XTI Aerospace, Inc. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.” Overview of Our Business 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; and • 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. 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 43 Table of Contents 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. Corporate Strategy Update Since 2019, management has pursued a corporate strategic acquisition strategy focused on building and developing its business as the Indoor Intelligence TM provider with the ability to provide end to end solutions ranging from the collection of data to delivering insights from that data to our customers with a focus on securing, digitizing and optimizing premises with our indoor positioning, mapping and analytics solutions for businesses and governments. In furtherance of this strategy, we have completed a series of strategic transactions to enhance our products and solution offerings, including, the acquisition of (1) technologies allowing for wireless device positioning and radio frequency augmentation of video surveillance systems; (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; (3) our indoor mapping solution, Inpixon Mapping, to provide users with the tools to add intelligence to complex indoor spaces by integrating business data with geospatially accurate indoor maps to create relevant views of indoor environments; (4) a suite of on-device “blue dot” indoor location and motion technologies, including patents, trademarks, software and related intellectual property; (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; (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. We also operate and compete in an industry that is characterized by rapid technological innovation, changing customer needs, evolving industry standards and frequent introductions of new products, product enhancements, services and distribution methods. 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. 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 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 44 Table of Contents 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). Financings 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 45 Table of Contents 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. Investments Debenture 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 46 Table of Contents 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 Our consolidated financial statements are prepared in accordance with U.S. 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. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 3 of the condensed consolidated financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not been material. 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. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination. 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. 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 47 Table of Contents 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 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 Three Months Ended March 31, 2022 2021 (in thousands, except percentages) Amount % of Revenues Amount % of Revenues $ Change % Change* Revenues $ 5,231 100 % $ 2,954 100 % $ 2,277 77 % Cost of revenues $ 1,386 27 % $ 884 30 % $ 502 57 % Gross profit $ 3,845 73 % $ 2,070 70 % $ 1,775 86 % Operating expenses $ 13,909 266 % $ 14,490 491 % $ (581) (4) % Loss from operations $ (10,064) (192) % $ (12,420) (420) % $ 2,356 (19) % Net income (loss) $ (11,557) (221) % $ (12,539) (424) % $ 982 (8) % Net income (loss) attributable to stockholders of Inpixon $ (11,211) (214) % $ (12,557) (425) % $ 1,346 (11) % * 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 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 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. Gross Profit 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. 48 Table of Contents Operating Expenses 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 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 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 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 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 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 EBITDA EBITDA is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation. Adjusted EBITDA for the three months ended March 31, 2022 was a loss of $8.8 million compared to a loss of $5.6 million for the prior year period. 49 Table of Contents 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, 2022 2021 Net income loss attributable to common stockholders $ (17,362) $ (12,557) Adjustments: Non-recurring one-time charges: Loss on exchange of debt for equity — 30 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 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 losses/(gains) on notes, loans, investments 89 (363) Stock-based compensation - compensation and related benefits 1,533 5,096 Severance Costs 111 — Interest (income)/expense, net (2) 349 Income tax provision 100 9 Depreciation and amortization 1,806 943 Adjusted EBITDA $ (8,769) $ (5,557) We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following: • To review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment Reporting; • To compare our current operating results with corresponding periods and with the operating results of other companies in our industry; • As a basis for allocating resources to various projects; • As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and • To evaluate internally the performance of our personnel. We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following: 50 Table of Contents • We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation, amortization of intangibles, change in the fair value of shares to be issued, change in the fair value of derivative liability, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with the public offering. • We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and • We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies. Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include the fact that: • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; • Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and • Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information. Proforma Non-GAAP Net Income (Loss) per Share 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 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. 51 Table of Contents The following table presents a reconciliation of net loss per basic and diluted share, which is our GAAP operating performance measure, to proforma non-GAAP net loss per share for the periods reflected (in thousands, except per share data): For the Three Months Ended March 31, (thousands, except per share data) 2022 2021 Net loss attributable to common stockholders $ (17,362) $ (12,557) Adjustments: Non-recurring one-time charges: Loss on the exchange of debt for equity — 30 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 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 losses/(gains) on investments 89 (363) Stock-based compensation - compensation and related benefits 1,533 5,096 Severance Costs 111 — Amortization of intangibles 1,489 650 Proforma non-GAAP net loss (9,184) (6,208) Proforma non-GAAP net loss per common share - Basic and Diluted $ (0.07) $ (0.08) 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: • To review and assess the operating performance of our Company as permitted by Accounting Standards Codification Topic 280, Segment Reporting; • To compare our current operating results with corresponding periods and with the operating results of other companies in our industry; • As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and • To evaluate internally the performance of our personnel. We have presented proforma non-GAAP net income (loss) per share above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss), and that by including this information we can provide investors with a more complete understanding of our business. Specifically, we present proforma non-GAAP net 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, 52 Table of Contents 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; and • 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 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 three months ended March 31, 2022 of $15.3 million. The breakdown of our overall working capital deficit is as follows (in thousands): Working Capital Assets Liabilities Net Cash and cash equivalents $ 60,852 $ — $ 60,852 Accounts receivable, net / accounts payable 3,454 1,066 2,388 Inventory 1,766 — 1,766 Short-term investments 15,035 — 15,035 Accrued liabilities — 3,863 (3,863) Operating lease obligation — 619 (619) Deferred revenue — 4,133 (4,133) Notes and other receivables / Short-term debt 284 2,411 (2,127) Other 8,474 3,436 5,038 Total $ 89,865 $ 15,528 $ 74,337 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. 53 Table of Contents 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 as a result of new rules and regulations resulting from the pandemic, customer facilities being partially or fully closed during the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology. Despite these challenges, 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. 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 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, 2022 2021 Net cash used in operating activities $ (15,319) $ (5,661) Net cash used in investing activities 27,813 (43,321) Net cash provided by financing activities (4,103) 77,269 Effect of foreign exchange rate changes on cash (19) (10) Net increase in cash and cash equivalents $ 8,372 $ 28,277 As of March 31, 2022 As of December 31, 2021 Cash and cash equivalents $ 60,852 $ 52,480 Working capital surplus $ 74,337 $ 78,831 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): 54 Table of Contents Net income (loss) $ (11,557) Non-cash income and expenses 2,163 Net change in operating assets and liabilities (5,925) Net cash used in operating activities $ (15,319) The non-cash income and expense of approximately $2.2 million consisted primarily of the following (in thousands): $ 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 (2,827) Earnout payment expense (167) Unrealized gain/loss on note 1,503 Unrealized loss on equity securities 146 Other $ 2,163 Total non-cash expenses The net cash used in the change in operating assets and liabilities aggregated approximately $5.9 million and consisted primarily of the following (in thousands): $ (239) Increase in accounts receivable and other receivables (3,385) Increase in inventory, other current assets and other assets (1,345) Decrease in accounts payable (149) Decrease in accrued liabilities, income tax liabilities and other liabilities (141) Decrease in operating lease liabilities (666) Decrease in deferred revenue $ (5,925) Net cash used in the changes in operating assets and liabilities 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) Non-cash income and expenses 6,237 Net change in operating assets and liabilities 641 Net cash used in operating activities $ (5,661) The non-cash income and expense of approximately $6.2 million consisted primarily of the following (in thousands): 55 Table of Contents $ 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 5,096 Stock-based compensation expense attributable to warrants and options issued as part of Company operations 30 Loss on exchange of debt for equity 224 Amortization of debt discount 117 Provision for the valuation allowance for held for sale loan (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): $ 426 Decrease in accounts receivable and other receivables (371) Increase in inventory,other current assets and other assets 480 Increase in accounts payable 517 Increase in accrued liabilities and other liabilities (176) Decrease in operating lease liabilities (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 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 We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts. Recently Issued Accounting Standards For a discussion of recently issued accounting pronouncements, please see Note 3 to our financial statements, which are included in this report beginning on page F-1. 56 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable.