XTI Aerospace, Inc. 10-Q

ITEM 1: FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented. The results for the period ended September 30, 2022 are not necessarily indicative of the results of operations for the full year. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited consolidated financial statements for the fiscal years ended December 31, 2021 and 2020 included in the annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2022. iii Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and par value data) As of September 30, 2022 As of December 31, 2021 (Unaudited) (Audited) Assets Current Assets Cash and cash equivalents $ 63,153 $ 52,480 Accounts receivable, net of allowances of $ 268 and $ 272 , respectively 2,879 3,218 Other receivables 137 321 Inventory 2,702 1,976 Short-term investments — 43,125 Note receivable 150 — Prepaid expenses and other current assets 3,258 4,842 Total Current Assets 72,279 105,962 Property and equipment, net 1,307 1,442 Operating lease right-of-use asset, net 1,323 1,736 Software development costs, net 1,684 1,792 Investments in equity securities 1,124 1,838 Long-term investments 2,500 2,500 Intangible assets, net 28,174 33,478 Goodwill — 7,672 Other assets 204 253 Total Assets $ 108,595 $ 156,673 The accompanying notes are an integral part of these financial statements 1 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) As of September 30, 2022 As of December 31, 2021 (Unaudited) (Audited) Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 2,559 $ 2,414 Accrued liabilities 4,370 10,665 Operating lease obligation, current 514 643 Deferred revenue 3,730 4,805 Short-term debt 6,179 3,490 Acquisition liability 3,376 5,114 Total Current Liabilities 20,728 27,131 Long Term Liabilities Operating lease obligation, noncurrent 852 1,108 Other liabilities, noncurrent 28 28 Acquisition liability, noncurrent — 220 Total Liabilities 21,608 28,487 Commitments and Contingencies — — Mezzanine Equity Series 7 Convertible Preferred Stock - 58,750 shares authorized; zero and 49,250 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. — 44,695 Series 8 Convertible Preferred Stock- 53,197.7234 shares authorized; 53,197.7234 and zero issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. (Liquidation preference of $ 53,198 ) 53,198 — Stockholders’ Equity Preferred Stock -$ 0.001 par value; 5,000,000 shares authorized Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 issued and 1 outstanding as of September 30, 2022 and December 31, 2021 — — Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 issued and 126 outstanding as of September 30, 2022 and December 31, 2021 — — Common Stock - $ 0.001 par value; 26,666,667 shares authorized; 2,250,597 and 1,730,141 issued and 2,250,596 and 1,730,140 outstanding as of September 30, 2022 and December 31, 2021, respectively. 2 2 Additional paid-in capital 331,487 332,761 Treasury stock, at cost, 1 share ( 695 ) ( 695 ) Accumulated other comprehensive income 1,496 44 Accumulated deficit ( 299,123 ) ( 250,309 ) Stockholders’ Equity Attributable to Inpixon 33,167 81,803 Non-controlling Interest 622 1,688 2 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) Total Stockholders’ Equity 33,789 83,491 Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 108,595 $ 156,673 The accompanying notes are an integral part of these financial statements 3 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 (Unaudited) Revenues $ 4,177 $ 4,450 $ 14,133 $ 10,857 Cost of Revenues 1,255 1,186 4,037 2,966 Gross Profit 2,922 3,264 10,096 7,891 Operating Expenses Research and development 4,644 3,254 13,642 9,185 Sales and marketing 2,157 2,407 6,757 6,119 General and administrative 5,146 8,571 18,148 26,570 Acquisition-related costs 2 93 270 1,098 Impairment of goodwill — — 7,570 — Amortization of intangibles 1,366 1,395 4,056 3,088 Total Operating Expenses 13,315 15,720 50,443 46,060 Loss from Operations $ ( 10,393 ) ( 12,456 ) ( 40,347 ) $ ( 38,169 ) Other Income (Expense) Interest income (expense), net ( 240 ) ( 15 ) ( 62 ) 1,191 Loss on exchange of debt for equity — — — ( 30 ) Recovery of valuation allowance on related party loan - held for sale — — — 7,345 Other (expense)/income, net ( 1,506 ) ( 47 ) ( 2,277 ) 464 Gain on related party loan - held for sale — — — 49,817 Unrealized gain/(loss) on equity securities ( 5,854 ) ( 22,285 ) ( 7,110 ) ( 51,250 ) Total Other Income (Expense) ( 7,600 ) ( 22,347 ) ( 9,449 ) 7,537 Net Loss, before tax ( 17,993 ) ( 34,803 ) ( 49,796 ) ( 30,632 ) Income tax benefit/(provision) — 854 ( 84 ) ( 1,350 ) Net Loss $ ( 17,993 ) ( 33,949 ) ( 49,880 ) $ ( 31,982 ) Net Loss Attributable to Non-controlling Interest ( 402 ) ( 309 ) ( 1,206 ) ( 544 ) Net Loss Attributable to Stockholders of Inpixon ( 17,591 ) ( 33,640 ) ( 48,674 ) ( 31,438 ) Accretion of Series 7 Preferred Stock — ( 2,962 ) ( 4,555 ) ( 2,962 ) Accretion of Series 8 Preferred Stock ( 6,305 ) — ( 13,089 ) — 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 1,265 — 2,626 — Net Loss Attributable to Common Stockholders $ ( 22,631 ) $ ( 36,602 ) $ ( 64,850 ) $ ( 34,400 ) 4 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Net Loss Per Share - Basic and Diluted $ ( 10.21 ) $ ( 22.31 ) $ ( 31.08 ) $ ( 23.95 ) Weighted Average Shares Outstanding Basic and Diluted 2,216,544 1,640,971 2,086,633 1,436,093 The accompanying notes are an integral part of these financial statements 5 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 (Unaudited) Net Loss $ ( 17,993 ) $ ( 33,949 ) $ ( 49,880 ) $ ( 31,982 ) Unrealized foreign exchange (loss) income from cumulative translation adjustments 898 ( 404 ) 1,452 ( 1,012 ) Comprehensive Loss $ ( 17,095 ) $ ( 34,353 ) $ ( 48,428 ) $ ( 32,994 ) The accompanying notes are an integral part of these financial statements 6 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except per share data) Series 7 Preferred Stock Series 8 Preferred Stock Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance - January 1, 2022 49,250 $ 44,695 — $ — 1 $ — 126 $ — 1,730,140 $ 2 $ 332,761 ( 1 ) $ ( 695 ) $ 44 $ ( 250,309 ) $ 1,688 $ 83,491 Common shares issued for extinguishment of debt — — — — — — — — 57,472 — 1,500 — — — — — $ 1,500 Stock options and restricted stock awards granted to employees for services — — — — — — — — — — 1,533 — — — — — $ 1,533 Series 7 Preferred redeemed for cash ( 49,250 ) ( 49,250 ) — — — — — — — — — 1 — — — — — $ — Series 8 Preferred stock issued for cash — — 53,197.7234 41,577 — — — — — — 5,329 — — — — — $ 5,329 Accretion Discount- Series 7 Preferred Shares — 4,555 — — — — — — — — ( 4,555 ) — — — — — $ ( 4,555 ) Accretion Discount- Series 8 Preferred Shares — — — 548 — — — — — — ( 548 ) — — — — — $ ( 548 ) Deemed dividend for the modification related to Series 8 Preferred Stock — — — 2,627 — — — — — — ( 2,627 ) — — — — — $ ( 2,627 ) Deemed contribution for the modification related to Warrants issued in connection with Series 8 Preferred Stock — — — ( 1,469 ) — — — — — — 1,469 — — — — — $ 1,469 Amortization Premium- modification related to Series 8 Preferred Stock — — — ( 110 ) — — — — — — 110 — — — — — $ 110 Restricted stock grants withheld for taxes — — — — — — — — ( 12,802 ) — ( 336 ) — — — — — $ ( 336 ) Common shares issued for CXApp earnout — — — — — — — — 144,986 — 3,697 — — — — — $ 3,697 Common shares issued for exchange of warrants — — — — — — — — 184,153 — — — — — — — $ — Cumulative translation adjustment — — — — — — — — — — — — — ( 102 ) ( 15 ) 15 $ ( 102 ) Net loss — — — — — — — — — — — — — — ( 11,211 ) ( 346 ) $ ( 11,557 ) Balance - March 31, 2022 — — 53,197.7234 43,173 1 — 126 — 2,103,949 2 338,333 ( 1 ) ( 695 ) ( 58 ) ( 261,535 ) 1,357 $ 77,404 Stock options and restricted stock awards granted to employees for services — — — — — — — — — — 741 — — — — — $ 741 Common shares issued for extinguishment of debt — — — — — — — — 35,062 — 500 — — — — — $ 500 Accretion Discount- Series 8 Preferred Shares — — — 6,236 — — — — — — ( 6,236 ) — — — — — $ ( 6,236 ) Amortization Premium- modification related to Series 8 Preferred Stock — — — ( 1,251 ) — — — — — — 1,251 — — — — — $ 1,251 Cumulative translation adjustment — — — — — — — — — — — — — 656 ( 56 ) 57 $ 657 Net loss — — — — — — — — — — — — — — ( 19,872 ) ( 458 ) $ ( 20,330 ) 1 7 Table of Contents Balance - June 30, 2022 — — 53,197.7234 48,158 1 — 126 — 2,139,011 2 334,589 ( 1 ) ( 695 ) 598 ( 281,463 ) 956 $ 53,987 Stock options granted to employees and consultants for services — — — — — — — — — — 688 — — — — — 688 Common shares issued for extinguishment of debt — — — — — — — — 111,585 — 1,250 — — — — — 1,250 Accrete discount - preferred series 8 shares — — — 6,305 — — — — — — ( 6,305 ) — — — — — ( 6,305 ) Amortization Premium- modification related to Series 8 Preferred Stock — — — ( 1,265 ) — — — — — — 1,265 — — — — — 1,265 Cumulative translation adjustment — — — — — — — — — — — — — 898 ( 69 ) 68 897 Net loss — — — — — — — — — — — — — — ( 17,591 ) ( 402 ) ( 17,993 ) Balance - September 30, 2022 — — 53,197.7234 53,198 1 — 126 — 2,250,596 $ 2 $ 331,487 ( 1 ) $ ( 695 ) $ 1,496 $ ( 299,123 ) $ 622 $ 33,789 The accompanying notes are an integral part of these financial statements 8 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except per share data) Series 7 Preferred Stock Series 4 Convertible Preferred Stock Series 5 Convertible Preferred Stock Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance - January 1, 2021 — — 1 $ — 126 $ — 779,964 $ 1 $ 225,665 ( 1 ) $ ( 695 ) $ 660 $ ( 180,992 ) $ 41 $ 44,680 Common shares issued for registered direct offering — — — — — — 210,668 — 74,074 — — — — — 74,074 Common shares issued for extinguishment of debt — — — — — — 11,919 — 1,500 — — — — — 1,500 Common shares issued for cashless stock options exercised — — — — — — 67 — — — — — — — — Common shares issued for net proceeds from warrants exercised — — — — — — 420,071 — 3,779 — — — — — 3,779 Stock options granted to employees and consultants for services — — — — — — — — 5,096 — — — — — 5,096 Cumulative translation adjustment — — — — — — — — — — — ( 671 ) — — ( 671 ) Net loss — — — — — — — — — — — — ( 12,557 ) 18 ( 12,539 ) Balance - March 31, 2021 — — 1 $ — 126 $ — 1,422,689 $ 1 $ 310,114 ( 1 ) $ ( 695 ) $ ( 11 ) $ ( 193,549 ) $ 59 $ 115,919 Stock options and restricted stock awards granted to employees for services — — — — — — — — 2,053 — — — — — 2,053 Common shares issued for Game Your Game acquisition — — — — — — 15,722 — 1,403 — — — — — 1,403 Common shares issued for Visualix acquisition — — — — — — 4,928 — 429 — — — — — 429 Common shares issued for the CXApp — — — — — — 117,995 1 9,999 — — — — 2,811 12,811 Common shares for cashless stock options exercised — — — — — — 6 — — — — — — — — Common shares issued for restricted stock grants — — — — — — 62,308 — — — — — — — — Taxes paid on stock based compensation — — — — — — — — ( 1,687 ) — — — — — ( 1,687 ) Cumulative translation adjustment — — — — — — — — — — — 63 ( 141 ) 130 52 Net income (loss) — — — — — — — — — — — — 14,759 ( 253 ) 14,506 Balance - June 30, 2021 — — 1 $ — 126 $ — 1,623,648 $ 2 $ 322,311 ( 1 ) $ ( 695 ) $ 52 $ ( 178,931 ) $ 2,747 $ 145,486 Stock options granted to employees and consultants for services — — — — — — — — 1,664 — — — — — 1,664 Common shares issued for extinguishment of debt — — — — — — 11,696 — 1,000 — — — — — 1,000 Preferred Shares issued in public offering — — — — — — — 1,589 — — — — — 1,589 Series 7 Preferred Stock issued for cash 58,750 48,995 — — — — — — — — — — — — — 9 Table of Contents Series 7 Preferred Stock converted to common stock ( 9,500 ) ( 9,500 ) — — — — — — — — — — — — — Common shares issued for conversion of preferred shares — — — — — — 104,334 — 9,500 — — — — — 9,500 Restricted stock grants forfeited — — — — — — ( 4,500 ) — — — — — — — — Cumulative Translation Adjustment — — — — — — — — — — — ( 404 ) ( 22 ) 21 ( 405 ) Net loss — — — — — — — — — — — — ( 33,640 ) ( 309 ) ( 33,949 ) Balance - September 30, 2021 $ 49,250 39,495 1 $ — 126 $ — 1,735,178 $ 2 $ 336,064 ( 1 ) $ ( 695 ) $ ( 352 ) $ ( 212,593 ) $ 2,459 $ 124,885 The accompanying notes are an integral part of these financial statements 10 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Nine Months Ended September 30, 2022 2021 Cash Flows Used in Operating Activities (Unaudited) Net loss $ ( 49,880 ) $ ( 31,982 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,008 970 Amortization of intangible assets 4,559 3,571 Amortization of right of use asset 536 527 Stock based compensation 2,962 8,813 Earnout expense valuation benefit ( 2,827 ) — Loss on exchange of debt for equity — 30 Amortization of debt discount — 224 Amortization of original issued discount 121 — Accrued interest income, related party ( 278 ) ( 1,627 ) Provision for doubtful accounts 5 100 Unrealized gain on note 1,870 ( 638 ) Provision for inventory obsolescense — 300 Recovery for valuation allowance for held for sale loan — ( 7,345 ) Gain on settlement of related party promissory note and loan related party receivable — ( 49,817 ) Deferred income tax ( 1 ) ( 4,507 ) Loss on disposal of property and equipment 1 — Unrealized loss on equity securities 7,110 51,250 Impairment of goodwill 7,570 — Realized loss on sale of equity securities 151 — Gain on conversion of note receivable ( 791 ) — Other 196 137 Changes in operating assets and liabilities: Accounts receivable and other receivables 336 ( 678 ) Inventory ( 1,002 ) ( 499 ) Prepaid expenses and other current assets 1,545 ( 70 ) Other assets 28 200 Accounts payable 237 ( 653 ) Accrued liabilities 1,059 3,421 Income tax liabilities ( 38 ) 3,471 Deferred revenue ( 915 ) 1,214 Operating lease obligation ( 505 ) ( 519 ) Other liabilities — 89 Net Cash Used in Operating Activities ( 26,943 ) ( 24,018 ) Cash Flows Used in Investing Activities Purchase of property and equipment ( 221 ) ( 258 ) 11 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Investment in capitalized software ( 611 ) ( 857 ) Purchase of other short term investments — ( 2,000 ) Sales of other short term investments — 2,000 Purchase of convertible note ( 5,500 ) — Sales of equity securities 229 — Purchases of treasury bills — ( 63,362 ) Sales of treasury bills 43,001 28,000 Purchase of Systat licensing agreement — ( 900 ) Issuance of note receivable ( 150 ) ( 268 ) Acquisition of Game Your Game — 184 Acquisition of CXApp — ( 15,186 ) Acquisition of Visualix — ( 61 ) Net Cash Provided By (Used in) Investing Activities 36,748 ( 52,708 ) Cash From Financing Activities Net proceeds from issuance of preferred stock and warrants 46,906 50,584 Net proceeds from issuance of common stock and warrants — 77,853 Net proceeds from promissory note 5,539 — Cash paid for redemption of preferred stock series 7 ( 49,250 ) — Taxes paid related to net share settlement of restricted stock units ( 336 ) ( 1,687 ) Loans to related party — ( 117 ) Repayment of CXApp acquisition liability ( 1,957 ) ( 241 ) Repayment of acquisition liability to Nanotron shareholders — ( 467 ) Repayment of acquisition liability to Locality shareholders — ( 500 ) Net Cash Provided By Financing Activities 902 125,425 Effect of Foreign Exchange Rate on Changes on Cash ( 34 ) 90 Net Increase in Cash and Cash Equivalents 10,673 48,789 Cash and Cash Equivalents - Beginning of period 52,480 17,996 Cash and Cash Equivalents - End of period $ 63,153 $ 66,785 Supplemental Disclosure of cash flow information: Cash paid for: Interest $ 2 $ 3 Income Taxes $ 100 $ 2,387 Non-cash investing and financing activities Common shares issued for extinguishment of debt $ 3,250 $ 2,500 Common shares issued for CXApp Earnout Payment $ 3,697 $ — Common shares issued in exchange for warrants $ 14 $ — Right of use asset obtained in exchange for lease liability $ 284 $ — Settlement of Sysorex Note $ — $ 7,462 Investment in equity securities through conversion of note receivable $ 6,776 $ 58,905 Common shares issued for CXApp acquisition $ — $ 10,000 12 Table of Contents INPIXON AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Common shares issued for Game Your Game acquisition $ — $ 1,403 Common shares issued for Visualix asset acquisition $ — $ 429 Preferred shares converted into common shares $ — $ 9,500 The accompanying notes are an integral part of these financial statements 13 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 1 - Organization and Nature of 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 cloud-based applications and analytics for the advertising, media and publishing industries and 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. Proposed Spin-Off of Enterprise Apps Business On September 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Inpixon, KINS Technology Group Inc., a Delaware corporation (“KINS”), CXApp Holding Corp., a Delaware corporation and newly formed wholly-owned subsidiary of Inpixon (“CXApp”), and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS will acquire Inpixon’s 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”). Immediately prior to the Merger and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc., a California corporation (“Design Reactor”) (the “Separation Agreement”), and other ancillary conveyance documents, Inpixon will, among other things and on the terms and subject to the conditions of the Separation Agreement, transfer the Enterprise Apps Business, including certain related subsidiaries of Inpixon, including Design Reactor, to CXApp (the "Reorganization"). Following the Reorganization, Inpixon will distribute 100 % of the common stock of CXApp, par value $ 0.00001 , to certain holders of Inpixon securities as of a record date to be determined (the “Spin-Off”). Immediately following the Spin-Off, 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. The Spin-Off and the Merger are subject to various conditions to closing, including the effectiveness of a Registration Statement on Form S-4 filed by KINS in connection with the Business Combination and a Registration Statement on Form S-1 filed by CXApp in connection with the Spin-Off. Reverse Stock Split On October 7, 2022, the Company effected a 1-for-75 reverse stock split. See Note 27 for more details. All historical share and per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split. 14 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 2 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year ending December 31, 2022. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2021 and 2020 included in the annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022. Note 3 - Summary of Significant Accounting Policies The Company's complete accounting policies are described in Note 2 to the Company's audited consolidated financial statements and notes for the years ended December 31, 2021 and 2020. Liquidity As of September 30, 2022, the Company has a working capital surplus of approximately $ 51.6 million, and cash of approximately $ 63.2 million. For the three and nine months ended September 30, 2022, the Company had a net loss of approximately $ 18.0 million and $ 49.9 million, respectively. During the nine months ended September 30, 2022, the Company used approximately $ 26.9 million of cash for operating activities. During the first quarter of 2022, the Company was required to redeem its Series 7 Preferred Stock for an aggregate amount of $ 49.3 million. On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which it sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock. Each share of Series 8 Convertible Preferred Stock and the related warrants were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value of each share of Series 8 Convertible Preferred Stock for an aggregate subscription amount of $ 50.0 million. The net proceeds to the Company from this offering was $ 46.9 million after placement agent commissions and other offering costs. See further breakdown in Note 13 - Capital Raises. Effective October 1, 2022, the holders of Series 8 Convertible Preferred Stock were eligible to redeem their shares. 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 paid of approximately $ 45.8 million. On July 22, 2022, the Company entered into a note purchase agreement in an aggregate initial principal amount of $ 6.5 million for which in exchange for the Note, the company received $ 5.0 million. Additionally on July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25 million. The Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the date on which any such sales will take place. The Company did not make any sales pursuant to the Sales Agreement as of September 30, 2022. On October 18, 2022, the Company 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, 253,112 shares of the Company’s common stock, warrants to purchase up to 3,846,153 shares of common stock at a combined offering price of $ 5.85 per share and pre-funded warrants to purchase up to 2,310,990 shares of common stock at a purchase price of $ 5.849 per pre-funded warrant, with each pre-funded warrant having an exercise price of $ 0.001 per share. The Company raised net proceeds of $ 14.2 million after deduction of sales commissions and other offering expenses. Risks and Uncertainties The Company cannot assure you 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 15 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) our equity and debt securities and proceeds from loans and bank credit lines. 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, including delays in returning employees to the office, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders. Certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, market volatility and other general economic factors that are beyond our control may impact our results of operations. These factors can include interest rates; recession; inflation; unemployment trends; the threat or possibility of war, terrorism or other global or national unrest; political or financial instability; and other matters that influence our customers spending. Increasing volatility in financial markets and changes in the economic climate could adversely affect our results of operation. 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. While we have been able to realize growth in the nine months ended September 30, 2022 as compared to the same period 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. The Company's recurring losses and utilization of cash in its operations are indicators of going concern however with the Company's current liquidity position, the Company believes it has the ability to mitigate such concerns for a period of at least one year from the date these financial statements are issued. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of: • the valuation of stock-based compensation; • the valuation of the Company’s common stock issued in transactions, including acquisitions; • the allowance for credit losses; • the valuation of loans receivable; • the valuation of equity securities; • the valuation allowance for deferred tax assets; and • impairment of long-lived assets and goodwill. Business Combinations The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date. Short-term investments Investments with maturities greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of U.S. Treasury Bills. Accrued interest on U.S. Treasury bills are also classified as short term investment. Our short-term investments are considered available for use in current operations, are classified as available-for-sale securities. Available for sale securities are carried at fair value, with an unrealized gains and losses included in the Other income (expense) line of the Condensed Consolidated Statements of Operations. The Company recorded zero unrealized losses for the three and 16 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) nine months ended September 30, 2022, respectively. The Company recorded unrealized losses of approximately $ 0.1 million for each of the three and nine months ended September 30, 2021, respectively. Mezzanine equity When common or preferred shares are determined to be conditionally redeemable upon the occurrence of certain events that are not solely within the control of the issuer, and upon such event, the shares would become redeemable at the option of the holders, they are classified as ‘mezzanine equity’ (temporary equity). The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the future. Investment in equity securities- fair value Investment securities—fair value consist primarily of investments in equity securities and are carried at fair value in accordance with ASC 321, "Investments-Equity Securities". These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity. These securities transactions are recorded on a trade date basis. Any unrealized appreciation or depreciation on investment securities is reported in the Condensed Consolidated Statement of Operations within Unrealized Loss on Equity Securities. The Unrealized loss on equity securities for the three and nine months ended September 30, 2022 was approximately $ 5.9 million and $ 7.1 million, respectively, and for the three and nine months ended September 30, 2021 was a loss of approximately $ 22.3 million and $ 51.3 million, respectively. Revenue Recognition The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems. Hardware and Software Revenue Recognition For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer. This is when the customer has title to the product and the risks and rewards of ownership. The delivery of products to Inpixon's customers occurs in a variety of ways, including (i) as a physical product shipped from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of the customer. Accordingly, the Company is the principal in the transaction with the customer and records revenue on a gross basis. The Company receives fixed consideration for sales of hardware and software products. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year. Software As A Service Revenue Recognition With respect to sales of the Company’s maintenance, consulting and other service agreements including the Company’s digital advertising and electronic services, customers pay fixed monthly fees in exchange for the Company’s service. The Company’s performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. Professional Services Revenue Recognition The Company’s professional services include milestone, fixed fee and time and materials contracts. 17 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract. Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the nine months ended September 30, 2022 and 2021, the Company did not incur any such losses. These amounts are based on known and estimated factors. License Revenue Recognition The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software. The contracts provide for either (i) a one year stated term with a one year renewal option, (ii) a perpetual term or (iii) a two year term with the option to upgrade to a perpetual license at the end of the term. The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract. Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. The timing of the Company's revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a good or service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. A software arrangement that is provided through an access code or key represents the transfer of a good. Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. Therefore, the Company recognizes revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period. The Company recognizes revenue related to Maintenance Services evenly over the service period using a time-based measure because the Company is providing continuous service and the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are performed. Contract Balances The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. 18 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had deferred revenue of approximately $ 3.7 million and $ 4.8 million as of September 30, 2022 and December 31, 2021, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months. Stock-Based Compensation The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award. Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period. The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Forfeitures of unvested stock options are recorded when they occur. The Company incurred stock-based compensation charges of approximately $ 0.7 million and $ 1.7 million for the three months ended September 30, 2022 and 2021, respectively. The Company incurred stock-based compensation charges of approximately $ 3.0 million and $ 8.8 million for the nine months ended September 30, 2022 and 2021, respectively, which are included in general and administrative expenses. Stock-based compensation charges are related to employee compensation and related benefits. Net Income (Loss) Per Share The Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding during the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive. The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the nine months ended September 30, 2022 and 2021: For the Nine Months Ended September 30, 2022 2021 Options 363,973 160,992 Warrants 1,737,732 1,285,312 Convertible preferred stock 1,503,739 525,345 Earnout reserve — 147,493 Total 3,605,444 2,119,142 Preferred Stock The Company relies on the guidance provided by ASC 480, "Distinguishing Liabilities from Equity", to classify certain redeemable and/or convertible instruments. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain 19 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as permanent equity. The Company also follows the guidance provided by ASC 815, "Derivatives and Hedging" (“ASC 815”), which states that contracts that are both, (1) indexed to its own stock and (2) classified in stockholders’ equity in its statement of financial position, are not classified as derivative instruments, and to be recorded under stockholder's equity on the balance sheet of the financial statements. Management assessed the preferred stock and determined that it did meet the scope exception under ASC 815, and would be recorded as equity, and not a derivative instrument, on the balance sheet of the Company's financial statements. Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, investments in equity securities, short-term investment, accounts receivable, notes receivable, accounts payable, and short-term debt. Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodologies. These financial instruments, except for short-term debt and investments in equity securities, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary. Short-term debt approximates market value based on similar terms available to the Company in the market place. Recently Issued and Adopted Accounting Standards In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)” (“ASU 2020-06”) . ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted EPS calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023 for smaller reporting companies as defined by the SEC. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method. As a result of Management’s evaluation, the adoption of ASU 2020-06 did not have a material impact on the consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, "Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options'" ("ASU 2021-04"), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument's classification as equity, the company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the "new" instrument is greater than the fair value of the "original" instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash. The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities, and early adoption is permitted. The Company adopted ASU 2021-04 on January 1, 2022. As a result of Management’s evaluation, the adoption of ASU 2021-04 did not have a material impact on the consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU 2021-08"), which addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. Under the new guidance, the acquirer is required to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The effective date of the standard is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2021-08 on January 1, 2022. As a result of Management’s evaluation, the adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements. In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832)" ("ASU 2021-10"), which provides guidance on disclosing government assistance. Under the new guidance, the Company is required to including the disclosure of (1) the types of assistance, (2) an entity's accounting for the assistance, and (3) the effect of the assistance on the entity's financial statements. The effective date of the standard is for annual periods beginning after December 15, 2021. The Company 20 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 3 - Summary of Significant Accounting Policies (continued) adopted ASU 2021-10 on January 1, 2022. As a result of Management’s evaluation, the adoption of ASU 2021-10 did not have a material impact on the consolidated financial statements. 21 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 4 - Disaggregation of Revenue Disaggregation of Revenue The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems recognition policy. Revenues consisted of the following (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Recurring revenue Hardware $ — $ 3 $ — $ 3 Software 2,365 1,971 7,055 5,093 Professional services — — — 35 Total recurring revenue $ 2,365 $ 1,974 $ 7,055 $ 5,131 Non-recurring revenue Hardware $ 751 $ 1,031 $ 2,447 $ 2,244 Software 351 781 1,116 1,390 Professional services 710 664 3,515 2,092 Total non-recurring revenue $ 1,812 $ 2,476 $ 7,078 $ 5,726 Total Revenue $ 4,177 $ 4,450 $ 14,133 $ 10,857 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Revenue recognized at a point in time Indoor Intelligence (1) $ 829 $ 2,167 $ 2,524 $ 3,382 SAVES (1) 272 309 1,038 917 Shoom (1) — — — — Total $ 1,101 $ 2,476 $ 3,562 $ 4,299 Revenue recognized over time Indoor Intelligence (2) (3) $ 2,241 $ 1,067 $ 8,011 $ 3,739 SAVES (3) 318 405 1,012 1,312 Shoom (3) 517 502 1,548 1,507 Total $ 3,076 $ 1,974 $ 10,571 $ 6,558 Total Revenue $ 4,177 $ 4,450 $ 14,133 $ 10,857 (1) Hardware and Software's performance obligation is satisfied at a point in time where when they are shipped to the customer. (2) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right 22 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 4 - Disaggregation of Revenue (continued) to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time. (3) Software As A Service Revenue's performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and service is recognized overtime. Note 5 – CXApp Acquisition On March 3, 2022, we entered into a Second Amendment to that certain Stock Purchase Agreement, dated as of April 30, 2021 (the "CXApp Stock Purchase Agreement"), by and among the Company, Design Reactor, Inc. (the "CXApp") and the holders of the outstanding capital stock of CXApp (the "Sellers") with the Sellers' Representative (as defined in the CXApp Stock Purchase Agreement), pursuant to which the parties agreed that withholding taxes payable by certain of the Sellers, as applicable, in connection with the issuance of the Earnout Shares (as defined in the CXApp Purchase Agreement) would be offset up to the aggregate amount payable to such Seller by the Company from the Holdback Amount (as defined in the CXApp Purchase Agreement) and the Holdback Amount would be reduced by an equal amount. On March 3, 2022, the Company issued 144,986 shares of common stock to the Sellers in connection with the satisfaction of the Earnout Payment (as defined in the CXApp Purchase Agreement). The fair market value of the Earnout Shares issued was lower than the fair market value of the Earnout Shares as of December 31, 2021, and therefore the Company recorded a benefit of $ 2.8 million for the nine months ended September 30, 2022, which is included in the General and Administrative costs of the condensed consolidated statements of operations. 23 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 6 - Proforma Financial Information CXApp Proforma Financial Information The following unaudited proforma financial information presents the consolidated results of operations of the Company and the CXApp for the nine months ended September 30, 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on April 30, 2021. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods. The proforma financial information for Game Your Game, Visualix and IntraNav have not been presented as it is deemed immaterial. The proforma financial information for the Company and the CXApp is as follows (in thousands): For the Nine Months Ended September 30, 2021 Revenues $ 12,707 Net income (loss) attributable to common stockholders $ ( 32,503 ) Net income (loss) per basic and diluted common share $ ( 21.84 ) Weighted average common shares outstanding: Basic and Diluted 1,487,975 24 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 7- Goodwill and Intangibles Goodwill: The following table summarizes the changes in the carrying amount of Goodwill for the nine months ended September 30, 2022 (in thousands): Segments Acquisitions Balance as of January 1, 2022 Goodwill additions through acquisitions Impairment Exchange rate fluctuations as of September 30, 2022 Balance as of September 30, 2022 SAVES Systat $ 695 $ — $ ( 695 ) $ — $ — Indoor Intelligence GTX 1 — ( 1 ) — — Nanotron 1,119 — ( 1,035 ) ( 84 ) — Jibestream 480 — ( 474 ) ( 6 ) — CXApp 5,066 — ( 5,066 ) — — Game Your Game 152 — ( 152 ) — — IntraNav 159 — ( 147 ) ( 12 ) — Total $ 7,672 $ — $ ( 7,570 ) ( 102 ) $ — The Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company's goodwill balance and other assets with indefinite lives were evaluated for potential goodwill impairment on a reporting unit basis during the period ended June 30, 2022 as certain indications on a qualitative and a quantitative basis were identified that an impairment exists as of the reporting date primarily from a sustained decrease in their stock price. The Company utilized a mix of both the income and market approaches in determining the fair value of the reporting units. The Company noted that 50 % weight was attributed to the income approach and 50 % was attributed to the market approach. During the nine months ended September 30, 2022, the Company recognized approximately $ 7.6 million of goodwill impairment on Systat, GTX, Nanotron, Jibestream, CXApp, Game Your Game, and IntraNav. As of September 30, 2022, the Company's cumulative impairment charges are approximately $ 31.0 million with approximately $ 29.1 million related to the Indoor Intelligence reporting unit, approximately $ 1.2 million related to the Shoom reporting unit and approximately $ 0.7 million related to the SAVES reporting unit. As of December 31, 2021, the Company's cumulative goodwill impairment charges were approximately $ 23.4 million with approximately $ 22.2 million related to the Indoor Intelligence reporting unit and approximately $ 1.2 million related to the Shoom reporting unit. Intangibles assets at September 30, 2022 and December 31, 2021 consisted of the following (in thousands): 25 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 7- Goodwill and Intangibles (continued) Gross Carrying Amount Accumulated Amortization Amount Remaining Weighted Average Useful Life September 30, December 31, September 30, December 31, 2022 2021 2022 2021 IP Agreement $ 148 $ 172 $ ( 74 ) $ ( 54 ) 2.00 Trade Name/Trademarks 3,573 3,602 ( 1,217 ) ( 662 ) 3.58 Webstores & Websites 404 404 ( 224 ) ( 123 ) 1.33 Customer Relationships 8,984 9,294 ( 2,387 ) ( 1,440 ) 5.19 Developed Technology 21,584 22,175 ( 4,712 ) ( 3,010 ) 7.78 Non-compete Agreements 4,222 4,786 ( 2,127 ) ( 1,666 ) 1.75 Totals $ 38,915 $ 40,433 $ ( 10,741 ) $ ( 6,955 ) Amortization Expense: Amortization expense for the three and nine months ended September 30, 2022 was approximately $ 1.5 million and $ 4.6 million, respectively, and for the three and nine months ended September 30, 2021 was approximately $ 1.7 million and $ 3.6 million, respectively. 26 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 7- Goodwill and Intangibles (continued) Future amortization expense on intangibles assets is anticipated to be as follows (in thousands): Amount December 31, 2022 (for 3 months) $ 1,514 December 31, 2023 5,852 December 31, 2024 4,920 December 31, 2025 4,299 December 31, 2026 and thereafter 11,589 $ 28,174 Note 8 - Inventory Inventory as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands): As of September 30, 2022 As of December 31, 2021 Raw materials $ 369 $ 163 Work-in-process 433 539 Finished goods 1,900 1,274 Inventory $ 2,702 $ 1,976 Note 9 - Investments in Equity Securities Investment securities—fair value consist of investments in the Company’s investment in shares and rights of equity securities. The composition of the Company’s investment securities—fair value was as follows (in thousands): As of September 30, 2022 Cost Fair Value Investments in equity securities- fair value Equity shares $ 54,237 $ 1,115 Equity rights 11,064 9 Total investments in equity securities- fair value $ 65,301 $ 1,124 On April 27, 2022, the Company purchased a 10 % convertible note in aggregate principal amount of $ 6,050,000 for a purchase price of $ 5,500,000 from FOXO Technologies Operating Company, formerly FOXO Technologies Inc. (“FOXO Legacy”), pursuant to the terms of a securities purchase agreement between FOXO Legacy and the Company (the “April 2022 Purchase Agreement”). Interest on the convertible note accrues at 12 % per annum. The term of the convertible note is twelve months , however FOXO Legacy has the ability to extend the maturity date for an additional 3 months. The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the April 2022 Purchase Agreement. The Company can voluntarily convert the note after 270 days. The note is required to convert upon FOXO Legacy completing a qualified offering. 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 April 2022 Purchase Agreement. This qualified offering triggered a mandatory conversion of the convertible note to FOXO Legacy common stock which was then automatically converted into 891,124 shares of FOXO Class A common stock, par value $ 0.0001 (“FOXO common stock”) upon closing of the business combination. The Company recognized an unrealized gain on conversion of $ 0.8 million to be recognized on the income statement for the three and nine months ended September 30, 2022. 27 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American. FOXO common stock is accounted for as available-for-sale equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings. The fair value was determined by the closing trading price of the security as of September 30, 2022. The Company recognized an unrealized loss on FOXO common stock of $ 5.3 million to be recognized on the income statement for the three and nine months ended September 30, 2022. For the three months ended September 30, 2022 and 2021, inclusive of the FOXO transactions above, the Company recognized a net unrealized (gain) loss on equity securities of $ 5.9 million and $ 22.3 million, respectively, and $ 7.1 million and $ 51.3 million for the nine months ended September 30, 2022 and 2021, respectively, in the other income/expense section of the condensed consolidated statements of operations. Note 10 - Other Long Term Investments In 2020, the Company paid $ 1.8 million for 600,000 Class A Units and 2,500,000 Class B Units of Cardinal Venture Holdings LLC (“CVH”). The Company is a member of CVH. 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” under Note 1 above and “Recent Events - Proposed Spin-Off of our Enterprise Apps Business” section under Part I, Item 2 herein for more details). The $ 1.8 million purchase price was paid on October 12, 2020 and therefore is the date the purchase of the Units was closed. On December 16, 2020, the Company increased its capital contribution by $ 0.7 million in exchange for an additional 700,000 Class B Units. The capital contribution was used by CVH to fund the Sponsor's purchase of securities in KINS. The underlying subscription agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor. The Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income. During the period January 1, 2021 to December 31, 2021 and January 1, 2022 to September 30, 2022, CVH had no operating results as CVH is a holding company. CVH only contains units and has not been allocated shares of KINS, therefore CVH is not allocating any portion of income or expense incurred by KINS. As such, there was no share of earnings recognized by the Company in its statement of operations on its proportional equity investment. The following component represents components of Other long-term investments as of September 30, 2022: Ownership interest as of September 30, 2022 Instrument Held Investee CVH Class A 14.1 % Units CVH Class B 38.4 % Units Inpixon’s investment in equity method eligible entities are represented on balance sheet as an asset of $ 2.5 million as of September 30, 2022 and December 31, 2021. Ownership interest in equity method eligible entities did not change from the year ended December 31, 2021 to September 30, 2022. On July 1, 2022, the Company loaned $ 150,000 to CVH. The loan bears no interest and is due and payable in full on the earlier of: (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, the Company’s 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. Note 11 - Accrued Liabilities 28 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Accrued liabilities as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands): As of September 30, 2022 As of December 31, 2021 Accrued compensation and benefits $ 1,186 $ 8,027 Accrued interest expense 1,341 1,012 Accrued bonus and commissions 830 597 Accrued other 863 707 Accrued sales and other indirect taxes payable 150 322 $ 4,370 $ 10,665 Note 12 - Debt Debt as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands): Short-Term Debt Maturity September 30, 2022 December 31, 2021 March 2020 10 % Note 3/18/2023 $ 58 $ 3,251 Streeterville Note, less debt discount of $ 1,123 and zero , respectively. 7/22/2023 $ 5,343 — Third Party Note Payable 12/31/2022 $ 778 239 Total Short-Term Debt $ 6,179 $ 3,490 Interest expense on the short-term debt totaled approximately $ 0.2 million and $ 1.4 million for the three months ended September 30, 2022 and 2021, respectively, and approximately $ 0.4 million and $ 2.0 million for the nine months ended September 30, 2022 and 2021, respectively, which was amortized to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the Short Term Debt. Notes Payable March 2020 10 % Note Purchase Agreement and Promissory Note On March 18, 2020, the Company entered into a note purchase agreement with Iliad Research and Trading, L.P. ("Iliad"), pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “March 2020 10 % Note”) in an aggregate initial principal amount of $ 6.5 million, which is payable on or before the date that is 12 months from the issuance date. The initial principal amount includes an original issue discount of $ 1.5 million and $ 0.02 million that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the March 2020 10 % Note, the holder paid an aggregate purchase price of $ 5.0 million. Interest on the March 2020 10 % Note accrues at a rate of 10 % per annum and is payable on the maturity date or otherwise in accordance with the March 2020 10 % Note. The Company may pay all or any portion of the amount owed earlier than it is due; provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115 % of the portion of the outstanding balance the Company elects to prepay. Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the March 2020 10 % Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the March 2020 10 % Note each month by providing written notice delivered to the Company; provided, however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption amount. Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption Notice. The March 2020 10 % Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22 %. Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings, the 29 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 12- Debt (continued) holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10 % Note to be immediately due and payable. Upon the occurrence of a bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10 % Note will become immediately due and payable at the mandatory default amount. On September 17, 2020, the Company amended the one time monitoring fee applicable in the event the note was outstanding on the date that was 6 months from the issuance date, from 10 % to 5 % which was added to the March 2020 10 % Note balance. On March 17, 2021, the Company extended the maturity date of the March 2020 10 % Note from March 18, 2021 to March 18, 2022. On February 11, 2021, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 1.5 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 1.5 million; and (ii) exchange the partitioned note for the delivery of 11,919 shares of the Company’s common stock, at an effective price per share equal to $ 125.85 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and recorded approximately a $ 30,000 loss on the exchange of debt for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations for nine months ended September 30, 2021. The Company entered into an exchange agreement with Iliad which afforded a free trading date of July 1, 2021, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to $ 1.0 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by $ 1.0 million; and (ii) exchange the partitioned note for the delivery of 11,696 shares of the Company’s common stock, at an effective price per share equal to $ 85.50 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On February 1, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note 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 15,889 shares of the Company’s common stock, at an effective price per share equal to $ 31.47 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On February 18, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition 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 12,885 shares of the Company’s common stock, at an effective price per share equal to $ 27.17 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On March 15, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition 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 28,698 shares of the Company’s common stock, at an effective price per share equal to $ 22.65 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. Effective as of March 16, 2022, we entered into a third amendment (the “Third Amendment”) to the Original Note which was accounted for as a modification. Pursuant to the terms of the Third Amendment, the maturity date of the Original Note was extended from March 18, 2022 to March 18, 2023 (the “Maturity Date Extension”). In exchange for the Maturity Date Extension, we agreed to pay a 2 % extension fee in the amount of approximately $ 56,860 (the “Extension Fee”), which was added to the outstanding balance of the Original Note. On May 17, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.3 million and 30 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 12- Debt (continued) then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.3 million; and (ii) exchange the partitioned note for the delivery of 15,256 shares of the Company’s common stock, at an effective price per share equal to $ 16.50 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On May 31, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.3 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.3 million; and (ii) exchange the partitioned note for the delivery of 19,806 shares of the Company’s common stock, at an effective price per share equal to $ 12.75 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On July 1 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.4 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.4 million; and (ii) exchange the partitioned note for the delivery of 32,074 shares of the Company’s common stock, at an effective price per share equal to $ 10.91 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On July 11, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.4 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.4 million; and (ii) exchange the partitioned note for the delivery of 33,949 shares of the Company’s common stock, at an effective price per share equal to $ 11.78 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On August 4, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.3 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.3 million; and (ii) exchange the partitioned note for the delivery of 25,691 shares of the Company’s common stock, at an effective price per share equal to $ 11.68 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. On September 9, 2022, the Company entered into an exchange agreement with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition a new promissory note in the form of the March 2020 10 % Note equal to approximately $ 0.2 million and then cause the outstanding balance of the March 2020 10 % Note to be reduced by approximately $ 0.2 million; and (ii) exchange the partitioned note for the delivery of 19,871 shares of the Company’s common stock, at an effective price per share equal to $ 10.07 . The Company analyzed the exchange of the principal under the March 2020 10 % Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity. July 2022 Note Purchase Agreement and Promissory Note On July 22, 2022, the Company entered into a note purchase agreement (the "Purchase Agreement") with Streeterville Capital, LLC (the “Holder”), pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “Note”) in an aggregate initial principal amount of $ 6.5 million (the “Initial Principal Amount”), which is payable on or before the date that is 12 months from the issuance date (the “Maturity Date”). The Initial Principal Amount includes an original issue discount of $ 1.5 million and $ 0.02 million that the Company agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the Note, the Holder paid an aggregate purchase price of $ 5.0 million (the “Transaction”). Interest on the Note accrued at a rate of 10 % per annum, which is payable on the maturity date. Beginning on the date that is 6 months from the issue date and at the intervals indicated below until the 31 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 12- Debt (continued) Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the Note for cash each month. Third Party Note Payable Game Your Game entered into promissory notes with an individual whereby it received approximately $ 0.2 million on October 29, 2021, approximately $ 0.2 million on January 18, 2022, approximately $ 0.1 million on March 22, 2022, approximately $ 0.1 million on August 17, 2022, and approximately $ 0.1 million on September 21, 2022 for funding of outside liabilities and working capital needs. All of the promissory notes have an interest rate of 8 % and are due on or before December 31, 2022. As of September 30, 2022, the balance owed under the notes was $ 0.8 million. Note 13 - Capital Raises Registered Direct Offerings On January 24, 2021, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 77,334 shares of its common stock, and 5-year warrants to purchase up to 258,065 shares of common stock at an exercise price of $ 116.25 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $ 116.25 per share and pre-funded warrants to purchase up to 180,732 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 116.18 per share for net proceeds of approximately $ 27.8 million. The January 2021 Pre-funded Warrants were exercised in full as of February 8, 2021. In addition, the investor exercised its purchase rights for 40,000 shares of common stock pursuant to the January 2021 Purchase Warrant on February 11, 2021. In January 2022, the January 2021 Purchase Warrants were exchanged for shares of the Company's common stock in connection with the Warrant Exchange (as defined below). See Note 14 - Common Stock. On February 12, 2021, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 93,334 shares of its common stock, and 5-year warrants to purchase up to 200,000 shares of common stock at an exercise price of $ 150.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $ 150.00 per share and pre-funded warrants to purchase up to 106,667 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 149.93 per share for net proceeds of approximately $ 27.8 million. The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021. In January 2022, the February 2021 Purchase Warrants were exchanged for shares of the Company's common stock in connection with the Warrant Exchange. See Note 14 - Common Stock. On February 16, 2021, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which the Company sold in a registered direct offering, 40,000 shares of its common stock, and 5-year warrants to purchase up to 132,670 shares of common stock at an exercise price of $ 150.75 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $ 150.75 per share and pre-funded warrants to purchase up to 92,670 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $ 0.08 per share, at a purchase price of $ 150.68 per share for net proceeds of $ 18.5 million after deducting placement agent commissions and offering expenses. The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021. In January 2022, the Second February 2021 Purchase Warrants were exchanged for shares of the Company's common stock in connection with the Warrant Exchange. See Note 14 - Common Stock. On September 13, 2021, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 58,750 shares of Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 626,667 shares of common stock. Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $ 920 , representing an original issue discount of 8 % of the stated value of each share of Series 7 Convertible Preferred Stock for an aggregate subscription amount of $ 54.1 million. In connection with this offering, the Company filed a Certificate of Designation for the Series 7 Convertible Preferred Stock with the Nevada Secretary of State. The Company has authorized the issuance of 5,000,000 shares of preferred stock, of which none were issued and outstanding as of September 30, 2022. Each share of Series 7 Convertible Preferred Stock has a par value of $ 0.001 per share and stated value of $ 1,000 per share. The shares of Series 7 Convertible Preferred Stock are convertible into shares of the Company’s common stock, at a conversion price of $ 93.75 per share. Each share of Series 7 Convertible Preferred Stock is entitled to receive cumulative dividends, payable in the same form as dividends paid on shares of 32 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 13- Capital Raises (continued) the Company’s common stock. At any time beginning on the 6-month anniversary of the date the shares of Series 7 Convertible Preferred Stock are issued and ending 90 days thereafter, the holders of the Series 7 Convertible Preferred Stock have the right to redeem all or part of the shares held by such holder in cash for the redemption price equal to the stated value of such share, plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses or amounts due. Upon redemption, the holder of the Series 7 Convertible Preferred Stock will forfeit 75 % of the warrants issued in connection therewith. The holders of the Series 7 Convertible Preferred Stock are entitled to vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. The Series 7 Convertible Preferred Stock and related warrants subject to forfeiture are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash and the warrants are an embedded feature for the Series 7 Convertible Preferred Stock. The remaining warrants that are not subject to forfeiture are recorded within Stockholders' Equity as the remaining warrants are classified as freestanding instruments The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 50.6 million. All of the shares of Series 7 Convertible Preferred Stock were redeemed in March 2022 and 75 % of the related warrants were forfeited. See Note 1 5 for Preferred Stock and Note 18 for Warrant details. On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock. Each share of Series 8 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value of each share of Series 8 Convertible Preferred Stock for an aggregate subscription amount of $ 50.0 million. In connection with this offering, the Company filed a Certificate of Designation for the Series 8 Convertible Preferred Stock with the Nevada Secretary of State. Each share of Series 8 Convertible Preferred Stock has a par value of $ 0.001 per share and stated value of $ 1,000 per share. The shares of Series 8 Convertible Preferred Stock are convertible into shares of the Company’s common stock, at a conversion price of $ 35.38 per share. Each share of Series 8 Convertible Preferred Stock is entitled to receive cumulative dividends, payable in the same form as dividends paid on shares of the Company’s common stock. At any time beginning on October 1, 2022 and ending ninety 90 days thereafter, the holders of the Series 8 Convertible Preferred Stock have the right to redeem all or part of the shares held by such holder in cash for the redemption price equal to the stated value of such share, plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses or amounts due. Upon redemption, the holder of the Series 8 Convertible Preferred Stock will forfeit 50 % of the warrants issued in connection therewith. The holders of the Series 8 Convertible Preferred Stock shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. The Series 8 Convertible Preferred Stock and related warrants subject to forfeiture are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash and the warrants are an embedded feature for the Series 8 Convertible Preferred Stock. The remaining warrants that are not subject to forfeiture are recorded within Stockholders' Equity as the remaining warrants are classified as freestanding instruments containing a total value of $ 5.6 million. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 46.9 million. See Note 1 5 for Preferred Stock and Note 18 for Warrant details. 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 paid of approximately $ 45.8 million. Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $ 49.3 million. In addition, in accordance with the related purchase agreement, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75 % of the related warrants that were issued. Therefore, as of March 22, 2022, 49,250 shares of Series 7 Convertible Preferred Stock were redeemed and 394,000 related warrants were forfeited. The Company noted about 71 % of the Series 7 Preferred Stock holders that redeemed shares also participated as Series 8 Convertible Preferred Stock holders (“shared holders”). The Company accounted for proceeds of the shared holders as a modification to the Series 7 and Series 8 Convertible Preferred Stock, as well as the related embedded warrants. The total change in fair value as a result of modification related to the Preferred Stock amounted to $ 2.6 million which were recognized as a deemed dividend at the date of the modification, upon which will be amortized until the redemption period begins on October 1, 2022. The total change in fair value as a result of modification related to the embedded warrants amounted to $ 1.5 million which was recognized as a deemed contribution at the date of the modification, upon which will be accreted until the redemption period begins on October 1, 2022. 33 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 13- Capital Raises (continued) On July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 25 million (the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the “Offering”). The Company intends to use the net proceeds of the Offering primarily for working capital and general corporate purposes. The Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the date on which any such sales will take place. 34 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 14 - Common Stock On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants of the Company which were exercisable for an aggregate of 657,402 shares of the Company’s common stock. Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 184,153 shares of common stock and rights to receive an aggregate of 52,513 shares of common stock in exchange for the existing warrants (the "Warrant Exchange"). On February 19, 2022, 12,802 shares of common stock issued in connection with restricted stock grants were withheld for employee taxes. On March 3, 2022, the Company issued 144,986 shares of common stock to the sellers of the CXApp in connection with the satisfaction of an earnout payment. See Note 5. During the three months ended March 31, 2022, the Company issued 57,472 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1.5 million under partitioned notes. During the three months ended June 30, 2022, the Company issued 35,062 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 0.5 million under partitioned notes. See Note 12 . During the three months ended September 30, 2022, the Company issued 111,585 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $ 1.3 million under partitioned notes. Note 12 . Note 1 5 - Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors. Series 4 Convertible Preferred Stock On April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and limitations of the Series 4 Preferred. The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $ 1,000 per share to be converted by $ 16,740 . As of September 30, 2022, there was 1 share of Series 4 Preferred outstanding. Series 5 Convertible Preferred Stock On January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations of the Series 5 Convertible Preferred Stock. The Series 5 Convertible Preferred Stock is non-voting (except to the extent required by law). The Series 5 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 11,238.75 . As of September 30, 2022, there were 126 shares of Series 5 Convertible Preferred Stock outstanding. Series 7 Convertible Preferred Stock On September 13, 2021, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada, amending the Company’s Articles of Incorporation, as amended, to establish the Series 7 Convertible Preferred Stock, consisting of 58,750 authorized shares, $ 0.001 par value per share and $ 1,000 stated value per share. The holders of the Series 35 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 15- Preferred Stock (continued) 7 Convertible Preferred Stock have full voting rights and powers, except as otherwise required by the Articles of Incorporation, as amended, or applicable law. The holders of Series 7 Convertible Preferred Stock are entitled to vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. Each holder of the Series 7 Convertible Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which the Series 7 Convertible Preferred Stock 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). The Series 7 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 7 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 93.75 . On September 13, 2021, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 58,750 shares of Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 626,667 shares of common stock (the “Warrants”). Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $ 920 , representing an original issue discount of 8 % of the stated value for an aggregate subscription amount of $ 54.1 million. The shares of Series 7 Convertible Preferred Stocks are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $ 50.6 million. The Company has elected to accrete the issuance costs, discount, and freestanding warrants through the date shares can be first be redeemed at the option of the holders, which is the sixth month anniversary of the original issuance date using the effective interest method. During the year ended December 31, 2021, 9,500 shares of Series 7 Convertible Preferred Stock were converted into 101,334 shares of the Company's common stock. Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash paid of approximately $ 49.3 million. As of September 30, 2022, there were zero shares of Series 7 Convertible Preferred Stock outstanding. Series 8 Convertible Preferred Stock On March 22, 2022, the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada, amending the Company’s Articles of Incorporation, as amended, by establishing the Series 8 Convertible Preferred Stock, consisting of 53,197.7234 authorized shares, $ 0.001 par value per share and $ 1,000 stated value per share. The holders of the Series 8 Convertible Preferred Stock have full voting rights and powers, except as otherwise required by the Articles of Incorporation, as amended, or applicable law. The holders of Series 8 Convertible Preferred Stock are entitled to vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. Each holder of the Series 8 Convertible Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which the Series 8 Convertible Preferred Stock 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). The Series 8 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 8 Convertible Preferred Stock of $ 1,000 per share to be converted by $ 35.38 . On March 22, 2022, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock (the “Warrants”). Each share of Series 8 Convertible Preferred Stock and the related Warrants (see Note 18) were sold at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value for an aggregate subscription amount of $ 50.0 million. The shares of Series 8 Convertible Preferred Stocks are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash. The aggregate net proceeds from the 36 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 15- Preferred Stock (continued) offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $ 46.9 million. The Company has elected to accrete the issuance costs, discount, and freestanding warrants through the date shares can be first be redeemed at the option of the holders, which is the sixth month anniversary of the original issuance date using the effective interest method. As of September 30, 2022, there were 53,197.7234 shares of Series 8 Convertible Preferred Stock outstanding. 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. Note 16- Authorized Share Increase On November 18, 2021, the Company filed a certificate of amendment to the Company’s articles of incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock from 3,333,334 to 26,666,667 shares effective as of November 18, 2021. The authorized shares listed herein are adjusted for the 1 for 75 reverse stock split that was effective October 7, 2022. Note 17 - Stock Award Plans and Stock-Based Compensation In September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors. The plan was terminated by its terms on August 31, 2021 and no new awards will be issued under the 2011 Plan. In February 2018, the Company adopted the 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Option Plans”), which is utilized for employees, corporate officers, directors, consultants and other key persons employed. The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan). Incentive stock options granted under the Option Plans are granted at exercise prices not less than 100 % of the estimated fair market value of the underlying common stock at date of grant. The exercise price per share for incentive stock options may not be less than 110 % of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company. Options granted under the Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years . The aggregate number of shares that may be awarded under the 2018 Plan as of September 30, 2022 is 653,334 . As of September 30, 2022, 406,941 of stock options and restricted stock were granted to employees, directors and consultants of the Company (including 1 share outside of our plan and 68 under our 2011 Plan) and 246,462 options were available for future grant under the 2018 Plan. Employee Stock Options During the nine months ended September 30, 2021, the Company granted options under the 2018 Plan for the purchase of 21,400 shares of common stock to employees and consultants of the Company. These options are 100 % vested or vest pro-rata over 12 , 24 or 36 months, have a life of ten years and an exercise price of $ 137.25 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately $ 1.0 million. The fair value of the common stock as of the grant date was determined to be $ 137.25 per share. On February 5, 2021, the Company issued 67 shares of common stock in connection with the cashless exercise of 195 employee stock options. On June 10, 2021, the Company issued 6 shares of common stock in connection with the cashless exercise of 82 employee stock options. 37 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 17 - Stock Award Plans and Stock-Based Compensation (continued) During the nine months ended September 30, 2022, the Company granted options under the 2018 Plan for the purchase of 132,669 shares of common stock to employees and consultants of the Company. These options are 100 % vested or vest pro-rata over 12 or 48 months, have a life of ten years and an exercise price of $ 39.75 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately $ 1.8 million. The fair value of the common stock as of the grant date was determined to be $ 39.75 per share. During the three months ended September 30, 2022 and 2021, the Company recorded a charge for the amortization of stock options of approximately $ 0.7 million and $ 0.6 million, respectively, and approximately $ 2.2 million and $ 1.4 million for the nine months ended September 30, 2022 and 2021, respectively, which is included in the general and administrative section of the condensed consolidated statement of operations. As of September 30, 2022, the fair value of non-vested stock options totaled approximately $ 3.0 million, which will be amortized to expense over the weighted average remaining term of 1.11 years. See below for a summary of the stock options granted under the 2011 and 2018 plans: 2011 Plan 2018 Plan Non Plan Total Beginning balance as of January 1, 2022 73 251,932 1 252,006 Granted — 132,669 — 132,669 Exercised — — — — Expired ( 5 ) ( 4,005 ) — ( 4,010 ) Forfeited — ( 16,692 ) — ( 16,692 ) Ending balance as of September 30, 2022 68 363,904 1 363,973 The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key weighted-average assumptions used to apply this pricing model during nine months ended September 30, 2022 were as follows: For the Nine Months Ended September 30, 2022 Risk-free interest rate 1.50 % Expected life of option grants 5 years Expected volatility of underlying stock 37.24 % Dividends assumption - - The expected stock price volatility for the Company’s stock options was determined by the historical volatility for industry peers and used an average of those volatility. The Company attributes the value of stock-based compensation to operations on the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The dividends assumptions was $ 0 as the Company historically has not declared any dividends and does not expect to. Restricted Stock Awards On February 19, 2021, the Company granted 70,000 restricted stock awards to employees of the Company. These stock awards vest either 25 % on the grant date and 25 % on each one year anniversary of the grant date or 50 % on the grant date and 50 % on the one year anniversary. In accordance with the terms of the restricted stock award agreements 12,291 shares of common stock underlying the awards were withheld by the Company in satisfaction of the employee portion of the payroll taxes required to paid in connection with the grant of such awards. On April 23, 2021, the Company granted 4,598 restricted stock awards to employees of the Company. These stock awards either vest 50 % at the 6 months anniversary and 50 % on the one year anniversary or over 2 years pro rata every 6 months. On August 21, 2021, 4,500 of unvested restricted stock award grants were forfeited in connection with the departure of an employee. 38 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 17 - Stock Award Plans and Stock-Based Compensation (continued) On February 19, 2022, 12,802 restricted stock grants were forfeited for employee taxes. During the three months ended September 30, 2022 and 2021, the Company recorded a charge of $ 0.03 million and $ 1.1 million, respectively, and $ 0.7 million and $ 7.4 million for the nine months ended September 30, 2022 and 2021, respectively, for the amortization of vested restricted stock awards. The following table summarizes restricted stock based award activity granted: Restricted Stock Grants Beginning balance as of January 1, 2022 55,770 Granted — Exercised — Expired — Forfeited ( 12,802 ) Ending balance as of September 30, 2022 42,968 The Company determined the fair value of these grants based on the closing price of the Company’s common stock on the respective grant dates. The compensation expense is being amortized over the respective vesting periods. Note 18 - Warrants On January 24, 2021, Inpixon entered into a securities purchase agreement (the "January 2021 Purchase Agreement") with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 77,334 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 258,065 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 116.25 per share. The Purchase Warrants have an exercise price of $ 116.25 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 Investor pre-funded warrants to purchase up to 40,000 shares of common stock (the “Pre-Funded Warrants” and, together with the 77,334 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 116.18 , and the exercise price of each Pre-Funded Warrant is $ 0.08 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. During the year ended December 31, 2021, the Company issued 180,732 shares of common stock in connection with the exercise of 180,732 Pre-Funded Warrants at $ 0.08 per share in connection with the January 2021 Purchase Agreement. On February 12, 2021, Inpixon entered into a securities purchase agreement (the "February 12, 2021 Securities Purchase Agreement") with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 93,334 shares of the Company’s common stock, par value $ 0.001 per share, and warrants to purchase up to 200,000 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 150.00 per share. The Purchase Warrants have an exercise price of $ 150.00 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 Investor pre-funded warrants to purchase up to 106,667 shares of common stock (the “Pre-Funded Warrants” and, together with the 93,334 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 149.93 , and the exercise price of each Pre-Funded Warrant is $ 0.08 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. 39 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 18 - Warrants (continued) During the year ended December 31, 2021, the Company issued 106,667 shares of common stock in connection with the exercise of 106,667 Pre-Funded Warrants at an exercise price of $ 0.08 per share in connection with the February 12, 2021 Securities Purchase Agreement. On February 16, 2021, Inpixon entered into a securities purchase agreement (the "February 16, 2021 Securities Purchase Agreement") with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 40,000 shares of the Company’s common stock, par value 0.001 per share, and warrants to purchase up to 132,670 shares of common stock (the “Purchase Warrants”) at a combined offering price of $ 150.75 per share. The Purchase Warrants have an exercise price of $ 150.75 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 Investor pre-funded warrants to purchase up to 92,670 shares of common stock in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $ 150.68 , and the exercise price of each Pre-Funded Warrant is $ 0.08 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. During the year ended December 31, 2021, the Company issued 92,670 shares of common stock in connection with the exercise of 92,670 pre-funded warrants at $ 0.08 per share in connection with the February 16, 2021 Securities Purchase Agreement. On September 13, 2021, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company agreed to issue and sell, in a registered direct offering sold an aggregate of 58,750 shares of the Company’s Series 7 Convertible Preferred Shares, par value $ 0.001 per share, which are convertible into 626,667 shares of the Company’s common stock and warrants to purchase up to 626,667 shares of common stock. Each share and related warrants were sold together at a subscription amount of $ 920 , representing an original issue discount of 8 % of the stated value for an aggregate subscription amount of $ 54.1 million. On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants of the Company which were exercisable for an aggregate of 657,402 shares of the Company’s common stock. Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 184,153 shares of common stock and rights to receive an aggregate of 52,513 shares of common stock in exchange for the existing warrants. The Company accounted for the exchange agreement as a warrant modification. The Company determined the fair value of the existing warrants as if issued on the exchange agreement date and compared that to the fair value of the common stock issued. The Company calculated the fair value of the existing warrants using a Black-Scholes Option pricing model and determined it to be approximately $ 12.00 per share. The fair value of the common stock issued was based on the closing stock price of the date of the exchange. The total fair value of the warrants prior to modification was greater than the fair value of the common stock issued, and therefore, there was no incremental fair value related to the exchange. Between March 15 and March 22, 2022, we received cash redemption notices from the holders of the Company's Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $ 49.3 million. In addition, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75 % of the related warrants that were issued together with the Series 7 Convertible Preferred Stock (the "Series 7 Warrants"). 394,000 corresponding warrants issued in connection with the issuance of the Series 7 Convertible Preferred Stock been forfeited and 232,675 related warrants remain outstanding. On March 22, 2022, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company agreed to issue and sell, in a registered direct offering sold an aggregate of 53,197.7234 shares of the Company’s Series 8 Convertible Preferred Shares, par value $ 0.001 per share, and warrants to purchase up to 1,503,726 shares of common stock. Each share and related warrants were sold together at a subscription amount of $ 940 , representing an original issue discount of 6 % of the stated value for an aggregate subscription amount of $ 50.0 million. 40 INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 19- Income Taxes There is an income tax benefit of approximately $ 0 million and $ 0.9 million for the three months ended September 30, 2022 and 2021, respectively. 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. The Company’s effective tax rate varies from the statutory rate as a result of state taxes and release of valuation allowance. Note 20 - Credit Risk and Concentrations Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash is also maintained at foreign financial institutions for its Canadian subsidiary, UK subsidiary, German subsidiaries and its majority-owned India and Philippines subsidiaries. Cash in foreign financial institutions as of September 30, 2022 and December 31, 2021 was immaterial. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash. During the three and nine months ended September 30, 2022 and 2021, no customer accounted for at least 10% of revenue. As of September 30, 2022, two customers represented approximately 22 % of total accounts receivable. As of September 30, 2021, two customers represented approximately 27 % of total accounts receivable. As of September 30, 2022, two vendors represented approximately 34 % of total gross accounts payable. Purchases from these vendors during the nine months ended September 30, 2022 was approximately $ 1.6 million. As of September 30, 2021, two vendors represented approximately 37 % of total gross accounts payable. Purchases from these vendors during the nine months ended September 30, 2021 was approximately $ 0.5 million. For the nine months ended September 30, 2022, one vendors represented approximately 33 % of total purchases. For the nine months ended September 30, 2021, three vendors represented approximately 24 %, 18 %, and 8 % of total purchases. Segments The Company’s operations consist of three reportable segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments: Indoor Intelligence, SAVES, and Shoom. During the second quarter of 2021, the Company changed the level of detail at which its Chief Executive Officer (“CEO”) acting as the Chief Operating Decision Maker, or “CODM”) regularly reviews and manages certain of its businesses, resulting in the bifurcation of its former one segment into three standalone reportable segments: Indoor Intelligence, SAVES, and Shoom. The Company now manages and reports its operating results through these three reportable segments. This change allows the Company to enhance its customer focus and better align its business models, resources, and cost structure to the specific current and future growth drivers of each business, while providing increased transparency to the Company’s shareholders. The historical segment information has been recast to conform to the current segment structure. Gross profit is the primary measure of segment profitability used by the Company’s CODM. Revenues and gross profit segments consisted of the following (in thousands): 41 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 20 - Credit Risk and Concentrations (continued) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Revenue by Segment Indoor Intelligence $ 3,069 $ 3,234 $ 10,535 $ 7,121 SAVES 590 714 2,050 2,229 Shoom 518 502 1,548 1,507 Total segment revenue 4,177 4,450 $ 14,133 $ 10,857 Gross profit by Segment Indoor Intelligence $ 2,124 $ 2,343 $ 7,468 $ 5,020 SAVES 341 490 1,315 1,588 Shoom 457 431 1,313 1,283 Gross profit by Segment $ 2,922 $ 3,264 $ 10,096 $ 7,891 Income (loss) from operations by Segment Indoor Intelligence $ ( 10,116 ) $ ( 12,747 ) $ ( 39,107 ) $ ( 38,620 ) Saves ( 455 ) 61 ( 1,813 ) ( 235 ) Shoom 178 230 573 686 Income (loss) from operations by Segment $ ( 10,393 ) $ ( 12,456 ) $ ( 40,347 ) $ ( 38,169 ) The reporting package provided to the Company's CODM does not include the measure of assets by segment as that information isn't reviewed by the CODM when assessing segment performance or allocating resources. 42 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 21 - Fair Value of Financial Instruments The Company's estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy. The Company's assets measured at fair value consisted of the following at September 30, 2022 and December 31, 2021: Fair Value at September 30, 2022 Total Level 1 Level 2 Level 3 Assets: Short-term investments $ — $ — $ — $ — Investments in equity securities 1,124 1,077 — 47 Investments in debt securities — — — — Total assets $ 1,124 $ 1,077 $ — $ 47 Fair Value at December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Short-term investments $ 43,125 $ 43,125 $ — $ — Investments in equity securities 1,838 — — 1,838 Total assets $ 44,963 $ 43,125 $ — $ 1,838 The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value. Short-term investments represent U.S. treasury bills with maturities greater than three months. The fair value of the U.S. treasury bills are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The market for U.S. treasury bills is an actively traded market given the high level of daily trading volume. All U.S. treasury bills were sold by the Company during the nine months ended September 30, 2022. Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity. The fair value for Level 1 equity investments was determined using quoted prices of the security in active markets. The fair value for Level 3 equity investments was determined using a pricing model with certain significant unobservable market data inputs. Investments in debt securities are valued using an option pricing model under the income approach methodology as the investment does not have observable inputs of identical or comparable instruments. The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value For the Nine Months Ended September 30, 2022: 43 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Level 3 Level 3 Investments Balance at January 1, 2022 $ 1,838 Transfers in - FOXO Technologies, Inc. convertible note 6,050 FOXO Technologies, Inc. - Original issue discount ( 550 ) FOXO Technologies, Inc. - Conversion of note to equity security ( 5,500 ) Unrealized loss on equity securities ( 1,791 ) Balance at September 30, 2022 $ 47 The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value for the nine months ended September 30, 2021: Level 3 Level 3 Investments Balance at January 1, 2021 $ — Transfers in- Sysorex Securities Settlement Agreement Benefit (provision for valuation allowance on related party loan - held for sale 7,461 Interest income (expense), net 1,627 Gain on related party loan held for sale 49,817 Unrealized loss on equity securities ( 51,250 ) Balance at September 30, 2021 $ 7,655 44 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 22 - Foreign Operations The Company’s operations are located primarily in the United States, Canada, India, Germany, Ireland, Philippines, and the United Kingdom. Revenues by geographic area are attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands): United States Canada India Germany United Kingdom Ireland Philippines Eliminations Total For the Three Months Ended September 30, 2022: Revenues by geographic area $ 2,922 $ 484 $ 481 $ 880 $ 90 $ 1 $ — $ ( 681 ) $ 4,177 Operating (loss) income by geographic area $ ( 7,562 ) $ ( 1,401 ) $ 65 $ ( 1,334 ) $ 16 $ ( 139 ) $ ( 60 ) $ 22 $ ( 10,393 ) Net (loss) income by geographic area $ ( 12,890 ) $ ( 2,950 ) $ 107 $ ( 1,926 ) $ 22 $ ( 291 ) $ ( 64 ) $ ( 1 ) $ ( 17,993 ) For the Three Months Ended September 30, 2021: Revenues by geographic area $ 3,189 $ 557 $ 255 $ 879 $ 119 $ 2 $ — $ ( 551 ) $ 4,450 Operating (loss) income by geographic area $ ( 10,497 ) $ ( 1,190 ) $ ( 28 ) $ ( 667 ) $ 25 $ ( 99 ) $ — $ — $ ( 12,456 ) Net (loss) income by geographic area $ ( 31,892 ) $ ( 1,182 ) $ ( 29 ) $ ( 720 ) $ 19 $ ( 145 ) $ — $ — $ ( 33,949 ) For the Nine months ended September 30, 2022: Revenues by geographic area $ 9,777 $ 1,701 $ 1,163 $ 2,851 $ 331 $ 6 $ — $ ( 1,696 ) $ 14,133 Operating (loss) income by geographic area $ ( 30,536 ) $ ( 4,476 ) $ 192 $ ( 5,102 ) $ 70 $ ( 431 ) $ ( 87 ) $ 23 $ ( 40,347 ) Net (loss) income by geographic area $ ( 36,818 ) $ ( 6,549 ) $ 195 $ ( 5,938 ) $ 78 $ ( 756 ) $ ( 92 ) $ — $ ( 49,880 ) For the Nine Months Ended September 30, 2021: Revenues by geographic area $ 7,245 $ 2,018 $ 919 $ 2,288 $ 288 $ 2 $ — $ ( 1,903 ) $ 10,857 Operating (loss) income by geographic area $ ( 32,095 ) $ ( 3,655 ) $ 23 $ ( 2,297 ) $ 32 $ ( 177 ) $ — $ — $ ( 38,169 ) Net (loss) income by geographic area $ ( 26,133 ) $ ( 3,371 ) $ 10 $ ( 2,284 ) $ 23 $ ( 227 ) $ — $ — $ ( 31,982 ) As of September 30, 2022: Identifiable assets by geographic area $ 181,374 $ 5,784 $ 740 $ 17,886 $ 236 $ 19 $ 253 $ ( 97,711 ) $ 108,595 Long lived assets by geographic area $ 23,958 $ 4,916 $ 121 $ 3,279 $ 1 $ 4 $ 232 $ — $ 32,488 Goodwill by geographic area $ — $ — $ — $ — $ — $ — $ — $ — $ — As of December 31, 2021: Identifiable assets by geographic area $ 216,338 $ 7,191 $ 675 $ 20,238 $ 283 $ 69 $ — $ ( 88,121 ) $ 156,673 Long lived assets by geographic area $ 27,773 $ 5,864 $ 181 $ 4,624 $ 2 $ 4 $ — $ — $ 38,448 Goodwill by geographic area $ 5,914 $ 480 $ — $ 1,278 $ — $ — $ — $ — $ 7,672 45 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 23 - Related Party Transactions Nadir Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, was a member of the Board of Directors of Sysorex, Inc. ("Sysorex") until he resigned on May 14, 2021. In addition, Nadir Ali previously entered into a consulting agreement with Sysorex, pursuant to which he agreed to provide certain business services specified in the agreement for the benefit of Sysorex in exchange for shares of Sysorex's common stock. The consulting agreement was terminated on October 14, 2021. Sysorex Note Purchase Agreement On December 31, 2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below), a secured promissory note (the “Secured Note”) for up to an aggregate principal amount of $ 3 million (the “Principal Amount”), including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the “Loan Amount”), with interest to accrue at a rate of 10 % percent per annum on all such Loan Amounts, beginning as of the date of disbursement with respect to any portion of such Loan Amount. In addition, Sysorex agreed to pay $ 20,000 to the Company to cover the Company’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the Principal Amount. Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding balance, exclusive of any unpaid accrued interest, not to exceed the Principal Amount at any one time. All sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will become part of the aggregate Loan Amount underlying the Secured Note. All outstanding principal amounts and accrued unpaid interest owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in the Secured Note. All accrued unpaid interest shall be payable in cash. On February 4, 2019, April 2, 2019, and May 22, 2019, the Secured Note was amended to increase the Principal Amount from $ 3 million to $ 5 million, $ 5 million to $ 8 million and $ 8 million to $ 10 million, respectively. On March 1, 2020, the Company extended the maturity date of the Secured Note to December 31, 2022. In addition, the Secured Note was amended to increase the default interest rate from 18 % to 21 % or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount in an amount equal to no less than 6 % of the aggregate gross proceeds raised following the completion of any financing, or series of related financings, in which Sysorex raises aggregate gross proceeds of at least $ 5 million. In accordance with the terms of the Systat License Agreement, on June 30, 2020, the Company partitioned a portion of the outstanding balance of the Secured Note into a new note in an amount equal to $ 3 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement ("Assignment Agreement"). An additional $ 2.3 million of the principal balance underlying the Sysorex Note was partitioned into a new note and assigned to Systat as consideration payable for the rights granted under the license as of December 31, 2020. During the year ended December 31, 2020, an additional amount of approximately $ 2.6 million was advanced under the Secured Note and approximately $ 200,000 was repaid. The amount owed for principal as of December 31, 2020 and accrued interest through September 30, 2019 by Sysorex to the Company as of December 31, 2020 was approximately $ 7.7 million. These amounts excludes $ 275,000 of additional interest that the Company is contractually entitled to accrue from October 1, 2019 through December 31, 2019 and approximately $ 1.1 million of additional interest from January 1, 2020 through December 31, 2020 in accordance with the terms of the Sysorex Note, but did not accrue due to the uncertainty of repayment. During the three months ended March 31, 2020 an additional $ 117,000 was advanced under the Secured Note and the Company was entitled to an additional $ 251,806 of interest in accordance with the terms of the Note, but did not accrue due to the uncertainty of repayment. An additional $ 1 million of the principal balance under the Secured Note was assigned to Systat on March 19, 2021, as the final portion of the total consideration due in connection with the license. As of April 14, 2021, the Sysorex Note Purchase Agreement was settled, see Sysorex Securities Settlement Agreement below. 46 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 23 - Related Party Transactions (continued) Sysorex Receivable On February 20, 2019, the Company, Sysorex and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement resulting in a net award of $ 941,796 whereby Atlas agreed to accept an aggregate of 16,655 shares of freely-tradable common stock of the Company in full satisfaction of the award. The Company and Sysorex each agreed pursuant to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018, as amended, that 50 % of the costs and liabilities related to the arbitration action would be shared by each party following the Spin-off. As a result, Sysorex owes the Company $ 0.6 million for the settlement plus the interest accrued during the fiscal year ended December 31, 2020 of $ 0.1 million.. The total owed to the Company for this settlement as of December 31, 2021 and 2020 was $ 0 and $ 0.6 million, respectively. The Company established a full valuation allowance against this balance as of December 31, 2020. As of April 14, 2021, the Sysorex Receivable was settled, see Sysorex Securities Settlement Agreement below. Sysorex Securities Settlement Agreement On April 14, 2021, the Company entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), each with Sysorex, whereby Sysorex agreed to satisfy in full its outstanding debt, in the aggregate amount of $ 9,088,176 as of March 31, 2021, owed to the Company under that certain secured promissory note, originally dated December 31, 2018, as amended from time to time, and in connection with that certain settlement agreement, dated February 20, 2019, by and among the Company, Sysorex and Atlas Technology Group, LLC (the “Debt Settlement”). To effect the Debt Settlement, Sysorex agreed to issue to the Company (i) pursuant to the terms of the SSA, 12,972,189 shares of its common stock, $ 0.00001 par value per share, and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA. The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc. The Company recorded $ 7.5 million for the release of the previously recorded valuation allowance, $ 1.6 million of interest income, and a gain on settlement of $ 49.8 million equal to the difference in the carry value of the promissory note, including interest and value of the common stock and rights to acquire additional shares received in the settlement. In connection with the Debt Settlement, the Company also entered into a Registration Rights Agreement, dated as of April 14, 2021 (the “RRA”), with Sysorex and certain other shareholders of Sysorex (the “Holders”). Pursuant to the terms of the RRA, Sysorex must, subject to certain limitations, register the resale of the shares of common stock held by the Company and the Holders, with the U.S. Securities and Exchange Commission (the “SEC”), during the period that begins on the 90th day following April 14, 2021. In the event Sysorex fails to register such shares within that timeframe, or otherwise fails to meet its obligations under the RRA, then, subject to certain limitations, the Company and the Holders may be entitled to receive from Sysorex an amount in cash equal to the product of 1.5 % multiplied by the value of their shares (as set forth in the RRA), which amount is payable each month following the date of such failure for so long as the failure continues; provided that the shares are considered "Registrable Securities" as defined by the RRA. The shares of Sysorex common stock were not deemed Registrable Securities as defined by the RRA as of the date of the registration obligation. Also, under the RRA, if Sysorex determines to prepare and file with the SEC a registration statement relating to an offering of any of its equity securities, for its own account or the account of others, then the Company and the Holders will have the right, subject to certain limitations, to require Sysorex to include in such registration statement all or any part of the shares of common stock held by them. Systat License Agreement Nadir Ali, the Company's Chief Executive Officer and a member of its Board of Directors, is a related party in connection with the acquisition of the Licenses as a result of his prior service as a director of Sysorex, the issuer of the Sysorex Note that was assigned in accordance with the terms and conditions of the License Agreement. In addition, Tanveer Khader and Kareem Irfan, members of the Company's Board of Directors, may also be deemed related parties in connection with the acquisition of the Licenses as a result of their respective employment relationships with the Systat Parties. 47 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 23 - Related Party Transactions (continued) Cardinal Venture Holdings Investment Nadir Ali, the Company's Chief Executive Officer and a members of its Board of Directors, is also a controlling member of 3AM, LLC ("3AM"), which is a member of Cardinal Venture Holdings LLC ("CVH"), which may, in certain circumstances, be entitled to manage the affairs of CVH. Mr. Ali’s relationship may create conflicts of interest between Mr. Ali’s obligations to the Company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM. For example, Mr. Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders. On July 1, 2022, the Company loaned $ 150,000 to CVH. See Note 10. Director Services Agreement The Company and Kareem Irfan, a director of the Company, have amended Mr. Irfan's Director Services Agreement on May 16, 2022 (as amended, the "Amended Director Services Agreement") to increase his quarterly compensation by an additional $ 10,000 per month as consideration for the additional time and efforts dedicated to the Company and management in support of the evaluation of strategic relationships and growth initiatives. The Amended Director Services Agreement supersedes and replaces all prior agreements by and between the Company and Mr. Irfan. Note 24 - Leases The Company has operating leases for administrative offices in the United States (California), Canada, India, the United Kingdom, Germany, and the Philippines. The Company terminated the lease in Ratingen, Germany in January 2021. The Company entered into two new operating leases for its administrative offices in Ratingen, Germany, both from February 1, 2021 through January 1, 2023. The monthly lease rate is $ 2,642 and $ 1,031 per month. As part of the acquisition of IntraNav on December 9, 2021. the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany. This lease expires on January 6, 2025 and the current lease rate is approximately $ 8,790 per month. The Company entered into two new operating leases for its administrative office in Hyderabad, India and Manila, Philippines. The Hyderabad, India and Manila, Philippines office lease expires on March 25, 2025 and May 14, 2025, respectively. The Company has no other operating or financing leases with terms greater than 12 months. Right-of-use assets are summarized below (in thousands): As of September 30, 2022 As of December 31, 2021 Palo Alto, CA Office $ 631 $ 631 Hyderabad, India Office 349 359 Coquitlam, Canada Office — 97 Westminster, Canada Office — 10 Toronto, Canada Office 559 949 Ratingen, Germany Office 78 90 Berlin, Germany Office 464 536 Slough, United Kingdom Office — 34 Frankfurt, Germany Office 268 312 Manila, Philippines Office 234 — Less accumulated amortization ( 1,260 ) ( 1,282 ) Right-of-use asset, net $ 1,323 $ 1,736 48 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 24 - Leases (continued) Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statement of income for the three months ended September 30, 2022 and 2021 was $ 0.3 million and $ 0.3 million, respectively, and for the Nine months ended September 30, 2022 and 2021 was $ 1.0 million and $ 0.8 million, respectively. Lease liability is summarized below (in thousands): As of September 30, 2022 As of December 31, 2021 Total lease liability $ 1,366 $ 1,751 Less: short term portion ( 514 ) ( 643 ) Long term portion $ 852 $ 1,108 Maturity analysis under the lease agreement is as follows (in thousands): Quarter ending December 31, 2022 $ 193 Year ending December 31, 2023 517 Year ending December 31, 2024 431 Year ending December 31, 2025 263 Year ending December 31, 2026 93 Total $ 1,497 Less: Present value discount ( 131 ) Lease liability $ 1,366 Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of ASC 842, "Leases". As of September 30, 2022, the weighted average remaining lease term is 2.9 years and the weighted average discount rate used to determine the operating lease liabilities was 6.4 %. Note 25 - Restructuring Activities On September 21, 2022, Inpixon informed its employees that it was taking steps to streamline its operations and conserve cash resources. These steps included layoffs, which were completed by September 30, 2022, and which reduced Inpixon's global employee headcount by approximately 20 %. The layoffs resulted in one-time expenses of approximately $ 0.6 million in the Indoor Intelligence segment which consisted of severance payouts to terminated employees and outplacement service expenses for the three and nine months ended September 30, 2022. The Company anticipates additional costs to be recorded related to contingent payments in the amount of $ 0.2 million which have not been incurred as of September 30, 2022. These expenses were included in the Company's total operating expenses on the Consolidated Statements of Operations with the restructuring costs payable included in accrued liabilities in the Condensed Consolidated Balance Sheets. The Company recorded a Restructuring costs payable for costs incurred related to the restructuring activities noted above for costs incurred but not yet paid as of September 30, 2022. A summary of the activity for the three months ended September 30, 2022, is included below (in thousands): Restructuring costs payable - July 1, 2022 $ — Restructuring costs incurred 597 Restructuring costs paid ( 343 ) Restructuring costs payable - September 30, 2022 $ 254 49 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 26 - Commitments and Contingencies Litigation Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. Compliance with Nasdaq Continued Listing Requirement On October 25, 2021, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock (“Common Stock”) for the prior 30 consecutive business days beginning on September 13, 2021, and ending on October 22, 2021, the Company no longer met the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rules we were provided until October 24, 2022 to regain compliance with this requirement. We effected a 1-for-75 reverse stock split of our common stock on October 7, 2022, and on November 1, 2022, we were informed by Nasdaq that we had regained compliance with the minimum bid price requirement and that we were back in compliance with the applicable Nasdaq continued listing criteria. Note 27 - Subsequent Events On October 12, 2022, the Company issued 52,513 shares of common stock in connection with the exercise of a right to shares of common stock granted as part of warrant exchange agreement entered into on January 28, 2022. See Note 18. On October 17, 2022, the Company exchanged approximately $ 0.4 million of the outstanding principal and interest under the March 2020 10 % Note Purchase Agreement and Promissory Note for 83,682 shares of the Company's common stock at a price of $ 4.78 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d). 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 is primarily intended to bring the Company into compliance with the minimum bid price requirements for maintaining its listing on the Nasdaq Capital Market. The Company has reflected the Reverse Stock Split herein, unless otherwise indicated. 50 Table of Contents INPIXON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Note 27 - Subsequent Events (continued) 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 paid of approximately $ 45.8 million. Registered Direct Offering On October 18, 2022, the Company entered into a Securities Purchase Agreement (the “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 was $ 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. In October 2022, the Company issued 598,990 shares of common stock in connection with the exercise of 598,990 pre-funded warrants at $ 0.001 per share. 51 Table of Contents