What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 142 added, 128 removed, 317 unchanged (46% of the section changed)

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

We experienced a net loss of approximately $31.9 million and net income of $2.0 million for the six months ended June 30, 2022 and 2021, respectively.

We experienced a net loss of approximately $49.9 million and approximately $32.0 million for the nine months ended September 30, 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.

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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.

While we have been able to realize growth in the three and six months ended June 30, 2022 as compared to the same periods in 2021, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain.

In addition, to the extent that certain customers or prospective 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.

While we have been able to realize growth in the nine months ended September 30, 2022 as compared to the same periods in 2021, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain.

There are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.

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.

supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business.

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.

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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.

In this regard, we have received preliminary indications of interest which we are currently evaluating.

In this regard, we have entered into the Separation Agreement and the Merger Agreement (each as defined below under “Proposed Spin-Off of our Enterprise Apps Business”), pursuant to which we plan to separate our enterprise apps business into our wholly-owned subsidiary and combine such subsidiary with a special purpose acquisition corporation, resulting in the subsidiary becoming a separate publicly traded company in exchange for the issuance of shares to certain holders of Inpixon securities of the post-merger company valued at $69 million as of the date of the Merger Agreement.

For more details, see “Proposed Spin-Off of our Enterprise Apps Business” below.

In addition, we have and may enter into one or more non-binding letters of intent in connection with our due diligence and evaluation process.

In this regard, we have entered into a non-binding letter of intent and are in the due diligence stages with another third party in connection with a potential transaction involving the remainder of our business.

We may also retain an investment bank as our financial advisor in order to evaluate strategic options that may be available to us.

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At-The-Market (ATM) Program

On July 22, 2022, we entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim (“Maxim”) under which we may offer and sell shares of our common stock having an aggregate offering price of up to $25 million (the “Shares”) from time to time through Maxim, acting exclusively our sales agent (the “Offering”).

We intend to use the net proceeds of the Offering primarily for working capital, general corporate purposes or in connection with the execution of our corporate strategy.

We are not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that we will sell any Shares under the Sales Agreement, or if we do, as to the price or amount of Shares that we will sell, or the date on which any such sales will take place.

On July 22, 2022, we entered into an Equity Distribution Agreement (the “Sales Agreement”) with Maxim Group LLC ("Maxim") under which we may offer and sell shares of our common stock having an aggregate offering price of up to $25

million from time to time through Maxim, acting exclusively our sales agent (the “ATM”).

We are not obligated to make any sales of shares under the Sales Agreement and no assurance can be given that we will sell any shares under the Sales Agreement, or if we do, as to the price or amount of shares that we will sell, or the date on which any such sales will take place.

Note Purchase Agreement and Promissory Note

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Note Exchanges

Since the filing of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the “Quarterly Report”), we have issued an aggregate of 9,508,034 shares of common stock to the holder of that certain outstanding promissory note of the Company issued on March 18, 2020 (the “March 2020 Note”), in each case at a price per share equal to

the Minimum Price as defined in Nasdaq Listing Rule 5635(d) for a weighted average price per share equal to approximately $0.16 in connection with exchange agreements pursuant to which we and the holder agreed to (i) partition new promissory notes in the form of the March 2020 Note in the aggregate original principal amount equal to approximately $1.6 million and then cause the outstanding balance of the March 2020 Note to be reduced by an aggregate of approximately $1.6 million;

Since August 15, 2022, we have issued an aggregate of 103,553 shares of common stock to the holder of that certain outstanding promissory note of the Company issued on March 18, 2020 (the “March 2020 Note”), at exchange rates between $4.78 and $10.07 per share, in each case at a price per share equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in connection with exchange agreements pursuant to which we and the holder agreed to (i) partition new promissory notes in the form of the March 2020 Note in the aggregate original principal amount equal to approximately $0.6 million and then cause the outstanding balance of the March 2020 Note to be reduced by an aggregate of approximately $0.6 million;

and (ii) exchange the partitioned notes for the delivery of the shares of common stock.

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.

FOXO Debenture

On April 27, 2022, the Company entered into and consummated the transactions contemplated by a securities purchase agreement (the “Purchase Agreement”) with FOXO Technologies Operating Company, formerly FOXO Technologies Inc.

(“FOXO Legacy”), an unaffiliated company operating in the insurance technology sector, pursuant to which the Company purchased a 10% Original Issue Discount Senior Convertible Debenture (a “Debenture”) issued by FOXO Legacy 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 FOXO Legacy entered 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 FOXO Legacy's Class A common stock 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.

On September 15, 2022, FOXO Legacy consummated a business combination with Delwinds Insurance Acquisition Corp., now known as FOXO Technologies Inc.

("FOXO"), which qualified as a qualified offering as defined in the Purchase Agreement.

This qualified offering triggered a mandatory conversion of the convertible note to FOXO Legacy Class A common stock, which was then automatically converted into 891,124 shares of FOXO's Class A common stock.

The Company recognized a realized loss on conversion of $2.4 million to be recognized on the income statement for the three and nine months ended September 30, 2022.

GYG Promissory Notes

Pursuant to the terms of Securities Purchase Agreements, dated January 18, 2022, March 22, 2022, May 17, 2022 and July 28, 2022, Game Your Game, Inc., a majority owned subsidiary of the Company ("GYG") issued promissory notes in an aggregate principal amount equal to $1,225,000 (the "2022 GYG Notes"), including an aggregate of $861,000 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.

Pursuant to the terms of Securities Purchase Agreements, dated October 29, 2021, January 18, 2022, March 22, 2022, May 17, 2022, June 29, 2022, July 28, 2022, August 17, 2022, September 16, 2022 and October 26, 2022, Game Your Game, Inc., a majority owned subsidiary of the Company ("GYG") issued promissory notes in an aggregate principal amount equal to approximately $2.3 million (the "GYG Notes"), including an aggregate of approximately $1.5 million to the Company and approximately $0.8 million 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.

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We are a member of CVH.

CVH owns certain interests in the sponsor entity (the “Sponsor”) to a special purpose acquisition corporation (the “SPAC”).

CVH owns certain interests in KINS Capital, LLC, the sponsor entity (the “Sponsor”) to KINS Technology Group Inc., a Delaware corporation and special purpose acquisition company with which the Company anticipates entering into the Business Combination (see “Proposed Spin-Off of our Enterprise Apps Business” below for more details ) .

The loan bears no interest and is due and payable in full on the earlier of:

(i) the date by which the SPAC has to complete a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”), and (ii) immediately prior to the date of consummation of the Business Combination of the SPAC, unless accelerated upon the occurrence of an event of default.

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

(i) the date by which KINS has to complete a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “business combination”), and (ii) immediately prior to the date of consummation of the business combination of KINS, unless accelerated upon the occurrence of an event of default.

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

Proposed Spin-Off of our Enterprise Apps Business

As previously disclosed in our Current Report on Form 8-K dated September 26, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 25, 2022, by and among the Company, KINS Technology Group Inc., a Delaware corporation (“KINS”), CXApp Holding Corp., a Delaware corporation and newly formed wholly-owned subsidiary of the Company (“CXApp”), and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS will acquire our enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”) in exchange for the issuance of shares of KINS capital stock valued at $69 million (the “Business Combination”).

The proposed Business Combination is expected to be completed in the fourth quarter of 2022.

Immediately prior to the Merger (as defined below) and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022, by and among KINS, the Company, CXApp and Design Reactor, Inc., a California corporation and wholly-owned subsidiary of the Company (“Design Reactor”) (the “Separation Agreement”), and other ancillary conveyance documents, we will, among other things and on the terms and subject to the conditions of the Separation Agreement, transfer the Enterprise Apps Business, including certain of our related subsidiaries, including Design Reactor, to CXApp, and, in connection therewith, will distribute (the “Distribution”) to our stockholders and other security holders 100% of the common stock of CXApp, par value $0.00001.

Immediately following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into CXApp (the “Merger”), with CXApp continuing as the surviving company in the Merger and as a wholly-owned subsidiary of KINS.

Following the Business Combination, we will retain the remainder of our products including the Industrial Internet of Things (IIoT) business line.

The Business Combination has not yet occurred and will be subject to various conditions.

Reverse Stock Split

On October 4, 2022, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock at a ratio of one (1) share of common stock for every seventy five (75) shares of common stock (the “Reverse Stock Split”).

The Reverse Stock Split was effective October 7, 2022.

The Reverse Stock Split was primarily intended to bring the Company into compliance with the minimum bid price requirement for maintaining its listing on the Nasdaq Capital Market.

The Company has reflected the Reverse Stock Split herein, unless otherwise indicated.

Series 8 Preferred Stock Redemptions

During October 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 45,755.72 shares of Series 8 Convertible Preferred Stock for aggregate cash required to be paid of approximately $45.8 million.

Registered Direct Offering

On October 18, 2022, the Company entered into a Securities Purchase Agreement with an institutional investor named therein (the “Purchaser”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 253,112 shares of the Company’s common stock and warrants to purchase up to 3,846,153 shares of common stock (the “Purchase Warrants”) at a combined offering price of $5.85 per share.

The Purchase Warrants have an exercise price of $5.85 per share.

Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.

The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 2,310,990 shares of common stock, in lieu of shares of common stock at the Purchaser’s election.

Each Pre-Funded Warrant is exercisable for one share of Common Stock.

The purchase price of each Pre-Funded Warrant is $5.849, and the exercise price of each Pre-Funded Warrant is $0.001 per share.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

The Company raised net proceeds of $14.2 million after deduction of sales commissions and other offering expenses.

Critical Accounting Policies and Estimates

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R ESULTS OF O PERATIONS

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 compared to the Three Months Ended September 30, 2021

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

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except percentages) Amount % of

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

Revenues for the three months ended June 30, 2022 were $4.7 million compared to $3.5 million for the comparable period in the prior year for an increase of approximately $1.3 million, or approximately 37%.

This increase is primarily attributable to the increase in Indoor Intelligence sales, including our smart office app and real time location based technologies.

Revenues for the three months ended September 30, 2022 were $4.2 million compared to $4.5 million for the comparable period in the prior year for a decrease of approximately $0.3 million, or approximately 6%.

This decrease is primarily attributable to the decrease in Indoor Intelligence sales due to delayed shipments in the IIoT product line and lower sales for the SAVES product line.

Cost of Revenues

Cost of revenues for the three months ended June 30, 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 56%, was primarily attributable to the increased sales during the quarter.

The gross profit margin for the three months ended June 30, 2022 was 70% compared to 74% for the three months ended June 30, 2021.

Cost of revenues for the three months ended September 30, 2022 were $1.3 million compared to $1.2 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $0.1 million, or approximately 6%, was primarily attributable to the sales mix during the quarter.

The gross profit margin for the three months ended September 30, 2022 was 70% compared to 73% for the three months ended September 30, 2021.

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

Operating Expenses

Operating expenses for the three months ended June 30, 2022 were $23.2 million and $15.9 million for the comparable period ended June 30, 2021.

This increase of approximately $7.4 million is primarily attributable to the $7.6 million of goodwill impairment, increased operating expenses from the CXApp, Game your Game and IntraNav acquisitions as they were acquired during or after the quarter ended June 30, 2021, offset by lower stock based compensation and no earn-out compensation expense in the quarter ended June 30, 2022.

Loss From Operations

Loss from operations for the three months ended June 30, 2022 was $19.9 million as compared to $13.3 million for the comparable period in the prior year.

This increase in loss of approximately $6.6 million was primarily attributable to increased operating expenses described above offset by higher gross profit.

Operating expenses for the three months ended September 30, 2022 were $13.3 million and $15.7 million for the comparable period ended September 30, 2021.

This decrease of approximately $2.4 million is primarily attributable to lower compensation, professional fees and legal expenses.

Other Income (Expense)

Other income/expense for the three months ended June 30, 2022 was a loss of $0.5 million compared to income of $30.0 million for the comparable period in the prior year.

This increase in loss of approximately $30.5 million is primarily attributable to the discounted net gain of approximately $20.9 million on the Sysorex note, a $7.5 million release on the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note were included in other income for the quarter ended June 30, 2021.

Other income/expense for the three months ended September 30, 2022 was a loss of $7.6 million compared to a loss of $22.3 million for the comparable period in the prior year.

This decrease in loss of approximately $14.7 million is primarily attributable to the lower unrealized loss on equity securities in the three months ended September 30, 2022.

Provision for Income Taxes

There was a net income tax benefit of approximately $0.02 million for the three months ended June 30, 2022 and an income tax expense of $2.2 million for the three months ended June 30, 2021.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income (loss) attributable to non-controlling interest for the three months ended June 30, 2022 and 2021 was a loss of $458,000 and $253,000, respectively.

This increase in loss of $205,000 was primarily attributable to the increased 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 June 30, 2022 was $19.9 million compared to a income of $14.8 million for the comparable period in the prior year.

This increase in loss of approximately $34.6 million was primarily attributable to the other income items in the three months ended June 30, 2021 period including the discounted net gain on the Sysorex note and the release of the valuation allowance on the Sysorex note, offset by increased operating expenses as described above in the three months ended June 30, 2022.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

There was no income tax provision for the three months ended September 30, 2022 and an income tax benefit of $0.9 million for the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 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 Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands, except percentages) Amount % of

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

Revenues for the six months ended June 30, 2022 were $10.0 million compared to $6.4 million for the comparable period in the prior year for an increase of approximately $3.5 million, or approximately 55%.

Revenues for the nine months ended September 30, 2022 were $14.1 million compared to $10.9 million for the comparable period in the prior year for an increase of approximately $3.3 million, or approximately 30%.

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 six months ended June 30, 2022 were $2.8 million compared to $1.8 million for the comparable period in the prior year.

Cost of revenues for the nine months ended September 30, 2022 were $4.0 million compared to $3.0 million for the comparable period in the prior year.

This increase in cost of revenues of approximately $1.1 million, or approximately 36%, was primarily attributable to the increased sales during the quarter.

The gross profit margin for the six months ended June 30, 2022 was 72% compared to 72% for the six months ended June 30, 2021.

The gross profit margin for the nine months ended September 30, 2022 was 71% compared to 73% for the nine months ended September 30, 2021.

This decrease in gross profit margin is due to the sales mix during the period.

Operating Expenses

Operating expenses for the six months ended June 30, 2022 were $37.1 million and $30.3 million for the comparable period ended June 30, 2021.

This increase of $6.8 million is primarily attributable to the $7.6 million of goodwill impairment, increased operating expenses from the CXApp, Game your Game and IntraNav acquisitions as they were acquired during or after the quarter ended June 30, 2021, offset by lower stock based compensation and decreased earn-out compensation expense in the six months ended June 30, 2022.

Loss From Operations

Loss from operations for the six months ended June 30, 2022 was $30.0 million as compared to $25.7 million for the comparable period in the prior year.

This increase in loss of approximately $4.2 million was primarily to increased operating expenses described above offset by higher gross profit.

Operating expenses for the nine months ended September 30, 2022 were $50.4 million and $46.1 million for the comparable period ended September 30, 2021.

This increase of $4.4 million is primarily attributable to the $7.6 million of goodwill impairment, offset by lower compensation, professional fees and legal expense in the nine months ended September 30, 2022.

Other Income (Expense)

Other income/expense for the six months ended June 30, 2022 was a loss of $1.8 million compared to a gain of $29.9 million for the comparable period in the prior year.

This increase in other loss of approximately $31.7 million is primarily

attributable to the discounted net gain of approximately $20.9 million on the Sysorex note, a $7.5 million release on the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note were included in other income for the quarter ended June 30, 2021.

Other income/expense for the nine months ended September 30, 2022 was a loss of $9.4 million compared to a gain of $7.5 million for the comparable period in the prior year.

This increase in other loss of approximately $17.0 million is primarily attributable to the unrealized losses on equity securities of $7.1 million, and unrealized foreign exchange losses of $2.8 million in the nine months ended September 30, 2022 as compared to the discounted net unrealized loss of approximately $1.4 million on the Sysorex note, a $7.5 million release on the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note were included in other income for the nine months ended September 30, 2021.

Provision for Income Taxes

There is an income tax expense of approximately $0.1 million and $2.2 million for the six months ended June 30, 2022 and 2021, respectively.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income (loss) attributable to non-controlling interest for the six months ended June 30, 2022 and 2021 was a loss of $804,000 and $235,000, respectively.

This increase in loss of $569,000 was attributable to the increased loss of the Game Your Game entity.

Net Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders of Inpixon six months ended June 30, 2022 was a loss of $31.1 million compared to a income of $2.2 million for the comparable period in the prior year.

This increase in loss of approximately $33.3 million was primarily attributable to the other income items in the three months ended June 30, 2021 period including the discounted net gain on the Sysorex note and the release of the valuation allowance on the Sysorex note, offset by increased operating expenses as described above in the six months ended June 30, 2022.

There is an income tax expense of approximately $0.1 million and $1.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Non-GAAP Financial information

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

Adjusted EBITDA for the three months ended June 30, 2022 was a loss of $9.9 million compared to a loss of $6.3 million million for the prior year period.

Adjusted EBITDA for the six months ended June 30, 2022 was a loss of $18.7 million compared to a loss of $11.8 million for the prior year period.

The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 (in thousands):

For the Three Months Ended June 30, For the Six Months Ended June 30,

Adjusted EBITDA for the three months ended September 30, 2022 was a loss of $8.2 million compared to a loss of $6.7 million for the prior year period.

Adjusted EBITDA for the nine months ended September 30, 2022 was a loss of $26.9 million compared to a loss of $18.5 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 and nine months ended September 30, 2022 and 2021 (in thousands):

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

2022 2021 2022 2021

Net (loss) income attributable to common stockholders $ (24,857) $ 14,759 $ (42,219) $ 2,202

Net loss attributable to stockholders of Inpixon $ (17,591) $ (33,640) $ (48,674) $ (31,438)

Interest expense/(income), net 240 15 62 (1,191)

Income tax (benefit)/provision — (854) 84 1,350

Depreciation and amortization 1,891 1,903 5,567 4,541

EBITDA (15,460) (32,576) (42,961) (26,738)

Adjusted for:

Non-recurring one-time charges:

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Earnout compensation expense/(benefit) — 835 (2,827) 2,893

Accretion of series 7 preferred stock — — 4,555 —

Accretion of series 8 preferred stock 6,237 — 6,785 —

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 (1,252) — (1,362) —

Professional service fees — 418 8 1,189

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Unrealized losses/(gains) on notes, loans, investments — (6) 124 (497)

Bad debts expense/provision 5 100 5 100

Reserve for inventory obsolescence — 300 — 300

Stock-based compensation - compensation and related benefits 688 1,664 2,962 8,813

Severance costs 127 210 248 210

Interest (income)/expense, net (176) (1,555) (178) (1,206)

Income tax (benefit)/provision (16) 2,195 84 2,204

Depreciation and amortization 1,870 1,695 3,676 2,638

Restructuring costs 597 — 597 —

Adjusted EBITDA $ (8,187) $ (6,677) $ (26,894) $ (18,514)

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Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:

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 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;

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Proforma Non-GAAP Net Income (Loss) per Share

Basic and diluted net income (loss) per share for the three months ended June 30, 2022 was a loss of $0.16 compared to income of $0.13 for the prior year period.

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

Basic and diluted net income (loss) per share for the six months ended June 30, 2022 was a loss of $0.29 compared to income of $0.02 for the prior year period.

Basic and diluted net income (loss) per share for the three months ended September 30, 2022 was a loss of $10.21 compared to a loss of $22.31 for the prior year period.

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

Basic and diluted net income (loss) per share for the nine months ended September 30, 2022 was a loss of $31.08 compared to loss of $23.95 for the prior year period.

The increase 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 June 30, 2022 was a loss of $0.07 per share compared to a loss of $0.07 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the six months ended June 30, 2022 was a loss of $0.13 per share compared to a loss of $0.14 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the three months ended September 30, 2022 was a loss of $3.96 per share compared to a loss of $3.77 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, 2022 was a loss of $13.44 per share compared to a loss of $13.68 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):

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

(thousands, except per share data) 2022 2021 2022 2021

Net (loss) income attributable to common stockholders $ (24,857) $ 14,759 $ (42,219) $ 2,202

Net loss attributable to stockholders of Inpixon $ (17,591) $ (33,640) $ (48,674) $ (31,438)

Non-recurring one-time charges:

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Earnout compensation expense/(benefit) — 835 (2,827) 2,893

Accretion of series 7 preferred stock — — 4,555 —

Accretion of series 8 preferred stock 6,237 — 6,785 —

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 (1,252) — (1,362) —

Professional service fees — 418 8 1,189

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Unrealized losses/(gains) on notes, loans, investments — (6) 124 (497)

Bad debts expense/provision 5 100 5 100

Reserve for inventory obsolescense — 300 — 300

Stock-based compensation - compensation and related benefits 688 1,664 2,962 8,813

Severance costs 127 210 248 210

Restructuring costs 597 — 597 —

Amortization of intangibles 1,533 1,560 4,559 3,571

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

Liquidity and Capital Resources as of June 30, 2022

Our current capital resources and operating results as of and through June 30, 2022, consist of:

Liquidity and Capital Resources as of September 30, 2022

Our current capital resources and operating results as of and through September 30, 2022, consist of:

1) an overall working capital surplus of approximately $51.6 million;

2) cash of approximately $63.2 million;

3) net cash used by operating activities for the six months ended June 30, 2022 of $19.5 million.

The breakdown of our overall working capital surplus as of June 30, 2022 is as follows (in thousands):

3) net cash used by operating activities for the nine months ended September 30, 2022 of $26.9 million.

The breakdown of our overall working capital surplus as of September 30, 2022 is as follows (in thousands):

Working Capital Assets Liabilities Net

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Total $ 72,279 $ 20,728 $ 51,551

In addition, subsequent to the quarter ended June 30, 2022, we entered into a note purchase agreement pursuant to which we issued a promissory note in an aggregate initial principal amount of $6.5 million in exchange for gross proceeds of $5.0 million.

On July 22, 2022, we also entered into an Equity Distribution Agreement pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $25 million.

We are not obligated to make any sales under the Equity Distribution Agreement and no assurance can be given we will sell any shares or if we do, as to the price or amount of shares that we will sell, or the date on which any such sales will take place.

In addition, subsequent to the quarter ended September 30, 2022, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, the Company’s common stock, warrants and pre-funded warrants for net proceeds of $14.2 million after deduction of sales commissions and other offering expenses.

Contractual Obligations and Commitments

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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 June 30, 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.

As of September 30, 2022, the total obligation for operating leases is approximately $1.5 million, of which approximately $0.6 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 June 30, 2022, our obligation for acquisition liabilities is approximately $3.5 million of which approximately $3.5 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.

As of September 30, 2022, our obligation for acquisition liabilities is approximately $3.4 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.

As of June 30, 2022, we owed approximately $1.9 million in principal under promissory notes with third parties.

During October 2022, the Company was required to redeem 45,755.72 shares of its Series 8 Preferred Stock for an aggregate amount of $45.8 million.

The remaining aggregate Redemption Amount that we may be required to pay is equal to $7.4 million (which may be increased to $8.2 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.

As of September 30, 2022, we owed approximately $6.2 million in principal under promissory notes with third parties.

This balance excludes intercompany amounts that are eliminated in the financial statements.

These notes are payable within the next twelve months and the interest rate charged under the notes range from 8% to 10%.

See Note 13 of the Notes to Consolidated Financial Statements included elsewhere in this quarterly Report.

Subsequent to the quarter ended June 30, 2022, we issued additional promissory notes in a principal amount of $6.5 million which is payable within the next twelve months for aggregate gross proceeds of $5 million.

Net cash used in operating activities during the six months ended June 30, 2022 of $19.5 million consists of a net loss of $31.9 million offset by non-cash adjustments of approximately $12.7 million less net cash changes in operating assets and liabilities of approximately $0.4 million.

Although the Company has sustained significant losses during six months ended June 30, 2022, we raised net proceeds of approximately $46.9 million after placement agent commissions and other offering costs from the sale of our Series 8 Preferred Stock and securities in connection with a registered direct offering and in July 2022 raised $5 million in connection with the debt offering described above.

The Company has also filed an At-The-Market financing facility that it can access should the Company deem necessary.

See Note 12 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q.

Net cash used in operating activities during the nine months ended September 30, 2022 of $26.9 million consists of a net loss of $49.9 million offset by non-cash adjustments of approximately $22.2 million less net cash changes in operating assets and liabilities of approximately $0.7 million.

Although the Company has sustained significant losses during nine months ended September 30, 2022, in addition to the cash we had on hand, we raised net proceeds of approximately $14.2 million after placement agent commissions in connection with a registered direct offering in October 2022 and in July 2022 raised $5 million in connection with the debt offering described above.

The Company has also filed an At-The-Market financing facility having an aggregate offering price of up to $25 million that it can access should the Company deem necessary.

Given our current cash balances, financing facilities 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.

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We also expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business.

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 transaction.

Liquidity and Capital Resources as of June 30, 2022 Compared With June 30, 2021

The Company’s net cash flows used in operating, investing and financing activities for the six months ended June 30, 2022 and 2021 and certain balances as of the end of those periods are as follows (in thousands):

For the Six Months Ended June 30,

Liquidity and Capital Resources

The Company’s net cash flows used in operating, investing and financing activities for the nine months ended September 30, 2022 and 2021 and certain balances as of the end of those periods are as follows (in thousands):

For the Nine Months Ended September 30,

Net cash used in operating activities $ (26,943) $ (24,018)

Net cash provided by (used in) investing activities 36,748 (52,708)

Net cash (used in) provided by financing activities (4,163) 74,945

Net cash provided by financing activities 902 125,425

Effect of foreign exchange rate changes on cash (34) 90

Net increase in cash and cash equivalents $ 10,673 $ 48,789

As of June 30,

As of September 30,

2022 As of December 31,

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Working capital surplus $ 51,551 $ 78,831

Operating Activities for the six months ended June 30, 2022

Net cash used in operating activities during the six months ended June 30, 2022 was approximately $19.5 million.

The cash flows related to the six months ended June 30, 2022 consisted of the following (in thousands):

Operating Activities for the nine months ended September 30, 2022

Net cash used in operating activities during the nine months ended September 30, 2022 was approximately $26.9 million.

The cash flows related to the nine months ended September 30, 2022 consisted of the following (in thousands):

Net income (loss) $ (49,880)

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121 Amortization of issued discount

344 Unrealized gain/loss on note

1,870 Unrealized loss(gain) on note

(791) Loss on conversion of note receivable

(278) Accrued interest income, related party

5 Provision for doubtful accounts

(1) Deferred income tax

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571 Decrease in inventory, other current assets and other assets

(1,498) Decrease in accounts payable

237 Increase in accounts payable

1,021 Increase in accrued liabilities, income tax liabilities and other liabilities

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$ 745 Net cash used in the changes in operating assets and liabilities

Operating Activities for the six months ended June 30, 2021

Net cash used in operating activities during the six months ended June 30, 2021 was approximately $14.2 million.

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

Operating Activities for the nine months ended September 30, 2021

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

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

Net income (loss) $ (31,982)

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(1,627) Accrued interest income, related party

100 Provision for doubtful accounts

300 Provision for inventory accounts

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

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

$ 532 Decrease in accounts receivable and other receivables

$ (678) Increase in accounts receivable and other receivables

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

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(519) Decrease in operating lease liabilities

(238) Decrease in deferred revenue

1,214 Increase in deferred revenue

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

Cash Flows from Investing Activities as of June 30, 2022 and 2021

Net cash flows provided by investing activities during the six months ended June 30, 2022 was approximately $37.1 million compared to net cash flows used in investing activities during the six months ended June 30, 2021 of approximately $53.8 million.

Cash flows related to investing activities during the six months ended June 30, 2022 include $0.1 million for the purchase of property and equipment, $0.3 million for investment in capitalized software, $5.5 million for the purchase of a convertible note, and $43.0 million of sales of treasury bills.

Cash flows related to investing activities during the six months ended June 30, 2021 include $0.1 million for the purchase of property and equipment, $0.4 million investment in capitalized software, $63.4 million for the purchase of treasury bills, $28.0 million from sales of treasury bills, $15.2 million for the acquisition of CXApp, $0.9 million for the purchase of the Systat licensing agreement, $0.2 million for the purchase of Game Your Game, and $0.1 million for acquisition of Visualix.

Cash Flows from Financing Activities as of June 30, 2022 and 2021

Net cash flows used in financing activities during the six months ended June 30, 2022 was $4.2 million.

Net cash flows provided by financing activities during the six months ended June 30, 2021 was $74.9 million.

During the six months ended June 30, 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, received $0.4 million net proceeds from promissory note, and paid $0.3 million for the settlement of employee taxes on restricted stock.

During the six months ended June 30, 2021, the Company received incoming cash flows of $77.9 million from the issuance of common stock and warrants, loaned $0.1 million to a related party, paid $1.7 million of taxes related to the net share settlement of restricted stock units, paid a $0.1 million liability related to the CXApp acquisition, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Nanotron, and paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality.

Cash Flows from Investing Activities as of September 30, 2022 and 2021

Net cash flows provided by investing activities during the nine months ended September 30, 2022 was approximately $36.7 million compared to net cash flows used in investing activities during the nine months ended September 30, 2021 of approximately $52.7 million.

Cash flows related to investing activities during the nine months ended September 30, 2022 include $0.2 million for the purchase of property and equipment, $0.6 million for investment in capitalized software, $5.5 million for the purchase of a convertible note, $0.2 million for the issuance of a note receivable, $0.2 million for the sales of equity securities and $43.0 million of sales of treasury bills.

Cash flows related to investing activities during the nine months ended September 30, 2021 include $0.3 million for the purchase of property and equipment, $0.9 million 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 investment, $28.0 million from sales of treasury bills, $0.2 million from the acquisition of Game Your Game, $15.2 million for the acquisition of CXApp, $0.9 million for the purchase of the Systat licensing agreement, $0.3 million for the issuance of a note receivable and $0.1 million for the acquisition of Visualix.

Cash Flows from Financing Activities as of September 30, 2022 and 2021

Net cash flows provided by financing activities during the nine months ended September 30, 2022 was $0.9 million.

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

During the nine months ended September 30, 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 $2.0 million of the CXApp acquisition liability, received $5.5 million net proceeds from promissory note, and paid $0.3 million for the settlement of employee taxes on restricted stock.

During the nine months ended September 30, 2021, the Company received incoming cash flows of $77.9 million from the issuance of common stock and warrants, received incoming cash flows of $50.6 million for the issuance of preferred stock and warrants, loaned $0.1 million to a related party, paid $1.7 million of taxes related to the net share settlement of restricted stock units, paid a $0.2 million liability related to the CXApp acquisition, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Nanotron, and paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality.

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