What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 207 added, 370 removed, 181 unchanged (76% of the section changed)

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Overview of Our Business

We are an indoor intelligence company.

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

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

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

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.

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

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

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

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

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.

We experienced a net loss of approximately $11.6 million and $12.5 million three months ended March 31, 2022 and 2021, respectively.

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

In order to continue our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines.

Effects of COVID-19

The impact of the COVID-19 pandemic on our business and results of operations continues to remain uncertain at this time.

While we have been able to continue operations remotely, we have experienced supply chain cost increases and constraints and delays in the receipt of certain components of our hardware 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, customer facilities were closed partially or fully due to local regulations related to managing the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.

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

We expect that supply chain matters constraints will continue to be a challenge for our hardware products and the impact that COVID-19 will have on general economic conditions is continuously evolving and the ultimate impact the pandemic will have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.

A further discussion of the impact of the COVID-19 pandemic on our business is set forth below in Part II, Item 1A.

Global Events

While the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to remain uncertain.

While we were able to continue operations remotely throughout the pandemic, we have experienced supply chain cost increases and constraints and delays in the receipt of certain components of our hardware products impacting delivery times for our products.

In addition, to the extent that certain customers continue to be challenged by the lasting effects of the pandemic, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders.

Despite these challenges, we were able to realize growth in revenue for the first quarter of 2022 when compared to the same period of 2021 as a result of an increase in sales associated with our indoor intelligence platform including the CXApp and Intranav acquisitions completed in April and December 2021 respectively.

We anticipate that certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, and inflation on our customers and partners in regions throughout the world, we expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business.

The impact that these global events will have on general economic conditions is continuously evolving and the

ultimate that they will have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.

A further discussion of the impact of the COVID-19 pandemic and the Russia and Ukraine conflict on our business is set forth below in Part II, Item 1A.

Risk Factors.

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

In furtherance of this strategy, we have

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

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

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

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

(6) a suite of augmented reality, computer vision, localization, navigation, mapping, and 3D reconstruction technologies, including patents, trademarks, software and related intellectual property, and (7) a leading SaaS app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events.

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

(7) a leading SaaS app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events and (8) an industrial IoT, RTLS, and sensor data services provider..

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

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

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

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

If we explore any such opportunities we expect to focus primarily on looking for accretive acquisitions that have business value and operational synergies, however we will also be opportunistic and may consider other strategic and/or attractive transactions that we believe may increase overall shareholder value, which may include, but not be limited to other alternative investment opportunities, such as minority investments, joint ventures or special purpose acquisition companies.

If we make any acquisitions in the future, we expect that we may pay for such acquisitions with cash, equity securities and/or debt in combinations appropriate for each acquisition.

In order to continue to respond to rapid changes and required technological advancements, as well as increase shareholder value, we intend to continue to evaluate various strategic transactions and opportunities that we believe will enhance shareholder value and support our commitment to delivering exceptional experiences and continued innovation with technologies that combine the physical and digital worlds with augmented reality and location based technologies.

We are primarily focused on identifying potential targets with business value and operational synergies, however, we will also be opportunistic and may consider other strategic and/or attractive transactions that we believe may increase overall shareholder value, which may include, but not be limited to other alternative investment opportunities, such as minority investments, joint ventures or special purpose acquisition companies.

In addition, at the end of last year, our board of directors authorized a review of strategic alternatives, including a possible asset sale, merger with another company or spin-off of one or more of our business units.

We have received an inbound preliminary indication of interest which we are currently evaluating.

We also intend to retain an investment bank as our financial advisor in order to evaluate any available strategic options that may be available to us, If we make any acquisitions in the future, we expect that we may pay for such acquisitions with cash, equity securities and/or debt in combinations appropriate for each acquisition.

Recent Events

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.

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

In addition, the investor exercised its purchase rights for 3,000,000 shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021.

On February 12, 2021, 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.

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

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

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

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

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

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

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

Game Your Game Acquisition of Controlling Interest

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

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

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

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

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.

(“Cranes”) and Systat Software, Inc.

(“Systat,” and together with Cranes, the “Systat Parties”) to allow for the exercise of the purchase of the software and other assets underlying the License Agreement (the "Purchase Option") 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.

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.

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 $9,088,176 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.

In connection with the Debt Settlement, we also entered into a Registration Rights Agreement, dated as of April 14, 2021 (the “RRA”), with Sysorex and certain other shareholders of Sysorex (the “Holders”).

Pursuant to the terms of the RRA, Sysorex must, subject to certain limitations, register the resale of the shares of common stock held by us and the Holders, with the SEC, during the period that begins on the 90th day following April 14, 2021.

In the event Sysorex fails to register such shares within that timeframe, or otherwise fails to meet its obligations under the RRA, then, subject to certain limitations, the Company and the Holders may be entitled to receive from Sysorex an amount in cash equal to the product of 1.5% multiplied by the value of their shares (as set forth in the RRA), which amount is payable each month for so long as the failure continues.

Also, under the RRA, if Sysorex determines to prepare and file with the SEC a registration statement relating to an offering of any of its equity securities, for its own account or the account of others, then the Company and the Holders will have the right, subject to certain limitations, to require Sysorex to include in such registration statement all or any part of the shares of common stock held by them.

Nadir Ali, 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, the Company purchased the Visualix Assets and certain patent applications related to the Visualix Assets from FEVM.

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

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

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

(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 the Company in the sectors of Mapping and Localization Technology (as defined in the Asset Purchase Agreement) .

CXApp Acquisition

On April 30, 2021 (the “Closing Date”), we completed the acquisition (the “Acquisition”) of over 99.9% of the outstanding capital stock of Design Reactor, Inc., dba The CXApp, a California corporation (“The CXApp”), pursuant to the terms of that certain Stock Purchase Agreement, dated as of the Closing Date (the “Purchase Agreement”), by and among 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 Purchase Agreement, including a post-closing working capital adjustment (such amount, the “Cash Purchase Price”), 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, which was the closing price of our common stock immediately prior to executing the 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”).

As of the Closing Date, there was one holder of CXApp Shares that did not sign the Purchase Agreement (the “Non-Signing Seller”).

On May 10, 2021, the Company, The CXApp and the Non-Signing Seller executed a Joinder to Stock Purchase Agreement pursuant to which the Company purchased such Non-Signing Seller's CXApp Shares in exchange for approximately $50,000 in cash and 29,299 shares of common stock of the Company.

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

Series 8 Preferred Shares

On March 22, 2022, we filed a Certificate of Designation (the “Certificate of Designation”) establishing the preferences, rights, and limitations of our Series 8 Convertible Preferred Stock, par value $0.001 per share the (the “Series 8 Shares”) with the Secretary of State of the State of Nevada.

The Series 8 Shares rank, with respect to the payment of dividends, redemption or distribution of assets upon a Liquidation (as defined in the Certificate of Designation):

(i) senior to the Company’s Series 7 Convertible Preferred Stock (subsequent to June 14, 2022), common stock, Series 4 Convertible Preferred Stock and Series 5 Convertible Preferred Stock and to any class of stock it may issue in the future that is not expressly stated to be on parity with or senior to the Series 8 Shares with respect to such dividends, redemption or distributions;

(ii) on parity with any class of stock it has issued and may issue in the future that is expressly stated to be on parity with the Series 8 Shares with respect to such dividends, redemption

and distributions;

and (iii) junior to any class of stock we may issue in the future that is expressly stated to be senior to the Series 8 Shares with respect to such dividends, redemption or distributions, if the issuance is approved by the affirmative vote of the holders of a majority of the then outstanding Series 8 Shares.

At any time beginning on October 1, 2022 (the “Series 8 Redemption Triggering Date”) and ending ninety (90) days thereafter (the "Series 8 Redemption Period"), each holder of Series 8 Shares may require us to redeem all or part of the Series 8 Shares then held by such holder in cash for a redemption price per share equal to the Series 8 Stated Value (defined below) plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses, or amounts due in respect of such shares (the “Series 8 Redemption Amount”), provided that in certain instances of default more particularly described in the Certificate of Designation, the Series 8 Redemption Amount may be increased to 110% of the Series 8 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 Series 8 Redemption Amount timely, we will be obligated to pay interest 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 Series 8 Redemption Triggering Date for so long as the Series 8 Shares remain outstanding we may, at our option redeem all or part of the Series 8 Shares then held by a holder for the Series 8 Redemption Amount, subject to certain equity conditions described in the Certificate of Designation.

In the event, we elect to exercise our redemption right, the holder will have an option to convert the Series 8 Shares subject to redemption into common stock in accordance with the Certificate of Designation within thirty (30) days following a written notice sent to the holder.

Upon the receipt of the Series 8 Redemption Amount, the holder of the Series 8 Shares will forfeit 50% of the Series 8 Warrants (defined below) issued to the holder.

Under the terms of the Series 8 Shares, until the earlier of the date on which no Series 8 Shares remain outstanding or the end of the Series 8 Redemption Period, unless the holders of at least 51% in Series 8 Stated Value of the then outstanding shares of Series 8 Shares shall have otherwise given prior written consent, we cannot pay cash dividends or distributions on the common stock and all other common stock equivalents other than those securities which are explicitly senior or pari passu to the Series 8 Shares in dividend rights or liquidation preference.

Until the earlier of the conversion or redemption of all Series 8 Shares and January 1, 2023, we are required to maintain a cash balance (in the form of cash and cash equivalents equal to the sum of (i) the Series 8 Stated Value of all of the Series 8 Shares then outstanding, (ii) the stated value of the Company’s Series 7 Convertible Preferred Stock then outstanding as set forth in the Series 7 Convertible Preferred Stock Certificate of Designation (provided, however, this will not apply following June 14, 2022), (iii) the aggregate amount of any debt (including trade payables), (iv) the aggregate stated value of any other equity securities that are issued that are senior to, or pari passu with, the Series 8 Shares and (v) the aggregate amount of monetary judgments with respect to the Company, any subsidiary or any of their respective property or assets.

The holders of Series 8 Shares have full voting rights and powers, except as otherwise required by the Articles of Incorporation or applicable law.

The holders of Series 8 Shares shall vote together with all other classes and series of stock as a single class on all actions to be taken by the stockholders.

Each holder of the Series 8 Shares is entitled to the number of votes equal to the number of shares of common stock into which the Series 8 Shares then held by such holder could be converted on the record date for the vote which is being taken, provided, however, that the voting power of a holder together with its Attribution Parties (as defined in the Certificate of Designation), may not exceed 19.99% (or such greater percentage allowed by the Nasdaq Listing Rules without any shareholder approval requirements).

On March 22, 2022 (the “Effective Date”), we entered into a Securities Purchase Agreement (the “March 2022 Purchase Agreement”) with certain institutional investors named therein (the “March 2022 Purchasers”), pursuant to which we issued and sold in a registered direct offering (i) 53,197.7234 shares of our Series 8 Shares convertible into approximately 112,778,720 shares of our common stock, which is equal to the Series 8 Stated Value divided by the conversion price of $0.4717 per share, and (ii) related warrants to purchase an aggregate of 112,778,720 shares of common stock (the “Series 8 Warrants”).

The Series 8 Warrants have an exercise price of $0.4717 per share, will be immediately exercisable and will expire five years from the issuance date.

Each Series 8 Share and related Series 8 Warrants will be sold together at a subscription amount of $940, representing an original issue discount of 6% of the Series 8 Stated Value for an aggregate subscription amount of $50.0 million.

The closing of the transactions pursuant to the March 2022 Purchase Agreement occurred on March 24, 2022 (the "Closing Date") and net proceeds received were approximately $46.9 million after placement agent commissions.

Pursuant to the March 2022 Purchase Agreement, subject to certain exceptions, we agreed not to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or securities convertible into common stock or (ii) file any registration statement or any amendment or supplement thereto, or a registration statement on

Form S-8, until the forty-fifth (45th) day after the Closing Date (as defined below) (such period, the “Standstill Period”).

We also agreed not to enter into any “variable rate transactions” until the earlier of (i) such time as none of the March 2022 Purchasers holds any of the Warrants or (ii) December 31, 2023, other than the issuance of common stock in an “at-the-market” offering;

provided, that any such issuance shall not occur until the expiration of the Standstill Period.

Maxim Group LLC acted as the sole placement agent (the “Placement Agent”) on a “reasonable best efforts” basis, in connection with the Series 8 offering pursuant to a placement agency agreement (the “Placement Agency Agreement”), dated and entered as of March 22, 2022.

In accordance with the Placement Agency Agreement, the Placement Agent received a cash fee of 6% of the gross proceeds raised in the offering and reimbursement of certain out-of-pocket expenses including attorney’s fees.

Series 7 Preferred Stock Redemption and Warrant Forfeiture

Between March 15 and March 22, 2022, we received cash redemption notices from the holders of our Series 7 Convertible Preferred Stock issued on September 15, 2021 (the "Series 7 Shares"), totaling 49,250 Series 7 Shares for aggregate cash required to be paid of approximately $49.25 million.

In addition, upon redemption of the Series 7 Shares, each holder forfeited 75% of the related warrants that were issued together with the Series 7 Shares (the "Series 7 Warrants").

Therefore, as of the date of this report, no shares of Series 7 Shares remain outstanding, 29,550,000 corresponding warrants issued in connection with the issuance of the Series 7 Shares been forfeited and 17,450,000 Series 7 Warrants remain outstanding.

Following such redemption, there will be no shares of Series 7 Convertible Preferred Stock outstanding.

Warrant and Note Exchanges

On January 28, 2022, the Company entered into an Exchange Agreement with the holder of certain existing warrants of the Company (the "Warrant Holder") which were exercisable for an aggregate of 49,305,088 shares of the Company’s common stock.

Pursuant to the Exchange Agreement, the Company has agreed to issue an aggregate of 13,811,407 shares of common stock and rights to receive an aggregate of 3,938,424 shares of common stock to the Warrant Holder in exchange for the existing warrants.

On February 1, 2022, the Company entered into an exchange agreement with Iliad Research and Trading, L.P.

("Iliad"), pursuant to which the Company:

(i) partitioned a new promissory note in the form of the promissory note issued by the Company to Iliad in March of 2020 (the "March 2020 10% Note") in a principal amount equal to $0.5 million and then cause the outstanding balance of the March 2020 10% Note to be reduced by $0.5 million;

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.

On February 18, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad:

(i) partitioned a new promissory note in the form of the March 2020 10% Note equal to $0.4 million and then cause the outstanding balance of the March 2020 10% Note to be reduced by $0.4 million;

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.

On March 15, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad:

(i) partitioned a new promissory note in the form of the March 2020 10% Note equal to $0.7 million and then cause the outstanding balance of the March 2020 10% Note to be reduced by $0.7 million;

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.

Effective as of March 16, 2022, we entered into a third amendment (the “Third Amendment”) to the March 2020 10% Note, pursuant to which the maturity date of the March 2020 10% Note was extended from March 18, 2022 to March 18, 2023 (the “Maturity Date Extension”).

In exchange for the Maturity Date Extension, we agreed to pay a 2% extension fee in the amount of approximately $56,860 (the “Extension Fee”), which was added to the outstanding balance of the Original Note.

On April 27, 2022, the Company entered into and consummated the transactions contemplated by a securities purchase agreement (the “Purchase Agreement”) with an unaffiliated company operating in the insurance technology sector (the “Debenture Seller”), pursuant to which it purchased a 10% Original Issue Discount Senior Convertible Debenture (a “Debenture”) issued by the Debenture Seller in an aggregate principal amount of approximately $6.1 million for a purchase price of $5.5 million.

The Purchase Agreement is one of a series of securities purchase agreements which the Debenture Seller has or will enter into under a private placement of Debentures commenced in February 2022.

Interest on the Debenture accrues

at a rate of 12% per annum, of which 12 months will be guaranteed, and is payable on each conversion date (as to the principal amount being converted) and on the maturity date, in cash, or in shares of Class A common stock of the Debenture Seller upon a conversion of all or a portion of the outstanding principal amount on the Debenture.

The Debenture will mature on the date that is 12 months from the original issue date, which may be extended or accelerated pursuant to the terms of the Debenture.

GYG Promissory Notes

Pursuant to the terms of Securities Purchase Agreements, dated January 18, 2022 and March 2022, Game Your Game, Inc., a majority owned subsidiary of the Company ("GYG") issued promissory notes in an aggregate principal amount equal to $875,000 (the "2022 GYG Notes"), including an aggregate of $511,000 to the Company and $364,000 to a third party.

The 2022 GYG Notes are in addition to promissory notes in an aggregate principal amount of $500,000 issued by GYG to the same parties on October 29, 2021 (the "2021 GYG Notes", together with the 2022 GYG Notes, the "GYG Notes"), of which $261,000 was issued to the Company and $239,000 was issued to a third party, All of the GYG Notes have an interest rate of 8% and are due on or before December 31, 2022.

The proceeds received from the issuance of the GYG Notes were used to satisfy GYG working capital requirements.

Critical Accounting Policies and Estimates

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generally accepted accounting principles (“GAAP”).

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

and the related disclosures.

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

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Historically changes in management estimates have not been material.

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.

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.

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.

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

These amounts are based on known and estimated factors.

License Revenue Recognition

The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software.

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

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 license revenue stream is dependent on whether the software licensing agreement entered into represents a good or service.

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

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

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

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

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

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

Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional 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 $4.5 million and $1.9 million as of September 30, 2021 and December 31, 2020, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff.

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

Long-lived Assets

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.”

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.

The impairment test for long-lived assets requires us to assess the recoverability of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventual disposition of the assets.

If the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows, we would be required to record an impairment charge equal to the excess, if any, of net carrying value over fair value.

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.

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.

We formulate estimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions.

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

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

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

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.

Such events or circumstances may include (but are not limited to):

the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in which we operate, known technological advances, legislative actions, or changes in the regulatory environment.

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

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

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

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, in 2020 through the SYSTAT licensing agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron and in 2021 through the acquisition of CXApp, Game Your Game and certain assets of Visualix.

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

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

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

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

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

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

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

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.

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 three and nine months ended September 30, 2021 and 2020.

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

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 September 30, 2021 and December 31, 2020, reserves for credit losses included a reserve for doubtful accounts of approximately $0.3 million and $0.2 million, respectively, due to the aging of the items greater than 90 days outstanding and other potential non-collections.

Business Combinations

We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition.

The excess of the purchase price over the estimated fair value is recorded as goodwill.

Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill.

Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will be adjusted.

All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life.

Separately recognized transactions associated with business combinations are generally expensed subsequent to the acquisition date.

The application of business combination and impairment accounting requires the use of significant estimates and assumptions.

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 Nine Months Ended September 30, 2021

Risk-free interest rate 0.59% - 0.75%

Expected life of option grants 5 years

Expected volatility of underlying stock 37.67% - 38.15%

Dividends assumption --

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

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

A significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred.

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

Indoor Intelligence, Saves, and Shoom.

Goodwill as of March 31, 2022 is approximately $7.7 million.

We have selected December 31 as the date to perform our annual goodwill impairment test.

Goodwill is the only intangible asset with an indefinite useful life.

Circumstances that could indicate impairment and require us to perform a quantitative impairment test include a significant decline in our financial results, a significant decline in our enterprise value relative to our net book value, a sustained decline in our stock price, or an unanticipated change in competition or our market share and a significant change in our strategic plans.

As of December 31, 2021, we concluded that our fair value did not exceed our carrying value in our Indoor Intelligence reporting unit and an impairment charge of $14.8 million was recorded.

At December 31, 2021, the fair value of the Saves reporting unit exceeded its carrying value by greater than 100%.

There is no goodwill assigned to the Shoom reporting unit.

Since December 31, 2021, the price of our common stock has declined

significantly and may continue to fluctuate in future periods.

A sustained decrease in the price of our common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists.

We will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2022.

In performing the assessment, we performed a qualitative assessment and determined there were no indicators of impairment.

To corroborate this conclusion, we compared our equity carrying value to our market capitalization and concluded that there was no goodwill impairment during the three months ended March 31, 2022.

If the negative volatility of our market capitalization is sustained, it is possible that our remaining goodwill could become impaired, which could result in a material charge and adversely affect our results of operations.

R ESULTS OF O PERATIONS

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

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

Three Months Ended September 30,

(in thousands, except percentages) Amount % of

Revenues Amount % of

Revenues $ Change %

Revenues $ 4,450 100 % $ 2,554 100 % $ 1,896 74 %

Cost of revenues $ 1,186 27 % $ 645 25 % $ 541 84 %

Gross profit $ 3,264 73 % $ 1,909 75 % $ 1,355 71 %

Operating expenses $ 15,720 353 % $ 8,155 319 % $ 7,565 93 %

Loss from operations $ (12,456) (280) % $ (6,246) (245) % $ (6,210) 99 %

Net income (loss) $ (33,949) (763) % $ (7,451) (292) % $ (26,498) 356 %

Net income (loss) attributable to stockholders of Inpixon $ (33,640) (756) % $ (7,467) (292) % $ (26,173) 351 %

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

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

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

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

Cost of Revenues

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

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

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

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

Operating Expenses

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

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

Loss From Operations

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

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

Other Income (Expense)

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

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

Provision for Income Taxes

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

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

Net Income (Loss) Attributable To Non-Controlling Interest

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

This increase in loss of $325,000 was primarily attributable to the loss of Game Your Game.

Net Income (Loss) Attributable To Stockholders of Inpixon

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

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

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

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

For the For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands, except percentages) Amount % of

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

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

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

Revenues for the three months ended March 31, 2022 were $5.2 million compared to $2.95 million for the comparable period in the prior year for an increase of approximately $2.3 million, or approximately 77%.

This increase is primarily attributable to the increase in Indoor Intelligence sales including the addition of the CXApp product line during the second quarter of 2021 and the addition of the IIoT product line in the fourth quarter of 2021.

Cost of Revenues

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

Cost of revenues for the three months ended March 31, 2022 were $1.4 million compared to $0.9 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $0.5 million, or approximately 57%, was primarily attributable to the increased sales during the quarter.

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

The gross profit margin for the three months ended March 31, 2022 was 73% compared to 70% for the three months ended March 31, 2021.

Operating Expenses

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

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

Operating expenses for the three months ended March 31, 2022 were $13.9 million and $14.5 million for the comparable period ended March 31, 2021.

This decrease of $0.6 million is primarily attributable to lower stock-based compensation and the benefit on the earnout payable due to the change in common share value offset by higher compensation, professional fees, infrastructure costs and amortization of intangibles primarily as a result of the entities acquired in 2021.

Loss From Operations

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

This increase in loss of approximately $21.2 million was primarily attributable to increased operating expenses described above offset by higher gross profit.

Loss from operations for the three months ended March 31, 2022 was $10.06 million as compared to $12.42 million for the comparable period in the prior year.

This decrease in loss of approximately $2.4 million was primarily attributable to increased gross profit and lower operating costs as described above.

Other Income (Expense)

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

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

Other income/expense for the three months ended March 31, 2022 was a loss of $1.4 million compared to a loss of $0.1 million for the comparable period in the prior year.

This increase in other loss of approximately $1.3 million is primarily attributable to the unrealized loss on the Sysorex shares.

Provision for Income Taxes

There was an income tax provision of approximately $1.4 million for the nine months ended September 30, 2021 related to a current income tax expense of $5.9 million offset by a $4.5 million deferred tax benefit primarily related to acquisition intangibles of Design Reactor.

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

There is an income tax provision of approximately $0.1 million and $0.01 million for the three months ended March 31, 2022 and 2021, respectively.

The income tax expense relates primarily to corporate income tax liabilities of Inpixon India.

Net Income (Loss) Attributable To Non-Controlling Interest

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

Net income (loss) attributable to non-controlling interest for the three months ended March 31, 2022 and 2021 was a loss of $346,000 and income of $18,000, respectively.

This increase in loss of $364,000 was attributable to the loss of the Game Your Game entity.

Net Income (Loss) Attributable To Stockholders of Inpixon

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

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

Net Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders of Inpixon three months ended March 31, 2022 was a loss of $11.21 million compared to a loss of $12.56 million for the comparable period in the prior year.

This decrease in loss of approximately $1.3 million was primarily attributable to increased gross profit of $1.8 million, lower operating costs of $0.6 million and higher non-controlling interest of $0.4 million offset by the $1.5 million unrealized loss on the Sysorex shares.

Non-GAAP Financial information

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

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

Adjusted EBITDA for the nine months ended September 30, 2021 was a loss of $18.5 million compared to a loss of $12.4 million for the prior year period.

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

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

2021 2020 2021 2020

Adjusted EBITDA for the three months ended March 31, 2022 was a loss of $8.8 million compared to a loss of $5.6 million for the prior year period.

The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended March 31,

Net income loss attributable to common stockholders $ (17,362) $ (12,557)

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Loss on exchange of debt for equity — 30

(Recovery) provision for valuation allowance on held for sale loan — 679 (7,345) 1,514

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

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

Provision for valuation allowance on held for sale loan — 117

Unrealized loss on equity securities 1,503 —

Acquisition transaction/financing costs 121 470

Earnout compensation expense 835 — 2,893 —

Earnout compensation benefit (2,827) —

Accretion of series 7 preferred stock 4,555 —

Accretion of series 8 preferred stock 548 —

Deemed dividend for the modification related to series 8 preferred stock 2,627 —

Deemed contribution for the modification related to warrants issued in connection with series 8 preferred stock (1,469) —

Amortization premium- modification related to series 8 preferred stock (110) —

Professional service fees 8 349

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

Bad debts expense/provision 100 444 100 444

Reserve for inventory obsolescense 300 — 300 —

Unrealized losses/(gains) on notes, loans, investments 89 (363)

Stock-based compensation - compensation and related benefits 1,533 5,096

Severance Costs 111 —

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

Income tax provision (benefit) (854) — 1,350 (87)

Interest (income)/expense, net (2) 349

Income tax provision 100 9

Depreciation and amortization 1,806 943

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Proforma Non-GAAP Net Income (Loss) per Share

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

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

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

Basic and diluted net income (loss) per share for the three months ended March 31, 2022 was a loss of $0.13 compared to a loss of $0.16 for the prior year period.

The decrease in loss per share in 2022 was attributable to the changes discussed in our results of operations.

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

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

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

Proforma non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2022 was a loss of $0.07 per share compared to a loss of $0.08 per share for the prior year period.

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

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

For the Three Months Ended March 31,

(thousands, except per share data) 2022 2021

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Loss on the exchange of debt for equity — 30

(Recovery) provision for valuation allowance on held for sale loan — 679 (7,345) 1,514

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

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

Provision for valuation allowance on held for sale loan — 117

Unrealized loss on equity securities 1,503 —

Acquisition transaction/financing costs 121 470

Earnout compensation expense 835 — 2,893 —

Earnout compensation benefit (2,827) —

Accretion of series 7 preferred stock 4,555 —

Accretion of series 8 preferred stock 548 —

Deemed dividend for the modification related to series 8 preferred stock 2,627 —

Deemed contribution for the modification related to warrants issued in connection with series 8 preferred stock (1,469) —

Amortization premium- modification related to series 8 preferred stock (110) —

Professional service fees 8 349

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

Bad debts expense/provision 100 444 100 444

Reserve for inventory obsolescense 300 — 300 —

Unrealized losses/(gains) on investments 89 (363)

Stock-based compensation - compensation and related benefits 1,533 5,096

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Proforma non-GAAP net loss per common share - Basic and Diluted $ (0.07) $ (0.08)

Weighted Average Shares Outstanding

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

Weighted average basic and diluted common shares outstanding 138,502,493 78,942,697

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

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

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

amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.

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

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

Liquidity and Capital Resources as of September 30, 2021

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

Liquidity and Capital Resources as of March 31, 2022

Our current capital resources and operating results as of and through March 31, 2022, consist of:

1) an overall working capital surplus of approximately $74.3 million;

2) cash of approximately $60.9 million and short-term investments of approximately $15.0 million;

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

3) net cash used by operating activities for the three months ended March 31, 2022 of $15.3 million.

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

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Accrued liabilities — 3,863 (3,863)

Income tax liabilities $ — 3,509 $ (3,509)

Operating lease obligation — 619 (619)

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Total $ 89,865 $ 15,528 $ 74,337

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

During the nine months ended September 30, 2021 we raised net proceeds of approximately $128.4 million from the sale of our securities in connection with registered direct offerings and the exercise of warrants.

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

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 March 31, 2022, the total obligation for operating leases is approximately $1.8 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 March 31, 2022, our obligation for acquisition liabilities is approximately $3.5 million of which approximately $3.4 million is expected to be paid in the next twelve months.

In addition, any time during the Series 8 Redemption Period, each holder of our Series 8 Shares is entitled to require us to redeem all or part of the Series 8 Shares then held by such holder in cash for a redemption price per share equal to the Series 8 Redemption Amount.

Any holder that elects to redeem its shares of Series 8 Preferred Stock will be required to forfeit 50% of the corresponding warrants held by such holder.

The aggregate Redemption Amount that we may be required to pay is equal to $53.2 million (which may be increased to $58.5 million in the event of certain events of default) plus any accrued but unpaid dividends, liquidated damages and other costs, expenses, or amounts due in respect of the shares, to the extent applicable.

Promissory Notes

As of March 31, 2022, the Company owed approximately $2.4 million in principal under promissory notes with which is payable within the next twelve months inclusive of interest owed.

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

See Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this quarterly Report.

Net cash used in operating activities during the three months ended March 31, 2022 of $15.3 million consists of a net loss of $11.6 million offset by non-cash adjustments of approximately $2.2 million less net cash changes in operating assets and liabilities of approximately $5.9 million.

Although the Company has sustained significant losses during three months ended March 31, 2022, we raised net proceeds of approximately $46.9 million after placement agent commissions and other offering costs from the sale of our securities in connection with a registered direct offering.

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 cost increases and constraints and delays in the receipt of certain components of our products

impacting delivery times for our products.

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

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

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.

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.

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 September 30, 2021 Compared With September 30, 2020

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

For the Nine Months Ended September 30,

Liquidity and Capital Resources as of March 31, 2022 Compared With March 31, 2021

The Company’s net cash flows used in operating, investing and financing activities for the three months ended March 31, 2022 and 2021 and certain balances as of the end of those periods are as follows (in thousands):

For the Three Months Ended March 31,

Net cash used in operating activities $ (15,319) $ (5,661)

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Net increase in cash and cash equivalents $ 8,372 $ 28,277

As of September 30,

As of March 31,

2022 As of December 31,

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Working capital surplus $ 74,337 $ 78,831

Operating Activities for the nine months ended September 30, 2021

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

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

Operating Activities for the three months ended March 31, 2022

Net cash used in operating activities during the three months ended March 31, 2022 was approximately $15.3 million.

The cash flows related to the three months ended March 31, 2022 consisted of the following (in thousands):

Net income (loss) $ (11,557)

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The non-cash income and expense of approximately $2.2 million consisted primarily of the following (in thousands):

$ 4,541 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Shoom, AirPatrol, LightMiner, Locality, GTX, Jibestream, Systat, Ten Degrees, Nanotron, Game Your Game, Visualix and CXApp, which were acquired effective August 31, 2013, April 16, 2014, November 21, 2016, May 21, 2019, June 27, 2019, August 15, 2019, June 30, 2020, August 19, 2020, October 6, 2020, April 9, 2021, April 23, 2021 and April 30, 2021, respectively.

$ 1,806 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, December 9, 2021 respectively.

169 Amortization of right of use asset

1,533 Stock-based compensation expense attributable, warrants, restricted stock grants and options issued as part of Company operations

$ 30 Loss on exchange of debt for equity

$ 224 Amortization of debt discount

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

(1,627) Accrued interest income, related party

100 Provision for doubtful accounts

300 Provision for inventory obsolescence

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

$ (4,507) Deferred income tax

(2,827) Earnout payment expense

(167) Unrealized gain/loss on note

1,503 Unrealized loss on equity securities

$ (501) Other

$ 2,163 Total non-cash expenses

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(1,345) Decrease in accounts payable

$ 3,510 Increase in accrued liabilities and other liabilities

3,471 Increase in income tax liabilities

(149) Decrease in accrued liabilities, income tax liabilities and other liabilities

(141) Decrease in operating lease liabilities

$ 1,214 Increase in deferred revenue

(666) Decrease in deferred revenue

$ (5,925) Net cash used in the changes in operating assets and liabilities

Operating Activities for the nine months ended September 30, 2020

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

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

Operating Activities for the three months ended March 31, 2021

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

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

Net income (loss) $ (12,539)

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The non-cash income and expense of approximately $6.2 million consisted primarily of the following (in thousands):

$ 2,497 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.

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

181 Amortization of right of use asset

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117 Provision for the valuation allowance for held for sale loan

648 Provision for the valuation allowance for related party receivable

$ (32) Accrued interest income, related party

$ (87) Deferred income tax

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

9 Income tax expense

$ 6,237 Total non-cash expenses

The net use of cash in the change in operating assets and liabilities aggregated approximately $0.6 million and consisted primarily of the following (in thousands):

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

$ 426 Decrease in accounts receivable and other receivables

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

(1,359) Decrease in accounts payable

480 Increase in accounts payable

517 Increase in accrued liabilities and other liabilities

(176) Decrease in operating lease liabilities

224 Increase in deferred revenue

(235) Decrease in deferred revenue

$ 641 Net use of cash used in the changes in operating assets and liabilities

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

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

Cash flows related to investing activities during the nine months ended September 30, 2021 include $258,000 for the purchase of property and equipment, $857,000 for investment in capitalized software, $63.4 million for the purchase of treasury bills, $2.0 million for the purchase of short term investments, $2.0 million sale of short term investments, $28.0 million sales of treasury bills, $184,000 from the acquisition of Game Your Game, $15.2 million for the acquisition of CXApp, $900,000 for the purchase of the Systat licensing agreement, $268,000 for the issuance of a note receivable and $61,000 for acquisition of Visualix.

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

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

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

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

During the nine months ended September 30, 2021, the Company received incoming cash flows of $77.9 million for the issuance of common stock and warrants, received incoming cash flows of $50.6 million for the issuance of preferred stock and warrants, loaned $117,000 to related parties, paid $1.7 million of taxes related to the net share settlement of restricted stock units, paid a $241,000 liability related to the CXApp acquisition, paid a $467,000 acquisition liability to the pre-acquisition shareholders of Nanotron and paid a $500,000 acquisition liability to the pre-acquisition shareholders of Locality.

During the nine months ended September 30, 2020, the Company received incoming cash flows of $44.0 million from the issuance of common stock, $5.0 million of proceeds from promissory notes, and $0.3 million of repayments from related parties offset by $1.8 million of loans to related party, $0.2 million of net repayments to bank facility and paid a $0.3 million acquisition liability to the pre-acquisition shareholders of Locality.

Cash Flows from Investing Activities as of March 31, 2022 and 2021

Net cash flows used in investing activities during the three months ended March 31, 2022 was approximately $27.8 million compared to net cash flows used in investing activities during the three months ended March 31, 2021 of approximately $43.3 million.

Cash flows related to investing activities during the three months ended March 31, 2022 include $0.08 million for the purchase of property and equipment, $0.1 million for investment in capitalized software, and $28.0 million of sales of treasury bills.

Cash flows related to investing activities during the three months ended March 31, 2021 include $0.1 million for the purchase of property and equipment, $0.3 million investment in capitalized software, $42.1 million for the purchase of short term investments, and $0.9 million for cash paid for the Systat License Agreement.

Cash Flows from Financing Activities as of March 31, 2022 and 2021

Net cash flows used in financing activities during the three months ended March 31, 2022 was $4.1 million.

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

During the three months ended March 31, 2022, the Company received incoming cash flows of $46.9 million for the issuance of preferred stock and warrants, paid $49.3 million for the redemption of preferred series 7 stock, paid $1.8 million of the CXApp acquisition liability, and paid $0.3 million for the settlement of employee taxes on restricted stock.

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

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis