for a period until the five year anniversary of 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.

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.

On February 12, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued 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.

At closing the Company received net proceeds of $27.8 million after deducting placement agent commissions and offering expenses.

Each First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock until the five year anniversary of the issue date.

The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021.

On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $2.009 per share for net proceeds of $18.5 million after deducting placement agent commissions and offering expenses.

Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date.

On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $2.009 per share.

At clsoing the Company received net proceeds of $18.5 million after deducting placement agent commissions and offering expenses.

Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock until the five year anniversary of the issuance date.

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 at a stated value of $1,000 per shares ("Stated Value") convertible into 47,000,000 million shares of common stock at a conversion price of $1.25 (ii) related 5 year warrants to purchase up to an aggregate of 47,000,000 shares of common stock (the “Warrants”) at an exercise price of $1.25 per share beginning as of November 18, 2021 (the date on which the we effected a "capital event" resulting in sufficient authorized shares to issue the warrant shares.

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.

If anytime after the effective date of the capital event (i) the volume weighted average price for each of any 10 consecutive trading day period following such event, exceeds $2.00 per share (subject to adjustments for splits, dividends, and the like);

(ii) the volume for each trading day during any such period exceeds $2,000,000 of shares of common stock per trading day;

and (iii) we satisfy certain Equity Conditions (as defined in the Certificate of Designation), we may elect to mandatorily convert all or a portion of the outstanding shares of Series 7 Preferred Stock (any such portion to be pro-rated across all holders thereof) at the then prevailing conversion price.

In addition, at any time beginning on the 6-month anniversary of the date the Series 7 Preferred Stock was issued (the “Redemption Triggering Date”) and ending ninety (90) days thereafter, each holder of such shares may require us to redeem all or part of the shares 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 connection with certain events of default described in the Certificate of Designation, 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.

Correspondingly, beginning on the Redemption Triggering Date for so long as the Shares remain outstanding the Company has the right to redeem all or part of the Shares then held by a holder for the Redemption Amount, subject to Equity Conditions.

In the event, the Company elects to exercise its redemption right, the holder will have an option to convert such shares subject to redemption into the common stock within thirty (30) days following a written notice sent to the holder.

Upon the receipt of the pertinent Redemption Amount, the holder of the Shares will forfeit 75% of the Warrants issued.

Until the earlier of the conversion or redemption of all Shares and June 14, 2022, the Company is also required to 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 Series 7 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 Shares, and (iii) the aggregate amount of monetary judgments with respect to the Company and its subsidiaries or any of their respective property or assets.

2021 Strategic Transactions

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 will acquire 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 a number of shares of our common stock equal to $1,403,103 divided by the lesser of (A) the closing price per share of our common stock, as reported by the Nasdaq Stock Market, immediately prior to the closing of the transaction and (B) the average closing price of our common stock, as reported by the Nasdaq Stock Market, for the 5 trading days immediately preceding the closing date.

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

The closing of the transaction is subject to the terms and satisfaction of the conditions set forth in the GYG Purchase Agreement.

On April 9, 2021 we acquired 522,000 shares of common stock of Game Your Game, Inc., a Delaware corporation (“GYG”), which represent 55.4% of the outstanding shares of common stock of GYG, pursuant to that certain Stock Purchase Agreement, dated as of March 25, 2021 (the “Purchase Agreement”), with GYG and certain selling stockholders.

At the closing, Nadir Ali, the Company’s Chief Executive Officer and member of the Company’s board of directors, was appointed as the sole member of GYG’s board of directors.

In connection with the closing of the transaction, we entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”), with GYG and certain other minority stockholders of GYG, pursuant to which the minority stockholders agreed to vote their shares to (i) ensure that GYG’s board of directors is comprised of one director and (ii) elect the person the Company designates from time to time to serve as GYG’s sole director.

In addition, we were granted a right of first refusal in the event a minority stockholder wants to transfer shares to a third party, as well as customary drag-along rights in the event a third party offers to purchase all of GYG’s outstanding capital stock, in addition to an option to purchase all of the remaining outstanding capital stock of GYG,.

The purchase pption is exercisable by the Company at any time prior to the 3rd anniversary of the transaction closing date at a capped purchase price, subject to a downward adjustment if GYG is unable to achieve certain financial-based performance targets during a specified period of time.

GYG’s business consists of developing and providing solutions using sports data and analytics.

Nanotron Acquisition

On October 6, 2020, we acquired, through our wholly-owned subsidiary Inpixon GmbH, a limited liability company incorporated under the laws of Germany (the “Purchaser), all of the outstanding capital stock (the “Nanotron Shares”) of Nanotron Technologies GmbH, a limited liability company incorporated under the laws of Germany (“Nanotron”), pursuant to the terms and conditions of that certain Share Sale and Purchase Agreement, dated as of October 5, 2020 (the “Purchase Agreement”), among the Purchaser, Nanotron and Sensera Limited, a stock corporation incorporated under the laws of Australia and the sole shareholder of Nanotron (the “Seller”).

As a result of the acquisition, we now own 100% of Nanotron.

Nanotron’s business consists of developing and manufacturing location-aware IoT systems and solutions.

At the closing, the Purchaser paid to the Seller an aggregate purchase price of $8,700,000 (less the Holdback Funds (as defined below) and certain other closing adjustments) for the Nanotron Shares (“Purchase Price”).

The Purchase Price may be subject to certain post-Closing adjustments based on actual working capital as of the closing as described in the Purchase Agreement.

The Purchaser retained $750,000 (the “Holdback Funds”) from the Purchase Price to secure the Seller’s obligations under the Purchase Agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18 months after the closing date.

The Purchaser paid the Purchase Price from funds received in connection with a capital contribution from us, and a portion of the Purchase Price was used by the Seller to satisfy outstanding loans payable by the Seller to obtain the release of certain existing security interests on Nanotron’s assets.

On February 24, 2021, we agreed to the early release of the Holdback Funds, in exchange for a reduction in the total amount payable to the Seller by $225,000.

In addition, the amount payable was further reduced by $59,156.74 in connection with a post closing working capital adjustment

and the satisfaction of a claim related to a customer dispute.

A balance of $465,843.26 was paid to the Seller in full satisfaction of the Holdback Funds payable by the Purchaser to the Seller pursuant to the Purchase Agreement.

Subscription of Units of Cardinal Venture Holdings

On September 30, 2020, we entered into a Subscription Agreement (the “Subscription Agreement”) with Cardinal Venture Holdings LLC, a Delaware limited liability company (“CVH”), pursuant to which we agreed to (i) contribute up to $1,800,000 (the “Contribution”) to CVH and (ii) purchase up to 599,999 Class A Units of CVH (the “Class A Units”) and up to 1,800,000 Class B Units of CVH (the “Class B Units,” and, together with the Class A Units, the “Units”).

The $1,800,000 purchase price was paid on October 12, 2020 and therefore that is the date the purchase of the Units was closed.

On December 16, 2020, the Company increased it capital contribution by $700,000 in exchange for an additional 700,000 Class B Units.

The Company owns an aggregate of 599,999 Class A Units and 2,500,000 Class B Units.

CVH owns certain interests in the sponsor entity (the “Sponsor”) to a special purpose acquisition company formed for the purpose of pursuing an initial public offering of its securities followed by effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “SPAC”).

It is anticipated that the Contribution will be used by CVH to fund the Sponsor’s purchase of securities in the SPAC.

Nadir Ali, our Chief Executive Officer, beneficially owns membership interests in CVH through 3AM LLC, a Delaware limited liability company and a founding member of CVH (“3AM”).

Concurrently with our entry into the Subscription Agreement, we entered into the Amended and Restated Limited Liability Company Agreement of CVH (the “LLC Agreement”), dated as of September 30, 2020.

Under the terms of the LLC Agreement, in the event the Managing Member (as defined in the LLC Agreement) can no longer manage CVH’s affairs due to his death, disability or incapacity, 3AM will serve as CVH’s replacement Managing Member.

Except as may be required by law, the Company, as a non-managing member under the LLC Agreement, does not have any voting rights and generally cannot take part in the management or control of CVH’s business and affairs.

The LLC Agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor.

We are not required to make additional capital contributions to CVH, unless any such capital contribution is approved by all of CVH’s members.

In addition, the LLC Agreement contains terms and conditions that provide for limitations on liability, restrictions on rights to distributions and certain indemnification rights for CVH’s members.

“Blue Dot” Technology Acquisition

On August 19, 2020, in accordance with the terms and conditions of that certain Asset Purchase Agreement, by and among us, Ten Degrees Inc., a Delaware corporation (“TDI”), Ten Degrees International Limited (“TDIL”), a Cayman Islands exempted company limited by shares and the sole shareholder of 100% of the outstanding capital stock of TDI, mCube International Limited (“MCI”), a Cayman Island company, and the holder of a majority of the outstanding capital of TDIL and mCube, Inc., a Delaware corporation, and the sole shareholder of 100% of the outstanding capital stock of MCI (“mCube”, together with TDI, TDIL, and MCI collectively, the “Transferors”, or "Ten Degrees"), dated August 19, 2020 (the “APA”), we acquired a suite of on-device “blue-dot” indoor location and motion technologies, including patents, trademarks, software and related intellectual property from the Transferors (collectively, the “Assets”).

The Assets were acquired for consideration consisting of (i) $1.5 million in cash and (ii) 480,000 shares of our common stock.

In accordance with the terms of the APA, commencing as of the date of the APA, the Transferors, and their affiliates, have agreed to not compete with our business associated with the Assets for a period of five years from the closing date.

In addition, each party agreed to not solicit any employees from the other party for a period of one year from the closing date, subject to certain exceptions.

All of Transferors’ right, title and interest in and to the Assets were sold, conveyed, transferred, assigned, and delivered to us in accordance with a Bill of Sale and Assignment executed by the Transferors, dated as of the closing date.

Systat License Acquisition

On June 19, 2020, we entered into an exclusive license to market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (the “License Grant”) pursuant to the terms and conditions of that certain Exclusive Software License and Distribution Agreement, as amended on June 30, 2020 (as amended, the “License Agreement”), with Cranes Software International Ltd.

(“Cranes”) and Systat Software, Inc.

(“Systat,” and together with Cranes, the “Systat Parties”).

In accordance with the terms of the License Agreement, on June 30, 2020 (the “License Closing Date”), we acquired the License Grant, effective as of June 1, 2020, and we partitioned a portion of the outstanding balance under that certain secured promissory note (the “Sysorex Note”) issued to us by Sysorex, Inc.

(“Sysorex”), into a new note in an amount equal to $3 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement.

An aggregate of an additional $3.3 million of the principal balance underlying the Sysorex Note was partitioned and assigned to Systat as consideration payable for the rights granted under the license, including $1.3 million on the three month anniversary of the License Closing Date, $1.0 million on the six month anniversary of the License Closing Date and $1.0 million on March 19, 2021.

Each assignment under the Sysorex Note was represented by a new secured promissory note and our right to any repayment under the Sysorex Note is subordinate and junior to Sysorex’s obligation to make any payment to Systat unless we have exercised our right to offset any losses against such assigned notes as permitted in the License Agreement.

In addition, we paid the remaining cash consideration of $2.2 million for the License Grant on July 8, 2020.

In connection with the License Grant, the Systat Parties provided us with equipment for us to use at no additional cost for a minimum period of six months following the License Closing Date.

In addition, we have the right, but not the obligation, to assume all of the Systat Parties’ rights, interests, and obligations under the Systat Customer Contracts and the Systat Distribution Agreements (as such terms are defined in the License Agreement).

We are also entitled to any customer maintenance revenue, new license fees, or license renewal fees, received by any of the Systat Parties after June 1, 2020 in connection with the Systat Customer Contracts and/or Systat Distribution Agreements assigned to and assumed by us in connection with the License Agreement.

The License Grant will remain in effect for a period of 15 years following the License Closing Date (the “Term”), unless terminated sooner upon mutual written consent of Systat and us or upon termination by either for the other party’s specified breach.

At any time during the first 5-year period of the Term (the "Purchase Option Exercise Period"), we may exercise our option to purchase the Software, Software Source, User Documentation, Systat Intellectual Property, Customer Information and Equipment (as such terms are defined in the License Agreement) from the Systat Parties in exchange for an assignment of our right to receive an additional $1.0 million in principal under the Sysorex Note.

On February 22, 2021, we entered into a Second Amendment to the License Agreement to allow for the exercise of the purchase option in whole or in part any time during the Purchase Option Period and to provide for cash consideration in lieu of an assignment of the Sysorex Note at our option.

Systat Purchase Option Exercise

On February 22, 2021, we entered into a Second Amendment to the Exclusive Software License and Distribution Agreement, as amended on June 30, 2020 (as amended, the “License Agreement”), with Cranes Software International Ltd.

and Systat Software, Inc.

(“Systat”) to allow for the exercise of the option to purchase software and other assets underlying the License Agreement, in whole or in part, any time during the purchase option period and to provide for cash consideration in lieu of an assignment of the Sysorex Note at our option.

In addition, we exercised our option to purchase a portion of the underlying assets, including certain software, trademarks, solutions, domain names and websites from Systat in exchange for consideration in an amount equal to $900,000.

In connection with the License Grant, the Company expanded its operations into the United Kingdom and Germany.

As a result of such expansion, the Company formed Inpixon Limited, a new wholly owned subsidiary in the United Kingdom, and established Inpixon GmbH, a wholly owned subsidiary incorporated under the laws of Germany.

Promissory Note

On March 18, 2020, we entered into a note purchase agreement (the “Purchase Agreement”) with Iliad Research & Trading, L.P.

(the “Holder”) (as amended in September 17, 2020 and March 2021), pursuant to which we issued and sold to the Holder an unsecured promissory note (the “March 2020 Note”) in an aggregate initial principal amount of $6,465,000.00 (the “Initial Principal Amount”), which is payable on or before March 18, 2022 (the “Maturity Date”).

The Initial Principal Amount includes an original issue discount of $1,450,000.00 and $15,000.00 that we agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.

In exchange for the March 2020 Note, the Holder paid an aggregate purchase price of $5,000,000.00 (the “Transaction”).

The March 2020 Note is payable on or before the date that is 12 months from the issuance date.

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

We may pay all or any portion of the amount owed earlier than it is due in an amount equal to 115% of the portion of the outstanding balance the Company elects to prepay.

Beginning as of the date that was 6 months from the issuance date and at the intervals indicated below until the March 2020 Note is paid in full, the Holder has the right to redeem up to an aggregate of 1/3 of the initial principal balance of the Note each month (each monthly exercise, a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”);

provided, however, that if the Holder does not exercise any Monthly Redemption Amount in its corresponding month then such Monthly Redemption Amount shall be available for the Holder to redeem in any future

month in addition to such future month’s Monthly Redemption Amount.

Upon receipt of Monthly Redemption Notice, we are required to the applicable Monthly Redemption Amount in cash to the Holder within five business days of receipt.

Monitoring Fee .

The terms of the Note included a one-time monitoring fee equal to ten percent (10%) of the then-current outstanding balance if the Note was still outstanding six months following the original issue date, which amount was subsequently amended to five percent (5%) and was added to the Note.

In addition, at any time while the Note is outstanding, if we intend to enter into a financing pursuant to which we will issue securities that (A) have or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the Company’s common stock, or (B) are or may become convertible into common stock (including without limitation convertible debt, warrants or convertible preferred stock), with a conversion price that varies with the market price of the common stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition (a “Future Offering”), then we must first offer such opportunity to the Holder on the same terms no later than five (5) trading days immediately prior to the trading day of the expected announcement of the Future Offering (the “Right of First Refusal”).

If the Holder is unwilling or unable to provide such financing then we may obtain such financing upon the exact same terms and conditions offered to the Holder, which must be completed within 30 days after the date of the notice.

If we do not receive the financing within 30 days after the date of the notice, then we must again offer the financing opportunity to the Holder as described above, and the process detailed above will be repeated.

The Right of First Refusal does not apply to an Exempt Issuance (as defined in the Purchase Agreement) or to a registered offering made pursuant to a registration statement on Form S-1 or Form S-3.

Note Exchanges

During the first quarter ended March 31, 2020, we entered into exchange agreements with a noteholder pursuant to which we issued an aggregate of 1,896,557 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $4,194,030 of the outstanding balance of promissory notes issued on May 3, 2019 and June 27, 2019 to the holders of such notes at exchange prices between $1.12 and $4.05 per share, in each case at a price per share equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

During the quarter ended June 30, 2020, we entered into exchange agreements with noteholders pursuant to which we issued an aggregate of 3,889,990 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $4.6 million of the outstanding balance of promissory notes issued on December 21, 2018, August 8, 2019, September 17, 2019 and November 22, 2019 to the holders of such notes at exchange prices between $1.09 and $1.362 per share, in each case at a price per share equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

On November 19, 2020, we entered into an exchange agreement pursuant to which we issued an aggregate of 389,863 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $400,000 of the outstanding balance of the March 2020 Note at a price per share equal to $1.026, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d) .

On November 24, 2020, we entered into an exchange agreement pursuant to which we issued an aggregate of 686,813 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $750,000 of the outstanding balance of the March 2020 Note at a price per share equal to $1.092, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d) .

On February 11, 2021, we entered into an exchange agreement pursuant to which we issued an aggregate of 893,921 shares of common stock in exchange for the satisfaction of an aggregate amount of approximately $1.5 million of the outstanding balance of the March 2021 Note at a price per share equal to $1.678, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d) .

Equity Distribution Agreement

On March 3, 2020, we entered into an Equity Distribution Agreement ("EDA") with Maxim Group LLC (“Maxim”) under which we may offer and sell shares of our common stock in connection with the ATM in an aggregate offering amount of up to $50 million from time to time through Maxim, acting exclusively as our sales agent (the “Offering”).

We intend to use the net proceeds of the Offering primarily for working capital and general corporate purposes.

We may also use a portion of the net proceeds to invest in or acquire businesses or technologies that we believe are complementary to our own.

We issued and sold 33,416,830 shares of common stock during the year ended December 31, 2020, in connection with the ATM at per share prices between $1.07 and $2.11, resulting in net proceeds to the Company of approximately $46.1 million, after subtracting sales commissions and other offering expenses.

Such sales were made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No.

333-223960), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2018, as amended on May 15, 2018, and declared effective on June 5, 2018 (the “Registration Statement”), and a base prospectus dated as of June 5, 2018 included in the Registration Statement and the prospectus supplements relating to the ATM filed with the SEC on March 3, 2020 and June 22, 2020.

The EDA was terminated as of February 12, 2021.

Reverse Stock Split

On January 7, 2020, we effected a 1-for-45 reverse split of our outstanding common stock.

Sysorex Securities Settlement Agreement

On April 14, 2021, we entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), each with Sysorex, whereby Sysorex agreed to satisfy in full its outstanding debt, in the aggregate amount of $9,088,175.97 as of March 31, 2021, owed to us under that certain secured promissory note, originally dated December 31, 2018, as amended from time to time, and in connection with that certain settlement agreement, dated February 20, 2019, by and among us, Sysorex and Atlas Technology Group, LLC (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, $0.00001 par value per share, and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA.

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

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

Nadir Ali entered into a consulting agreement with Sysorex, pursuant to which he agreed to provide certain business services specified in the agreement for the benefit of Sysorex in exchange for shares of Sysorex’s common stock.

Visualix Asset Purchase Agreement

On April 23, 2021, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) by and among the Company, Visualix GmbH i.L.

(the “Visualix”), Darius Vahdat-Pajouh and Michal Bucko (each, a “Founder,” and collectively, the “Founders”), and Future Energy Ventures Management GmbH (“FEVM”) pursuant to which we acquired certain computer vision, robust localization, large-scale navigation, mapping, and 3D reconstruction software technologies and intellectual property (collectively, the “Visualix Assets").

In accordance with the terms of the Asset Purchase Agreement, we purchased the Visualix Assets and certain patent applications related to the Visualix Assets from FEVM.

In consideration of the transactions contemplated by the Asset Purchase Agreement, we:

(i) remitted a cash payment in the amount of Fifty Thousand Euros (EUR 50,000) to Visualix;

(ii) issued 316,768 shares of Common Stock to Visualix;

(iii) issued 52,795 to shares of Common Stock to FEVM.

The Asset Purchase Agreement includes customary representations and warranties, as well as certain covenants, including, inter alia, that the Founders are hired as employees of Inpixon GmbH and Visualix and the Founders shall not, for a period of two (2) years following the closing date, directly or indirectly, compete with us in the sectors of Mapping and Localization Technology (as defined in the Asset Purchase Agreement).

CXApp Acquisition

On April 30, 2021, we completed the acquisition of over 99.9% of the outstanding capital stock of Design Reactor, Inc., dba The CXApp, a California corporation (“The CXApp”), pursuant to the terms of that certain Stock Purchase Agreement, dated as of the Closing Date (the “Stock Purchase Agreement”), by and among us, The CXApp, the sellers set forth on the signature page thereto and each other person who owns outstanding capital stock of The CXApp (“CXApp Shares”) and executes a Joinder to Stock Purchase Agreement (collectively, the “Sellers”), and Leon Papkoff, as Sellers’ Representative (the “Sellers’ Representative”).

The CXApp is a leading SaaS app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events.

On the closing date, the Sellers sold all of their CXApp Shares to us in exchange for consideration of (i) approximately $22,500,000 in cash, minus The CXApp’s transaction expenses, plus The CXApp’s closing cash, minus stock option payouts, minus the amount that equals 70% of deferred revenue as of the Closing Date, subject to such other adjustments set forth in the Stock Purchase Agreement, including a post-closing working capital adjustment (such amount, the “Cash Purchase Price”), of which $4,875,000 (the “Holdback Amount”) was retained from the Cash Purchase Price to secure the Sellers’ indemnification obligations under the Purchase Agreement, for a period of 18 months from the closing date and (ii) 8,820,239 shares of our common stock, which were valued at approximately $10,000,000 based on a share price of $1.13 (the “Per Share Price”), which was the closing price of our common stock immediately prior to executing the Stock Purchase Agreement (such shares, the “Purchaser Shares” and together with the Cash Purchase Price, the “Consideration”).

In addition, we agreed to pay up to $12,500,000 in contingent earnout payments, subject to certain adjustments (the “Earnout Payment” and together with the Cash Purchase Price and the Purchaser Shares, the “Aggregate Purchase Price”), payable in shares of Common Stock at the Per Share Price (the "Earnout Shares").

On May 10, 2021, we, The CXApp and the non-signing Seller executed a Joinder to Stock Purchase Agreement pursuant to which we purchased such Non-Signing Seller’s CXApp Shares in exchange for approximately $50,000 in cash and 29,299 shares of our Common Stock.

As of such time, the Company now owns 100% of The CXApp.

On December 30, 2021, we entered into an Amendment to the Stock Purchase Agreement (the “Amendment”), with the Sellers’ Representative, pursuant to which the parties to the Stock Purchase Agreement agreed to:

(i) amend the amount of the earnout target (as defined in the Stock Purchase Agreement) from $8,270,000 to $4,200,000 in revenue;

(ii) amend the

duration of the earnout period from the period from the closing date through the twelve (12) month anniversary of the closing date to the period from the closing date through December 31, 2021;

and (iii) eliminate the Sellers’ Representative’s right to accelerate the Earnout Payment upon a sale or change of control of the Company.

The amendments are anticipated to result in certain tax advantageous benefits for the Company in addition to aiding in facilitating the integration of business operations.

On March 3, 2022, we entered into a Second Amendment to the Stock Purchase Agreement with the Sellers' Representative, pursuant to which the parties agreed that withholding taxes payable by the Sellers, as applicable, in connection with the issuance of the Earnout Shares would be offset up to the aggregate amount payable to such Seller by the Company from the Holdback Amount and the Holdback Amount would be reduced by an equal amount.

On March 3, 2022, the Company issued 10,873,886 shares of Common Stock to the Sellers in connection with the satisfaction of the Earnout Payment.

Authorized Share Increase

On November 18, 2021, the Company filed a certificate of amendment to the Company’s articles of incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of Common Stock from 250,000,000 to 2,000,000,000 shares effective as of November 18, 2021.

Warrant and Note Exchanges

On January 28, 2022, we entered into an exchange agreement with the holder (the “Warrant Holder”) of certain existing warrants to purchase up to an aggregate of 49,305,088 shares of our common stock (the “Existing Warrants”), pursuant to which we agreed to issue an aggregate of 13,811,407 shares of common stock (collectively, the “Exchange Common Shares”) and rights (the “Rights”) to receive an aggregate of 3,938,424 shares of common stock (collectively, the “Reserved Shares” and together with the Exchange Common Shares, the “Exchange Shares”) to such warrant holder in exchange for the cancellation of the Existing Warrants (the “Warrant Exchange”).

Subject to the terms of the Exchange Agreement, the Rights may be exercised by the Warrant Holder for the Reserved Shares, in whole or in part, at any time or times on or after the date of the Exchange Agreement, subject to certain beneficial ownership limitations.

On any Trading Day (as defined in the Existing Warrants) during the period commencing on the date of of the exchange agreement and ending on March 29, 2022 (such period, the “Restricted Period”), the warrant holder will not sell on such Trading Day, in the aggregate, any Exchange Shares in an aggregate amount representing more than 10% of the daily composite trading volume of common stock as reported by Bloomberg, LP on such applicable Trading Day.

On February 1, 2022, we entered into an exchange agreement with the holder of that certain outstanding unsecured promissory note, issued on March 18, 2020 in an aggregate initial principal amount of $6,465,000 (the “Original Note”), pursuant to which we and the holder agreed to:

(i) partition a new promissory note in the form of the Original Note equal to $500,000 and then cause the outstanding balance of the Original Note to be reduced by $500,000;

and (ii) exchange the partitioned note for the delivery of 1,191,611 shares of the Company’s Common Stock, at an effective price per share equal to $0.4196, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

On February 18, 2022, the Company entered into an exchange agreement with the holder of the Original Note, pursuant to which the Company and the holder agreed to:

(i) partition a new promissory note in the form of the Original Note equal to $350,000 and then cause the outstanding balance of the Original Note to be reduced by $350,000;

and (ii) exchange the partitioned note for the delivery of 966,317 shares of the Company’s Common Stock, at an effective price per share equal to $0.3622, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

On March 15, 2022, the Company entered into an exchange agreement with the holder of the Original Note, pursuant to which the Company and the holder agreed to:

(i) partition a new promissory note in the form of the Original Note equal to $650,000 and then cause the outstanding balance of the Original Note to be reduced by $650,000;

and (ii) exchange the partitioned note for the delivery of 2,152,317 shares of the Company’s Common Stock, at an effective price per share equal to $0.3020, was equal to to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

Critical Accounting Policies and Estimates

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Revenue Recognition

We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services.

We derive our revenue from software as a service, design and implementation services for our Indoor Intelligence systems, and professional services for work performed in conjunction with our systems.

Hardware and Software Revenue Recognition

For sales of hardware and software products, our performance obligation is satisfied at a point in time when they are shipped to the customer.

This is when the customer has title to the product and the risks and rewards of ownership.

The delivery of products to our customers occurs in a variety of ways, including (i) as a physical product shipped from our warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses.

We leverage drop-ship arrangements with many of our vendors and suppliers to deliver products to customers without having to physically hold the inventory at our warehouse.

In such arrangements, we negotiate the sale price with the customer, pay the supplier directly for the product shipped, bear credit risk of collecting payment from our customers and are ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer.

Accordingly, we are the principal in the transaction with the customer and record revenue on a gross basis.

The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services.

The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems.

Our contracts with customers often include promises to transfer multiple distinct products and services.

Our licenses are sold as perpetual or term licenses and the arrangements typically contain various combinations of maintenance and professional services, which are accounted for as separate performance obligations.

In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process.

The most critical judgements required in applying ASC 606 Revenue Recognition from Customers , and our revenue recognition policy relate to the determination of distinct performance obligations.

• We receive fixed consideration for sales of hardware and software products.

Our customers generally pay within 30 to 60 days from the receipt of a customer approved invoice.

We have elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year.

Software As A Service Revenue Recognition

With respect to sales of our maintenance, consulting and other service agreements including our digital advertising and electronic services, customers pay fixed monthly fees in exchange for the Company’s service.

The Company’s performance

obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period.

The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service.

Professional Services Revenue Recognition

Our professional services include milestone, fixed fee and time and materials contracts.

Professional services under milestone contracts are accounted for using the percentage of completion method.

Revenue is recognized at point in time when the customer has title to the product and risks and rewards of ownership have transferred.

• Revenue related to software as a service contract is recognized over time using the output method (days of software provided) because we are providing continuous access to its service.

• Design and implementation revenue is accounted for using the percentage of completion method.

As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.

Contract costs are expensed as incurred.

Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.

Professional services are also contracted on the fixed fee and time and materials basis.

Fixed fees are paid monthly, in phases, or upon acceptance of deliverables.

Our time and materials contracts are paid weekly or monthly based on hours worked.

Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended.

Materials, or other specified direct costs, are reimbursed as actual costs and may include markup.

Accounting for these contracts involves the use of estimates to determine total contract costs to be incurred.

• Professional services revenue under fixed fee contracts is recognized over time using the input method (direct labor hours) to recognize revenue over the term of the contract.

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.

Anticipated losses are recognized as soon as they become known.

For the years ended December 31, 2020 and 2019, we did not incur any such losses.

These amounts are based on known and estimated factors.

SAVES by Inpixon Revenue Recognition

SAVES by Inpixon ("SAVES", formerly Systat) is a comprehensive set of data analytics and statistical visualization solutions for engineers and scientists.The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software.

The contracts provide for either (i) a one-year stated term with a one-year renewal option (ii) a perpetual term or (iii) a two-year term for students with the option to upgrade to a perpetual license at the end of the term.

The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract.

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer.

All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

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

Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service.

A software arrangement that is provided through an access code or key represents the transfer of a good.

Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available to the customer.

Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer.

• We recognize revenue related to Maintenance Services evenly over time using the output method (days of software provided) because we provide continuous service, and the customer simultaneously receives and consumes the benefits provided by our performance as the services are performed.

We also consider whether an arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations.

We offer discounts in the form of prompt payment discounts and rebates for a decrease in service level percentages.

We have determined that the most likely amount method is most useful for contracts that provides these discounts and rebates as the contracts have two potential outcomes and a significant reversal in the amount of cumulative revenue recognized is not expected to occur.

Discounts have not historically been significant, but we continue to monitor and evaluate these estimates based on historical experience, anticipated performance, and our best judgment.

Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license.

Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract.

The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period.

Therefore, we recognize revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period.

We recognize revenue related to Maintenance Services evenly over the service period using a time-based measure because we are providing continuous service and the customer simultaneously receives and consumes the benefits provided by our performance as the services are performed.

Design and Implementation Revenue Recognition

Design and implementation revenue is accounted for using the percentage of completion method.

As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.

Contract costs are expensed as incurred.

Contract Balances

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

We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment.

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

The Company had deferred revenue of approximately $1,922,000 and $912,000 as of December 31, 2020 and 2019, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff.

The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months.

Long-lived Assets

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

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

• significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for two consecutive years);

• significant negative industry or economic trends;

• knowledge of transactions involving the sale of similar property at amounts below our carrying value;

• our expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria to be classified as “held for sale.”

If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period.

Goodwill, Acquired Intangible Assets and Other Long-Lived Assets - Impairment Assessments

Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

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When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, we make assumptions regarding estimated future cash flows and other factors.

Some of these assumptions involve a high degree of judgment and also bear a significant impact on the assessment conclusions.

Some of these assumptions involve a high degree of judgment and bear a significant impact on the assessment conclusions.

Included among these assumptions are estimating undiscounted future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property and equipment and residual value of asset groups.

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

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

Management believes our technology has significant long-term profit potential, and to date, management continues to allocate existing resources to the develop products and services to seek returns on its investment.

We continue to seek additional resources, through both capital raising efforts and meeting with industry experts, as part of our continued efforts.

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

If we choose to abandon these efforts, or if we determine that such funding is not available, the related development of our technology (resulting in our lack of ability to expand our business), may be subject to significant impairment.

As described previously, we continue to experience weakness in market conditions, a depressed stock price, and challenges in executing our business plans.

The Company will continue to monitor these uncertainties in future periods, to determine the impact.

We evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted.

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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.

Acquired In-Process Research and Development (“IPR&D”)

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.

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

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

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

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

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

Through December 31, 2020, we have made some progress with raising capital since these acquisitions, building our pipeline and getting industry acknowledgment.

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

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

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

If we choose to abandon these efforts, or if we determine that such funding is not available, the related IPR&D will be subject to significant impairment.

Goodwill and Indefinite-lived Assets

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

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

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

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

We analyze goodwill first to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed goodwill impairment test as required.

We have determined that it operates and reports in three reporting units:

Indoor Intelligence, Saves, and Shoom.

We analyzed goodwill first to assess qualitative factors, such as macroeconomic conditions, changes in the business environment and reporting unit specific events, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed goodwill impairment test as required.

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

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

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

• Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets.

• Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both

absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development.

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

• Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods.

• Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation.

• Events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of selling or disposing of all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.

• If applicable, a sustained decrease in share price (considered in both absolute terms and relative to peers).

Impairment of Long-Lived Assets Subject to Amortization

We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists.

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

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

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

We did not recognize any intangible asset impairment charges for the years ended December 31, 2020 and 2019.

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

If we bypass the qualitative assessment or conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

We calculate the estimated fair value of a reporting unit using a weighting of the income and market approaches.

For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others made by management:

projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends;

expected future investments to grow new units;

and estimated discount rates.

For the market approach, we use internal analyses based primarily on market comparables.

We base these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.

Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis.

For example, a 100 basis points increase or decrease in only the discount rate utilized as part of the discounted cash flow method (income approach) related to the Indoor Intelligence reporting unit could impact the overall fair value of the reporting unit, on a weighted average, by approximately $2.0 million (decrease) and $2.5 million (increase), respectively.

We performed the annual impairment test and has recorded impairment of goodwill of $14.8 million and zero during the years ended December 31, 2021 and 2020, respectively.

Deferred Income Taxes

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and (iii) the adequacy of future income as of and for the year ended December 31, 2021, based upon certain economic conditions and historical losses through December 31, 2021.

After consideration of these factors, management deemed it appropriate to establish a full valuation allowance with respect to the deferred tax assets for Inpixon and Inpixon Canada.

After consideration of these factors, management deemed it appropriate to establish a full valuation allowance with respect to the deferred tax assets for Inpixon, Inpixon Canada, Nanotron GmbH, Intranav GmbH and Active Mind Technology LTD.

A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax filings that do not meet these recognition and measurement standards.

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No interest or penalties were recorded during the years ended December 31, 2021 and 2020.

Allowance for Doubtful Accounts

We maintain our reserves for credit losses at a level believed by management to be adequate to absorb potential losses inherent in the respective balances.

We assign an internal credit quality rating to all new customers and update these ratings regularly, but no less than annually.

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

As of December 31, 2020 and 2019, reserves for credit losses included a reserve for doubtful accounts of approximately $235,000 and $646,000, respectively, due to the aging of the items greater than 90 days outstanding and other potential non-collections.

Business Combinations

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Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date and are included in our Consolidated Financial Statements from the acquisition date.

Stock-Based Compensation

We account for equity instruments issued to non-employees in accordance with accounting guidance, which requires that such equity instruments are recorded at their fair value on the measurement date, which is typically the date the services are performed.

We account for equity instruments issued to employees in accordance with accounting guidance that requires that awards are recorded at their fair value on the date of grant and are amortized over the vesting period of the award.

We recognize compensation costs over the requisite service period of the award, which is generally the vesting term of the equity instrument issued.

The Black-Scholes option valuation model is used to estimate the fair value of the options or the equivalent security granted.

The model includes subjective input assumptions that can materially affect the fair value estimates.

The model was developed for use in estimating the fair value of traded options or warrants.

The expected volatility is estimated based on the average of historical volatilities for industry peers.

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

For the Years Ended December 31,

Risk-free interest rate 0.33-0.35% 1.77-2.66%

Expected life of option grants 5 years 7 years

Expected volatility of underlying stock 34.43% 49.48-106.16%

Dividends assumption $ — $ —

During the year ended December 31, 2020 and 2019, the Company recorded a charge of $1.2 million and $3.2 million, respectively, for the amortization of employee stock options.

R ESULTS OF O PERATIONS

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Revenues for the year ended December 31, 2021 were $16.0 million compared to $9.3 million for the comparable period in the prior year for an increase of approximately $6.7 million, or approximately 72%.

Revenues increased approximately $1.2 million from the Systat License Agreement, approximately $0.9 million from the Nanotron acquisition and approximately $0.9 million from existing product lines over the prior comparable period.

Cost of Revenues

This increase is primarily attributable to an approximate $5.0 million increase in Indoor Intelligence sales, including our smart office app and real time location based technologies, and an increase of approximately $1.7 million of SAVES sales.

The increase in Indoor Intelligence sales of $5.0 million was driven by a $4.4 million increase in revenue due to the acquisitions of CXApp, Game Your Game, and IntraNav.

Cost of revenues for the year ended December 31, 2021 were $4.4 million compared to $2.6 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $1.0 million, or approximately 62%, was primarily attributable to the increase in revenues from the Systat License Agreement, Nantoron acquisition and the existing product lines.

This increase in cost of revenues of approximately $1.8 million, or approximately 67%, was primarily attributable to the increased sales during the year.

The gross profit margin for the year ended December 31, 2021 was 73% compared to 72% for the year ended December 31, 2020.

This decrease in margin is primarily due to to lower gross profit margins from the Nanotron acquisition.

This increased margin is primarily due to the sales mix during the year.

Operating Expenses

Operating expenses for the year ended December 31, 2021 were $84.2 million and $30.5 million for the comparable period ended December 31, 2020.

This increase of $5.0 million is primarily attributable to increased operating expenses of the Systat licensing product line, Nanotron acquisition, increased operating expense of the Jibestream division as it was included for a full twelve months during 2020, increased professional fees and marketing expenses offset by a decrease in travel expenses, stock based compensation and amortization of intangibles.

This increase of $53.8 million is primarily attributable to increased operating expenses of the Indoor Intelligence segment by approximately $6.2 million due to the CXApp, Game Your Game, SAVES and, Nanotron acquisitions, approximately $6.5 million of accrued earnout compensation expense, $9.7 million of additional stock based compensation, $14.8 million impairment of goodwill and increases in other expenses including amortization of intangibles due to the acquisitions, professional fees and compensation costs as we are scaling for growth.

Loss From Operations

Loss from operations for the year ended December 31, 2021 was $72.6 million as compared to $23.8 million for the comparable period in the prior year.

This increase in loss of approximately $3.0 million was primarily attributable to higher operating expenses offset by the increase in gross profit for the year ended December 31, 2020.

This increase in loss of $48.8 million is primarily attributable to increased operating expenses of $53.8 million as detailed above offset by the increased gross profit margin of approximately $4.9 million.

Other Income/(Expense)

Other income/expense for the year ended December 31, 2020 was a loss of $5.5 million compared to a loss of $13.8 million for the comparable period in the prior year.

This decrease in loss of approximately $8.3 million is primarily attributable to a decrease in the valuation allowance adjustment in connection with a Note Receivable from Sysorex.

Other income/expense for the year ended December 31, 2021 was income of $1.1 million compared to a loss of $5.5 million for the comparable period in the prior year.

This increase in other income of approximately $6.6 million is primarily attributable to a discounted net gain of approximately $49.8 million on the Sysorex note, a $7.3 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 $57.1 million unrealized loss on the Sysorex note.

Provision for Income Taxes

There was an income tax benefit of $56,000 for the year ended December 31, 2020 related to the acquisition of intangibles and net operating losses of Locality and Jibestream.

There was no provision for income taxes for the year ended

December 31, 2019 as the Company was in a net taxable loss position.

Deferred tax assets resulting from such losses are fully reserved as of December 31, 2020 and 2019 for Inpixon and Inpixon Canada since, at present, the Company has no history of taxable income and it is more likely than not that such assets will not be realized.

Net Gain Attributable To Non-Controlling Interest

Net gain attributable to non-controlling interest for the years ended December 31, 2020 and 2019 was $15,000 and $9,000, respectively.

This increase of $6,000 was attributable to the gain from Inpixon India and is immaterial.

There was an income tax benefit of approximately $1.4 million for the year ended December 31, 2021 compared to a income tax benefit of $0.1 million for the comparable period in the prior year.

The net income tax benefit for the current year is related to a current income tax expense of $1.2 million primarily from the gain on the Sysorex note offset by a $2.6 million deferred tax benefit primarily related to the release of a valuation allowance following the acquisition of intangibles of Design Reactor.

The income tax benefit of $0.1 million for the year ended December 31, 2020 related to intangibles and net operating losses of Jibestream amalgamated with Inpixon Canada during the period.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income or loss attributable to non-controlling interest for the years ended December 31, 2021 and 2020 was a loss of $1.0 million and a income of $0.02 million, respectively.

The increase in loss of approximately $1.0 million was mainly attributable to the loss of the Game Your Game entity.

Net Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders for the year ended December 31, 2021 was $69.2 million compared to $29.2 million for the comparable period in the prior year.

This decrease in loss of approximately $4.8 million was primarily attributable to the increase in operating expenses offset by the increase in gross margin and the decrease in the valuation allowance adjustment.

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.

Non-GAAP Financial information

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Loss on exchange of debt for equity 30 210

Provision for valuation allowance on held for sale loan 2,370 10,627

(Recovery) Provision for valuation allowance on held for sale loan (7,345) 2,370

Provision for the valuation allowance for related party receivable — 648

Settlement of litigation — 6

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

Unrealized loss on equity securities 57,067 —

Acquisition transaction/financing costs 1,248 1,057

Costs associated with public offering — 50

Severance — 161

Provision for doubtful accounts 956 558

Deemed dividend for triggering of warrant down round feature — 1,250

Earnout compensation expense 6,524 —

Professional service fees 1,366 —

Accretion of series 7 preferred stock 8,161 —

Impairment of goodwill 14,789 —

Unrealized gains on notes, loans, investments 241 —

Bad debts expense/provision 121 956

Reserve for inventory obsolescense 300 —

Stock-based compensation - compensation and related benefits 10,879 1,194

Severance costs 294 —

Interest expense, net (1,183) 2,426

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We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:

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

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

• To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

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Loss on the exchange of debt for equity 30 210

Provision for valuation allowance on held for sale loan 2,370 10,627

(Recovery) Provision for valuation allowance on held for sale loan (7,345) 2,370

Provision for the valuation allowance for related party receivable — 648

Settlement of litigation — 6

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

Unrealized loss on equity securities 57,067 —

Acquisition transaction/financing costs 1,248 1,057

Costs associated with public offering — 50

Severance — 161

Provision for doubtful accounts 956 558

Deemed dividend for triggering of warrant down round feature — 1,250

Earnout compensation expense 6,524 —

Professional service fees 1,366 —

Accretion of series 7 preferred stock 8,161 —

Impairment of goodwill 14,789 —

Unrealized gains on notes, loans, investments 241 —

Bad debts expense/provision 121 956

Reserve for inventory obsolescense 300 —

Stock-based compensation - compensation and related benefits 10,879 1,194

Severance costs 294 —

Amortization of intangibles 5,107 2,306

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

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

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

• To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

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

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

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

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1) an overall working capital surplus of approximately $78.8 million;

2) cash of approximately $18.0 million;

3) ATM equity facility in an aggregate offering amount of up to $150 million of which we have raised approximately $46.1 million of net proceeds after subtracting sales commissions and other offering costs as of December 31, 2020;

2) cash of approximately $52.5 million and short-term investments of approximately $43.1 million;

3) net cash used by operating activities for the year ended December 31, 2021 of $37.1 million.

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

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

Working Capital Assets Liabilities Net

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Total $ 105,962 $ 27,131 $ 78,831

Contractual Obligations and Commitments

Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business.

Our contractual obligations consists of operating lease liabilities and acquisition liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are legally binding.

As of December 31, 2021, the total obligation for operating leases is approximately $1.9 million, of which approximately $0.7 million is expected to be paid in the next twelve months.

Our vendor commitments are approximately $0.5 million all of which is expected in the next twelve months.

As of December 31, 2021, our obligation for acquisition liabilities is approximately $5.3 million of which approximately $5.1 million is expected to be paid in the next twelve months.

In addition, at any time beginning on the Redemption Triggering Date and ending ninety (90) days thereafter, each holder of our Series 7 Preferred Stock may require us to redeem all or part of the shares then held by such holder in cash for a redemption price per share equal to the Redemption Amount (which may be increased in the event of certain events of default).

Any holder that elects to redeem its shares of Series 7 Preferred Stock will be required to forfeit 75% of the corresponding warrants held by such holder.

The aggregate Redemption Amount that we may be required to pay is equal to $49.25 million.

As of March 15, 2022, we received redemption notices in an aggregate amount equal to $33.0 million and as of the date of this filing have redeemed 33,000 shares of Preferred Stock and 19,800,000 corresponding warrants have been forfeited.

Promissory Notes

As of March 16, 2022, the Company owed approximately $2.1 million in principal under promissory notes with approximately $3.5 million payable within the next twelve months inclusive of interest owed.

The interest rate charged under the notes range from 8% to 10%.

See Note 20 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Net cash used in operating activities during the year ended December 31, 2021 of $37.1 million consists of net loss of $70.1 million offset by non-cash adjustments of approximately $35.8 million less net cash changes in operating assets and liabilities of approximately $2.8 million.

During the first quarter of 2020, we raised $5 million in gross proceeds in connection with a debt financing, during the year ended December 31, 2020 we raised net proceeds of approximately $46.1 million in connection with sales under the ATM and net proceeds of approximately $9.2 million from a registered direct offering, and subsequent to December 31, 2020 we raised net proceeds of approximately $77.2 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.

Although the Company has sustained significant losses during the 2021 year, during the twelve months ended December 31, 2021 we raised net proceeds of approximately $128 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 satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements.

However, 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.

Our business has been impacted by the COVID-19 pandemic and may continue to be impacted.

While we have been able to continue operations remotely, we have and continue to experience supply chain constraints and delays in the receipt of certain components of our products impacting delivery times for our products.

We have also seen some impact in the demand of certain products and delays in certain projects and customer orders either because they require onsite services which could not be performed while shelter in place orders were in effect, compliance with new rules and regulations resulting from the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.

Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for

the year ended December 31, 2020 when compared to the year ended 2019, as a result of the addition of new product lines including a full year of sales associated with our mapping product, the addition of the SAVES product lines following the second quarter of 2020 and the addition of the RTLS product line in the fourth quarter of 2020.

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.

Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the year ended December 31, 2021 when compared to the year ended 2020, as a result of the addition of new product lines including a full year of sales associated with our SAVES and RTLS product lines, the addition of the CXApp and Game Your Game product lines during the second quarter of 2021 and the addition of the IIoT product line in the fourth 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.

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.The Company is also pursuing possible strategic transactions and may raise such additional capital as needed, using our equity securities, an assignment of the remaining note receivable from Sysorex and/or cash and debt financings in combinations appropriate for each acquisition.

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 December 31, 2021 Compared With December 31, 2020

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Cash and cash equivalents $ 52,480 $ 17,996

Working capital surplus (deficit) $ 18,208 $ (6,975)

Working capital surplus $ 78,831 $ 18,208

Operating Activities for the year ended December 31, 2021

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The non-cash income and expense of approximately $35.8 million consisted primarily of the following (in thousands):

$ 3,371 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, Jibestream, Systat, Ten Degrees and Nanotron, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, August 15, 2019, June 30, 2020, August 19, 2020 and October 6, 2020, respectively.

$ 6,451 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, Jibestream, Systat, Ten Degrees, Nanotron, Game Your Game, Visualix, CXApp and IntraNav, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, August 15, 2019, June 30, 2020, August 19, 2020, October 6, 2020, April 9, 2021, April 23, 2021, April 30, 2021, and December 9, 2021, respectively.

677 Amortization of right of use asset

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224 Amortization of debt discount

2,370 Provision for the valuation allowance held for sale loan

(87) Income tax benefit

956 Provision for doubtful accounts

300 Provision for inventory obsolescence

648 Provision for the valuation allowance related party receivable

(49,817) Gain on settlement of related party promissory note

121 Provision for doubtful accounts

(92) Unrealized gain/loss on note

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

(2,593) Deferred income tax

57,067 Unrealized loss on equity securities

14,789 Impairment of goodwill

6,524 Earnout payment expense

24 Loss on disposal of property and equipment

$ 35,847 Total non-cash expenses

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(3,919) Increase in inventory, other current assets and other assets

(1,815) Decrease in accounts payable

391 Increase in accounts payable

834 Increase in accrued liabilities and other liabilities

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The non-cash income and expense of approximately $11.8 million consisted primarily of the following (in thousands):

$ 4,756 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, and Jibestream, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, and August 15, 2019, respectively.

490 Amortization of right of use asset

6 unchanged sentences

956 Provision for doubtful accounts

138 Provision for inventory obsolescence

648 Provision for the valuation allowance related party receivable

$ 11,846 Total non-cash expenses

The net use of cash in the change in operating assets and liabilities aggregated approximately $3.2 million and consisted primarily of the following (in thousands):

$ 46 Decrease in accounts receivable and other receivables

$ (964) Increase in accounts receivable and other receivables

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

1,189 Increase in accounts payable

(1,815) Decrease in accounts payable

722 Increase in accrued liabilities and other liabilities

(507) Decrease in deferred revenue

(490) Decrease in operating lease liabilities

242 Increase in deferred revenue

$ (3,233) Net use of cash in the changes in operating assets and liabilities

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Net cash flows used in investing activities during 2021 was approximately $53.5 million compared to net cash flows used in investing activities during 2020 of approximately $23.5 million.

Cash flows related to investing activities during the year ended December 31, 2020 include $972,000 for the purchase of property and equipment, $862,000 for investment in capitalized software, $8.0 million for a short term investment, $2.2 million for cash paid the in Systat License Agreement, $1.5 million for cash paid for the Ten Degrees acquisition, $7.8 million for cash paid in the Nanotron acquisition, $311,000 of cash acquired in the Nanotron acquisition, and $2.5 million for a long term investment.

Cash flows related to investing activities during the year ended December 31, 2019 include $89,000 for the purchase of property and equipment, $927,000 investment in capitalized software, $250,000 for cash paid for the GTX asset acquisition, $204,000 for cash paid for the Locality acquisition, $70,000 of cash acquired in the Locality acquisition, $3.7 million for cash paid for the Jibestream acquisition, and $6,000 of cash acquired in the Jibestream acquisition..

Cash flows related to investing activities during the year ended December 31, 2021 include $0.3 million for the purchase of property and equipment, $1.0 million for investment in capitalized software, $63.4 million for the purchase of treasury bills, $2.0 million for the purchase of short term investments, $28.0 million sales of treasury bills, $2.0 million sale of short term investments, $0.9 million for the purchase of the Systat licensing agreement, $0.2 million received from the acquisition of Game Your Game, $15.0 million paid for the acquisition of CXApp, $61,000 paid for acquisition of Visualix, and $1.0 million paid for acquisition of IntraNav.

Cash flows related to investing activities during the year ended December 31, 2020 include $1.0 million for the purchase of property and equipment, $0.9 million for investment in capitalized software, $8.0 million for a short term investments, $2.2 million for cash paid the in Systat License Agreement, $1.5 million for cash paid for the Ten Degrees acquisition, $7.8 million for cash paid for the Nanotron acquisition, $0.3 million of cash acquired in the Nanotron acquisition, and $2.5 million for a long term investment.

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

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Net cash flows provided by financing activities during the year ended December 31, 2020 was $57.3 million.

During the year ended December 31, 2020, the Company received incoming cash flows of $55.4 million for the issuance of common stock, preferred stock and warrants, repaid $74,000 of notes payable, loaned $2.6 million to related parties, received $200,000 of repayments from related parties, received $5.0 million of net proceeds from promissory notes, paid a $500,000 acquisition liability to the pre-acquisition shareholders of Locality, and made $150,000 of repayments to a bank facility.

During the year ended December 31, 2019, the Company received incoming cash flows of $20.7 million from the issuance of common stock, preferred stock and warrants, $1.8 million of repayments from a related party note, $7.5 million from promissory notes and $127,000 of net proceeds from a bank facility, offset by $10.3 million of loans to related party, $210,000 repayments of an acquisition liability, $141,000 loan to Jibestream, $50,000 loan to GTX, $31,000 of advances to a related party and $70,000 repayments of notes payable.

During the year ended December 31, 2021, the Company received incoming cash flows of $128.4 million for the issuance of common stock, preferred stock and warrants, loaned $0.1 million to related parties, paid $1.9 million of taxes related to the net share settlement of restricted stock units, paid a $0.5 million liability related to the CXApp acquisition, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Nanotron and paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality.

During the year ended December 31, 2020, the Company received incoming cash flows of $55.4 million for the issuance of common stock, preferred stock and warrants, repaid $0.1 million of notes payable, loaned $2.6 million to related parties, received $0.2 million of repayments from related parties, received $5.0 million of net proceeds from promissory notes, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality, and made $0.2 million of repayments to a bank facility.

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-K

Item 7. Management’s Discussion and Analysis