What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-18 compared with 2023-05-16 · 244 added, 136 removed, 245 unchanged (61% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC and the recasted audited consolidated financial statements within Exhibit 99.1 on Form 8-k filed with the SEC to reflect the presentation of CXApp operations as discontinued operations to the consolidated financial statements for the years ended December 31, 2022 and 2021.

In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

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Inpixon is the Indoor Intelligence™ company.

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

Inpixon customers can leverage our real-time positioning, mapping and analytics technologies to achieve higher levels of productivity and performance, increase safety and security, improve worker and employee satisfaction rates and drive a more connected work environment.

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

Together, our technologies allow organizations to create and utilize the digital twin of a physical location and to deliver enhanced experiences in their current environment and in the metaverse.

Inpixon specializes in providing real-time location systems (RTLS) for the industrial sector.

Our solutions and technologies help organizations enable smarter, safer and more secure environments.

Inpixon customers can leverage our real-time positioning and analytics technologies to achieve higher levels of productivity and performance, increase safety and security, and drive a more connected work environment.

We specialize in providing real-time location systems (RTLS) for the industrial sector.

As the manufacturing industry has evolved, RTLS technology has become a crucial aspect of Industry 4.0.

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

We experienced a net loss from continuing operations of approximately $12.3 million and approximately $10.8 million for the three months ended March 31, 2023 and 2022, respectively.

We experienced a net loss from continuing operations of approximately $19.7 million and approximately $19.7 million for the six months ended June 30, 2023 and 2022, respectively.

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

In order to continue our operations, we have

supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines.

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

Global Events

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

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

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

While we have been able to realize growth in the three months ended March 31, 2023 as compared to the same periods in 2022, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain.

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

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

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

Risk Factors.

Certain global events, such as the recent military conflict between Russia and Ukraine, and other general economic factors that are beyond our control may impact our results of operations.

These factors can include interest rates;

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 operations.

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.

The impact that these global events will have on general economic conditions is continuously evolving and the impact that they will have on our results of operations continues to remain uncertain.

There are no assurances that we will not be materially adversely effected.

Corporate Strategy Update

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(See “Recent Events” below for more details).

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

We may enter into one or more additional non-binding letters of intent in connection with our due diligence and evaluation process.

Additionally, on July 24, 2023, the Company entered into an Agreement and Plan of Merger with XTI Aircraft Company (the "XTI Business Combination").

(See "Recent Events" below for more details).

In addition, on or prior to the effective time of the merger with XTI we intend to effect a transaction for the divestiture of our Shoom, SAVES and Game Your Game lines of business and investment securities, as applicable, by any lawful means, which may include a sale to one or more third parties, spin off, plan of arrangement, merger, reorganization, or any combination of these.

Recent Events

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Maxim is entitled to compensation at a fixed commission rate of 3.0% of the gross sales price per Share sold excluding Maxim's costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel.

During the quarter ended March 31, 2023, the Company sold 9,655,207 shares of common stock at share prices between $1.15 and $1.86 per share under the Sales Agreement for gross proceeds of approximately $15.4 million.

From April 1, 2023 through the date of this filing, the Company sold 12,046,742 shares of common stock at share prices between $0.22771 and $0.54 per share under the Sales Agreement for gross proceeds of approximately $4.1 million.

The Company is currently subject to the SEC’s “baby shelf rules,” as of April 17, 2023, which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period.

On June 13, 2023, the Company entered into an amendment to the Sales Agreement with Maxim, pursuant to which the aggregate offering price of the ATM Offering was increased from $25.0 million to approximately $27.4 million.

During the six months ended June 30, 2023, the Company sold 28,981,729 shares of common stock at share prices between $0.200034 and $1.86 per share under the Sales Agreement for gross proceeds of approximately $21.0 million or net proceeds of $20.4 million after deducting the placement agency fees and other offering expenses.

From July 1, 2023 through the date of this filing, the Company sold 6,520,000 shares of common stock at share prices between $0.200725 and $0.22291 per share under the Sales Agreement for gross proceeds of approximately $1.4 million.The Company is currently subject to the SEC’s “baby shelf rules,” as of April 17, 2023, which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period.

These rules may limit future issuances of shares by the Company under the Sales Agreement or other offerings pursuant to the Company’s effective shelf registration statement on Form S-3.

Note Exchanges

During the quarter ended March 31, 2023, the Company exchanged approximately $0.9 million of the outstanding principal and interest under the March 2020 10% Note Purchase Agreement and Promissory Note for 611,258 shares of the

Company's common stock at prices from $1.09 to $1.682 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

This note was fully satisfied as of January 31, 2023.

During the quarter ended March 31, 2023, the Company exchanged approximately $0.5 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 935,976 shares of the Company's common stock at prices from $0.37 to $0.915 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

From April 1, 2023 through the date of this filing, the Company exchanged approximately $1.2 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 3,260,379 shares of the Company's common stock at prices from $0.3336 to $0.3966 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

Enterprise Apps Spin-off and Business Combination

On March 14, 2023, Inpixon completed (the “Closing”) the separation (the “Separation”) of its enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”) through a spin-off of CXApp Holding Corp., a Delaware corporation ("CXApp"), to certain holders of Inpixon securities as of March 6, 2023 (the “Record Date”) on a pro rata basis (the “Distribution” or “Enterprise Apps Spin-off”) and merger (the “Merger”) of CXApp with a wholly owned subsidiary of KINS Technology Group Inc., a Delaware corporation (“KINS”), in a Reverse Morris Trust transaction (collectively, the “Transactions”) pursuant to (i) an Agreement and Plan of Merger, dated as of September 25, 2022, by and among Inpixon, KINS, CXApp, and KINS Merger Sub Inc.

(the "Merger Agreement") and (ii) a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc.

(the "Separation Agreement”, and collectively with the Merger Agreement and the other related transaction documents, the “Transaction Agreements”).

In connection with the Closing, KINS was renamed CXApp Inc.

(“New CXApp”).

Pursuant to the Transaction Agreements, Inpixon contributed cash sufficient to ensure CXApp had $10 million in cash and cash equivalents prior to the deduction of transaction expenses at closing and certain assets and liabilities constituting the Enterprise Apps Business, including certain related subsidiaries of Inpixon, to CXApp (the “Contribution”).

In consideration for the Contribution, CXApp issued to Inpixon additional shares of CXApp common stock such that the number of shares of CXApp common stock then outstanding equaled the number of shares of CXApp common stock necessary to effect the Distribution.

Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of CXApp common stock for each share of Inpixon common stock held as of such date.

Pursuant to the Merger Agreement, each share of Legacy CXApp common stock was thereafter exchanged for the right to receive 0.09752221612415190 of a share of New CXApp Class A common stock (with fractional shares rounded down to the nearest whole share) and 0.3457605844401750 of a share of New CXApp Class C common stock (with fractional shares rounded down to the nearest whole share).

New CXApp Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger.

Upon the closing of the Transactions, Inpixon’s existing security holders held approximately 50.0% of the shares of New CXApp common stock outstanding.

Employee Matters Agreement

On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, CXApp, Legacy CXApp, Inpixon and Merger Sub entered into the Employee Matters Agreement (the “Employee Matters Agreement”).

The Employee Matters Agreement sets forth the terms and conditions of certain employee related matters in connection with the transaction, including, but not limited to the participation in benefits for each of the respective companies as relevant, and the assumption and retention of benefit plan assets and liabilities, worker's compensation, payroll taxes, regulatory filings, and the sharing of employee information.

Tax Matters Agreement

On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, CXApp, Legacy CXApp and Inpixon entered into the Tax Matters Agreement (the “Tax Matters Agreement”) which governs each party’s respective rights, responsibilities and obligations with respect to tax liabilities and

benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes.

Allocation of Taxes

In general, KINS and CXApp will be liable for all U.S.

federal, state, local and foreign taxes (and any related interest, penalties or audit adjustments) that are (i) imposed with respect to tax returns that include both CXApp and Inpixon, to the extent such taxes are attributable to CXApp or the Enterprise Apps Business, or (ii) imposed with respect to tax returns that include CXApp but not Inpixon, in each case, for tax periods (or portions thereof) beginning after the Distribution.

Inpixon will generally be liable for taxes described in clauses (i) and (ii) above for tax periods (or portions thereof) ending on the date of or prior to the Distribution, and any and all Distribution Taxes, as defined in the Tax Matters Agreement (generally, taxes imposed with respect to the Separation, Contribution, and Distribution).

However, CXApp and KINS may be liable for certain taxes pursuant to indemnity obligations described below.

Indemnification Obligations

The Tax Matters Agreement generally provides for indemnification obligations between New CXApp and KINS, on the one hand, and Inpixon, on the other hand.

In particular, CXApp and KINS must indemnify Inpixon for taxes allocated to CXApp or KINS, as described above, and Inpixon must indemnify New CXApp and KINS for taxes as allocated to Inpixon as described above, which would generally include Distribution Taxes.

The Tax Matters Agreements, however, provides that KINS and CXApp may be liable for certain taxes to the extent such taxes result from a breach of certain representations or restrictive covenants made by KINS and CXApp, as described below.

Transition Services Agreement

On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, Legacy CXApp and Inpixon entered into a Transition Services Agreement (the “Transition Services Agreement”) pursuant to which Inpixon and certain employees and representatives and CXApp and certain employees and representatives will provide services to each other primarily related to payroll and benefits administration, IT support, finance and accounting services, contract administration and management services, and other administrative support services that may be required on an as needed basis, which services are of the type that CXApp and Inpixon provided to, and received from, each other prior to the Separation.

The fees for each of the transition services are set forth in the Transition Services Agreement.

The Transition Services Agreement will terminate on the expiration of the term of the last service provided under it, and if no expiration date is provided for any transition service, then such transition service will terminate twelve months after the date of the Transition Services Agreement, provided that the receiving party shall have the right to an extension of each or any transition service for up to six months by providing written notice to providing party in advance of the original termination date for such transition service if, prior to such request for extension, the receiving party has used commercially reasonable efforts to establish analogous capabilities of its own.

The transaction is expected to be tax-free to Inpixon and its security holders for U.S.

federal income tax purposes.

On March 15, 2023, New CXApp began regular-way trading on NASDAQ under the ticker symbol “CXAI.” Inpixon continues to trade under the ticker symbol “INPX.”

Note Exchanges and Amendments

On May 16, 2023, the Company entered into an amendment (the “July 2022 Note Amendment”) to the July 2022 Note pursuant to which the maturity date was extended from July 22, 2023 to May 17, 2024 (the “July 2022 Note Maturity Date Extension”).

In exchange for the July 2022 Note Maturity Date Extension, the Company agreed to pay Streeterville an extension fee in the amount of $0.1 million, which was added to the outstanding balance of the July 2022 Note.

On May 16, 2023, the Company entered into an amendment (the “December 2022 Note Amendment”) to the December 2022 Note pursuant to which the maturity date of the December 2022 Note was extended from December 30, 2023 to May 17, 2024 (the “December 2022 Note Maturity Date Extension”).

In exchange for the December 2022 Note Maturity Date Extension, the Company agreed to pay the Holder an extension fee in the amount of $0.1 million which was added to the outstanding balance of the December 2022 Note

During the quarter ended June 30, 2023, the Company entered into exchange agreements with Streeterville, pursuant to which the Company and Streeterville agreed to:

(i) partition new promissory notes in the form of the July 2022 Note equal to approximately $2.0 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $2.0 million;

and (ii) exchange the partitioned notes for the delivery of 7,349,420 shares of the Company’s common stock, at effective prices between $0.1950 and $0.3966 per share.

From July 1, 2023 through the date of this filing, the Company exchanged approximately $2.5 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 13,369,256 shares of the Company's common stock at prices from $0.1523 to $0.2272 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).

Compliance with Nasdaq Continued Listing Requirement

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In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that our common stock will

be subject to delisting.

The letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market.

The Company intends to monitor the closing bid price of our common stock and consider its available options in the event that the closing bid price of our common stock remains below $1 per share.

May 2023 Warrant Purchase Agreement

On May 15, 2023, the Company entered into a Warrant Purchase Agreement (the “Agreement”) with multiple purchasers for the purchase and sale of up to an aggregate of 150,000,000 of warrants (the “May 2023 Warrants”).

The Agreement and the May 2023 Warrants were subsequently amended on June 20, 2023.

The purchase price for one (1) May 2023 Warrant is $0.01 (the “Per Warrant Purchase Price”).

The May 2023 Warrants have an initial exercise price $0.26, payable in cash or the cancellation of indebtedness ( the “Initial Exercise Price”).

The exercise price will equal the lower of (i) the Initial Exercise Price and (ii) 90% of the lowest VWAP (as defined in the Agreement) of the Common Stock for the five Trading Days (as defined in the Agreement) immediately prior to the date on which a Notice of Exercise is submitted to the Company (the “Adjusted Exercise Price” and together with the Initial Price, as applicable, the “Exercise Price”);

provided, however, that the Adjusted Exercise Price shall not be less than $0.10;

and provided further that any exercise of the May 2023 Warrants with an Adjusted Exercise Price will be subject to the Company’s consent unless the trading price of the Common Stock as of the time the Notice of Exercise is delivered to the Company is at least 10% or more above the prior Trading Day’s Nasdaq Official Closing Price.

No warrant holder may exercise the May 2023 Warrants to the extent such exercise would cause such warrant holder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 9.99% of the Company’s then outstanding Common Stock following such exercise.

Each May 2023 Warrant is immediately exercisable for one share of Common Stock and will expire one year from the issuance date (the “Termination Date”) unless extended by the Company with the consent of the warrant holder.

Pursuant to the terms of the May 2023 Warrants, at any time prior to the Termination Date, the Company may, in its sole discretion, redeem any portion of a May 2023 Warrants that have not been exercised, in cash, at the Per Warrant Purchase Price, plus all liquidated damages and other costs, expenses or amounts due in respect of the Warrants (the “ Redemption Amount ”) upon five Trading Days’ written notice to the warrant holder (the “ Redemption Date ”).

On the Termination Date, the Company will be required to redeem any portion of the May 2023 Warrants that have not been exercised or redeemed prior to such date through payment of the Redemption Amount in cash.

The Company will be required to pay any Redemption Amount within five Trading Days after the Redemption Date or the Termination Date, as applicable.

The May 2023 Warrants were issued on May 17, 2023 for aggregate gross proceeds of approximately $1.5 million.

The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $1.4 million.

The May 2023 Warrants were determined to be within the scope of ASC 480 as they represent obligations to the Company, as the Company is obligated to redeem any May 2023 Warrants that have not been exercised at the Termination Date.

As such, the Company recorded the May 2023 Warrants at fair value on the issuance date.

The May 2023 Warrants are subsequently measured as if the May 2023 Warrants were to be settled on the current redemption value with subsequent changes recognized as interest cost.

The grant date fair value of the Warrants was determined to be $1.48 million at the date of issuance, and the fair value of the Warrants was determined to be approximately $1.50 million as of June 30, 2023.

The fair value of the Warrants are reflected within Warrant Liability on the Condensed Consolidated Balance Sheet, and the change in fair value as interest expense is reported in the Condensed Consolidated Statement of Operations.

During July 2023, the Company issued 9,000,000 shares of common stock in connection with the exercise of 9,000,000 warrants with an exercise price of $0.26 per share in connection with the May 2023 warrant offering for which the Company received gross proceeds of approximately $2.3 million.

On June 20, 2023 (the "Release Effective Date"), the Company entered into a general release agreement with FOXO, pursuant to which the Company received 0.67 shares of FOXO Class A Common Stock for every $1.00 of subscription amount of the 10% convertible note purchased on April 27, 2022 in exchange for an agreement by the Company to release, waive and forever discharge FOXO from any causes of action, losses, costs and expenses from the beginning of time through the Release Effective Date.

The Company received 3,685,000 shares of FOXO Class A Common Stock in exchange for such release.

XT I Transaction

Merger Agreement

On July 24, 2023, the Company entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”) by and among Inpixon, Superfly Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Inpixon (“Merger Sub”), and XTI Aircraft Company, a Delaware corporation (“XTI”).

The Merger Agreement was unanimously approved by Inpixon’s and XTI’s board of directors.

If the Merger Agreement is approved by Inpixon’s and XTI’s stockholders (and the other closing conditions are satisfied or waived in accordance with the Merger Agreement), and the transactions contemplated by the Merger Agreement are consummated, Merger Sub will merge with and into XTI, with XTI surviving the merger as a wholly-owned subsidiary of Inpixon (collectively, the “Proposed Transaction”).

In addition, upon the consummation of the Proposed Transaction (the “Closing,” and the date of the Closing, the “Closing Date”), Inpixon will be renamed “XTI Aerospace, Inc.” (the “Name Change”).

Inpixon upon the Closing is referred to herein as the “combined company.”

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger (the “Effective Time”):

(i) Each share of XTI common stock outstanding immediately prior to the Effective Time (excluding any shares to be canceled pursuant to the Merger Agreement and shares held by holders of XTI common stock who have exercised and perfected appraisal rights) will automatically be converted into the right to receive a number of shares of Inpixon common stock equal to the Exchange Ratio (as described below).

Prior to the Effective Time, subject to obtaining the consent of requisite note holders, all outstanding XTI convertible notes will be converted into XTI common stock and will participate in the merger on the same basis as the other shares of XTI common stock, except for (1) a promissory note dated April 1, 2023, in the initial principal amount of $1,817,980, which will be amended to extend the maturity date thereof until no sooner than December 31, 2026 and be assumed by the combined company at the Closing to become convertible into the shares of common stock of the combined company, and (2) a promissory note dated December 31, 2021, in the initial principal amount of $1,007,323, which will provide for, at Closing, payment in cash of $507,323 of the principal plus interest accrued to the date of payment, and the conversion of the remaining $500,000 of outstanding principal into shares of common stock of the combined company (collectively, the “Note Amendments”).

(ii) Each option to purchase shares of XTI common stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Inpixon and will become an option, subject to any applicable vesting conditions, to purchase shares of Inpixon common stock with the number of shares of Inpixon common stock underlying the unexercised portions of such options and the exercise prices for such options to be adjusted to reflect the Exchange Ratio.

(iii) Each warrant to purchase shares of XTI common stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Inpixon and will become a warrant to purchase shares of Inpixon common stock with the number of shares of Inpixon common stock underlying such warrants and the exercise prices for such warrants will be adjusted to reflect the Exchange Ratio.

Subject to adjustment pursuant to the formula for the Exchange Ratio set forth in Exhibit A of the Merger Agreement, the Exchange Ratio will be determined based on (a) the fully diluted capitalization of each of Inpixon and XTI immediately prior to the Effective Time, provided, however, that for this purpose the calculation of Inpixon’s fully diluted capitalization will not take into account any shares of Inpixon common stock issuable after Closing for cash consideration upon conversion, exercise or exchange of derivative securities that are issued by Inpixon in Inpixon Permitted Issuances.

“Inpixon Permitted Issuances” are any issuances of common stock or derivative securities by Inpixon for financing or debt cancellation purposes that are permitted under the Merger Agreement and occur after the date of the Merger Agreement but before the Closing.

The Exchange Ratio will be subject to certain adjustments to the extent that Inpixon’s Net Cash (as such term is defined on Exhibit A of the Merger Agreement) is greater than or less than $21.5 million and/or any principal and accrued or unpaid interest remains outstanding under those certain promissory notes issued by Inpixon to Streeterville Capital, LLC on July 22, 2022 and December 30, 2022.

After application of the Exchange Ratio and subject to those certain adjustments described above, Inpixon stockholders immediately prior to the Effective Time are anticipated to retain approximately 40% of the issued and outstanding capital stock of the combined company and XTI security holders are anticipated to retain approximately 60% of the issued and outstanding capital stock of the combined company.

It is expected that Inpixon’s Chief Executive Officer, Nadir Ali, and Chief Financial Officer, Wendy Loundermon, will resign upon the Closing, effective as of the Closing Date.

In addition, pursuant to a Financial Advisory and Investment Banking Services Agreement dated May 16, 2023, between Inpixon and Maxim Group LLC (“Maxim”) (the “Maxim Agreement”), as part of compensation for Maxim’s services in connection with the transaction, Inpixon has agreed to pay to Maxim, upon Closing, a cash fee equal to $800,000 (the “Cash Fee”), and to issue to Maxim (or its designees) registered common stock of Inpixon pursuant to the applicable registration statement on Form S-4 for the transaction, if permitted under SEC rules, or unregistered stock if not permitted, equal to the quotient obtained by dividing $1,000,000 by the closing price of Inpixon common stock as reported by Nasdaq on the date immediately preceding the announcement of the transaction, at the closing of the transaction.

However, to the extent that Maxim would beneficially own more than 4.99% of the number of shares of Inpixon common stock outstanding immediately after giving effect to such issuance, then Maxim will receive rights to such remaining amount of shares in accordance with a rights to shares agreement, in such form reasonably acceptable to the parties.

Based on the closing price of Inpixon common stock as of July 24, 2023, which equals $0.1523 per share, Maxim will be entitled to approximately 6,565,988 shares of Inpixon common stock in connection with the Closing of the Proposed Transaction.

These shares will be issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act, if they are not registered.

The foregoing description of the Merger Agreement and the Proposed Transaction does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to this Form 10-Q and incorporated herein by reference.

XTI Promissory Note & Security Agreement

Pursuant to the Merger Agreement, on the first calendar day of the month following the date of the Merger Agreement and on the first calendar day of each month thereafter until the earlier of (i) four months following the date of the Merger Agreement and (ii) the Closing Date, Inpixon shall provide loans to XTI on a senior secured basis (each, a “Future Loan”), in such amounts requested by XTI in writing prior to the first calendar day of each such month.

Each Future Loan will be in the principal amount of up to $500,000, and the aggregate amount of the Future Loans will be up to $1,775,000 (or such greater amount as Inpixon shall otherwise agree in its sole and absolute discretion).

These Future Loans and security will be evidenced by a Senior Secured Promissory Note (the “Promissory Note”) and a Security and Pledge Agreement (the “Security Agreement”).

The Promissory Note provides an aggregate principal amount up to $2,313,407, which amount includes the principal sum of $525,000 which Inpixon previously advanced to XTI (the “Existing Loans”, collectively with the Future Loans, the “Inpixon Loans to XTI”) plus accrued interest on such amount, and the aggregate principal amount of the Future Loans.

The Promissory Note will bear interest at 10% per annum, compounded annually, and for each Future Loan, beginning on the date the Future Loan is advanced to XTI.

The Promissory Note is included in the Company's condensed consolidated balance sheet as of June 30, 2023 in Notes and Other Receivables.

The outstanding principal amount under the Promissory Note, together with all accrued and unpaid interest, shall be due and payable upon the earlier of (a) December 31, 2023, (b) when declared due and payable by Inpixon upon the occurrence

of an event of default, or (c) within three business days following termination of the Merger Agreement (i) by XTI because the XTI Board adopts a superior proposal prior to delivering the XTI Stockholder Consent, or (ii) by Inpixon because the XTI Board has made a change in recommendation, or XTI has breached or failed to perform in any material respect any of its covenants and agreements regarding obtaining its required stockholder approval or non-solicitation.

The Promissory Note will be forgiven and of no further force if the Merger Agreement is terminated by the Inpixon Board because it adopts a superior proposal prior to obtaining the required Inpixon stockholder approval, subject to Inpixon’s rights and remedies under the Promissory Note, the Security Agreement, and the Merger Agreement.

If the Merger Agreement is terminated by XTI because the Inpixon Board makes a change in recommendation or Inpixon is in material breach of its covenants and agreements regarding obtaining its required stockholder approval or non-solicitation, the maturity date of the Promissory Note will be extended to December 31, 2024.

The Security Agreement grants Inpixon a first priority security interest in and lien upon all of XTI’s property to secure the repayment of the Promissory Note.

The foregoing description of the Promissory Note and the Security Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the form of the Promissory Note and the Security Agreement, which are attached as Exhibit 10.12 and Exhibit 10.13, respectively, to this Form 10-Q incorporated herein by reference.

Transaction Bonus Plan in connection with Completed Transaction

As described in Inpixon’s current report on Form 8-K filed on March 20, 2023, on March 14, 2023, Inpixon completed a reorganization involving the transfer of Inpixon’s CXApp and enterprise app business lines to a subsidiary of Inpixon, followed by a distribution of shares of such subsidiary to Inpixon’s equityholders.

The reorganization was followed by a subsequent business combination transaction between such former subsidiary and KINS Technology Group Inc., a special purpose acquisition company which was renamed CXApp, Inc.

upon the consummation of the business combination (collectively, the “Completed Transaction”).

On July 24, 2023, the compensation committee of the Inpixon Board (the “Committee”) adopted a Transaction Bonus Plan (the “Completed Transaction Bonus Plan”), which is intended to compensate certain current and former employees and service providers for the successful consummation of the Completed Transaction.

The Completed Transaction Bonus Plan will be administered by the Committee.

It will terminate upon the completion of all payments under the terms of the Completed Transaction Bonus Plan, provided, that the Board may terminate the plan as to any participant prior to the completion of all payment to under participant under the plan.

Pursuant to the Completed Transaction Bonus Plan, in connection with the Completed Transaction,

● Participants listed on Schedule 1 of the Completed Transaction Bonus Plan will be eligible for a cash bonus equal to 100% of their aggregate annual base salary in effect as of the end of the year ended December 31, 2022, provided that the participants must execute a customary release of claims and confidentiality agreement.

● Participants listed on Schedule 2 of the Completed Transaction Bonus Plan including Inpixon’s named executive officers Nadir Ali and Wendy Loundermon will be eligible for a cash bonus in an aggregate amount of 4% of the $70,350,000 transaction value of the Completed Transaction, with Mr.

Loundermon being entitled to 3.5% and 0.5% of such transaction value, respectively.

Subject to the terms described above, the bonus amounts under the Completed Transaction Bonus Plan will be paid prior to September 30, 2023, unless a transaction that results in a change of control is consummated prior to such date, in which case, the bonus amounts will become payable upon the closing date of such change-of-control transaction.

The consummation of the Proposed Transaction would constitute a change-of-control transaction under the Completed Transaction Bonus Plan.

In addition, if a participant becomes entitled to any payments or benefits from the Completed Transaction Bonus Plan or any other amounts (collectively, the “Company Payments Relating to the Completed Transaction Plan”) that are subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Excise Tax”), the company will pay the participant the greater of the following amounts:

(i) the Company Payments Relating to the Completed Transaction Plan, or (ii) one dollar less than the amount of the Company Payments Relating to the Completed Transaction Plan that would subject the participant to the Excise Tax, as mutually agreed between the company and the participant.

The foregoing description of the Completed Transaction Bonus Plan does not purport to be complete and is qualified in its entirety by the terms and conditions of the Completed Transaction Bonus Plan, a copy of which is attached as Exhibit 10.14 of this Form 10-Q incorporated herein by reference.

Transaction Bonus Plan in connection with Future Strategic Transactions

On July 24, 2023, the Committee adopted a Transaction Bonus Plan (the “Plan”), which is intended to provide incentives to certain employees and other service providers to remain with Inpixon through the consummation of a Contemplated Transaction or Qualifying Transaction (each as defined below) and to maximize the value of the company with respect to such transaction for the benefit of its stockholders.

The Plan will be administered by the Committee.

It will automatically terminate upon the earlier of (i) the one-year anniversary of the adoption date, (ii) the completion of all payments under the terms of the Plan, or (iii) at any time by the Committee, provided, however, that the Plan may not be amended or terminated following the consummation of a Contemplated Transaction or Qualifying Transaction without the consent of each participant being affected, except as required by any applicable law.

A “Contemplated Transaction” refers to a strategic alternative transaction including an asset sale, merger, reorganization, spin-off or similar transaction (a “Strategic Transaction”) that results in a change of control as defined in the Plan.

A Qualifying Transaction refers to a Strategic Transaction that does not result in a change of control for which bonuses may be paid pursuant to the Plan as approved by the Committee.

The Proposed Transaction is expected to qualify as a Contemplated Transaction.

Pursuant to the Plan, in connection with the closing of a Contemplated Transaction or a Qualifying Transaction, the participants will be eligible to receive bonuses as described below.

● Participants listed on Schedule 1 of the Plan including Inpixon’s named executive officers Nadir Ali, Wendy Loundermon and Soumya Das, will be eligible for a cash bonus equal to 100% of their aggregate annual base salary and target bonus amount at the closing of a Contemplated Transaction and any applicable Qualifying Transaction, provided that the participants must execute a customary release of claims and confidentiality agreement.

These bonus amounts will be paid at the closing of each applicable transaction.

● Participants listed on Schedule 2 of the Plan including Inpixon’s named executive officers Nadir Ali and Wendy Loundermon will be eligible for a cash bonus in an aggregate amount of 4% of the applicable Transaction Value (as defined below), with Mr.

Loundermon being entitled to 3.5% and 0.5% of such Transaction Value, respectively.

These bonus amounts will be paid at the closing of each applicable transaction but the pro rata portion attributable to any deferred payments will be paid when those deferred payments become due, within a maximum period of five years from the closing date.

“Transaction Value” means the sum of any cash and the fair market value of any securities or other assets or property received by Inpixon or available for distribution to the holders of Inpixon’s equity securities in connection with the applicable transaction as provided for in the definitive agreement governing the applicable transaction, or such value as shall be designated by the Committee.

● Participants listed on Schedule 3 of the Plan including Inpixon’s named executive officers Nadir Ali, Wendy Loundermon and Soumya Das, will be eligible for equity-based grants, such as options or restricted stock, on such terms and upon such date as the Committee may determine.

● In the sole discretion of the Committee, receipt or eligibility for receipt by a participant of a transaction bonus in respect of a Contemplated Transaction shall not preclude such participant from receiving or being eligible to receive an additional transaction bonus in respect of a Qualifying Transaction.

If a participant becomes entitled to any payments or benefits from the Plan or any other amounts (the “Company Payments Relating to the Plan”) that are subject to the Excise Tax, the company will pay the participant the greater of the following amounts:

(i) the Company Payments Relating to the Plan, or (ii) one dollar less than the amount of the Company Payments Relating to the Plan that would subject the participant to the Excise Tax, as mutually agreed between the company and the participant.

The foregoing description of the Plan does not purport to be complete and is qualified in its entirety by the terms and conditions of the Plan, a copy of which is attached as Exhibit 10.15 to this Form 10-Q and is incorporated herein by reference.

Critical Accounting Policies and Estimates

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Historically changes in management estimates have not been material.

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and the recasted audited consolidated financial statements within Exhibit 99.1 on Form 8-k filed with the SEC to reflect the presentation of CXApp operations as discontinued operations to the consolidated financial statements for the years ended December 31, 2022 and 2021.

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

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R ESULTS OF O PERATIONS

Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022

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

Three Months Ended June 30,

(in thousands, except percentages) Amount % of

Revenues Amount % of

Revenues $ Change %

Revenues $ 2,057 100 % $ 2,576 100 % $ (519) (20) %

Cost of revenues $ 390 19 % $ 856 33 % $ (466) (54) %

Gross profit $ 1,667 81 % $ 1,720 67 % $ (53) (3) %

Operating expenses $ 8,324 405 % $ 11,093 431 % $ (2,769) (25) %

Loss from operations $ (6,657) (324) % $ (9,373) (364) % $ 2,716 29 %

Other income (expense) $ (665) (32) % $ 430 17 % $ (1,095) (255) %

Provision for income taxes $ (7) — % $ (22) (1) % $ 15 68 %

Net loss from continuing operations $ (7,329) (356) % $ (8,965) (348) % $ 1,636 18 %

Loss from discontinued operations, net of tax $ — — % $ (11,365) (441) % $ 11,365 100 %

Net income (loss) attributable to stockholders of Inpixon $ (6,966) (339) % $ (19,872) (771) % $ 12,906 65 %

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

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

Revenues for the three months ended June 30, 2023 were $2.1 million compared to $2.6 million for the comparable period in the prior year for a decrease of approximately $0.5 million, or approximately 20%.

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

Cost of Revenues

Cost of revenues for the three months ended June 30, 2023 were $0.4 million compared to $0.9 million for the comparable period in the prior year.

This decrease in cost of revenues of approximately $0.5 million, or approximately 54%, was primarily attributable to lower revenues during the quarter.

The gross profit margin for the three months ended June 30, 2023 was 81% compared to 67% for the three months ended June 30, 2022.

This increase in margin is primarily due to lower cost of goods on the SAVES and indoor intelligence product lines during the year.

Operating Expenses

Operating expenses for the three months ended June 30, 2023 were $8.3 million and $11.1 million for the comparable period ended June 30, 2022.

This decrease of approximately $2.8 million is primarily attributable to the $2.0 million of goodwill impairment in the three month ended June 30,2022 and lower compensation, professional fees and legal expenses in the three months ended June 30, 2023.

Other Income (Expense)

Other income/expense for the three months ended June 30, 2023 was a loss of $0.7 million compared to income of $0.4 million for the comparable period in the prior year.

This increase in loss of approximately $1.1 million is primarily attributable to increased interest expense on long term debt and lower unrealized gain on equity securities in the three months ended June 30, 2023.

Provision for Income Taxes

The provision for income tax for the three months ended June 30, 2023 and 2022 was immaterial.

Loss from Discontinued Operations, net of tax

Loss from discontinued operations, net of tax, for the three months ended June 30, 2023 was zero compared to $11.4 million for the comparable period in the prior year.

There is no loss from discontinued operations in the three months ended June 30, 2023 as those operations were spun off in the three months ended March 31, 2023 period.

Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022

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

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in thousands, except percentages) Amount % of

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

Revenues for the three months ended March 31, 2023 were $3.1 million compared to $2.6 million for the comparable period in the prior year for an increase of approximately $0.5 million, or approximately 17%.

This increase is primarily attributable to the increase in Indoor Intelligence sales from the Aware and RTLS component product lines.

Cost of Revenues and Gross Profit

Cost of revenues for the three months ended March 31, 2023 and 2022 were $0.8 million.

The gross profit margin for the three months ended March 31, 2023 was 75% compared to 70% for the three months ended March 31, 2022.

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

Revenues are essentially flat across the product lines as for the six months ended June 30, 2023 they were $5.161 million compared to $5.225 million for the comparable period in the prior year for an decrease of approximately $0.064 million, or approximately 1%.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2023 and 2022 were $1.2 million and $1.7 million, respectfully.

This decrease in cost of revenues of approximately $(473) million, or approximately 54%, was primarily attributable to lower cost of revenues on the SAVES product line.

The gross profit margin for the six months ended June 30, 2023 was 77% compared to 68% for the six months ended June 30, 2022.

This increase in gross profit margin is primarily due to lower cost of goods on the SAVES and product line during the year.

Operating Expenses

Operating expenses for the three months ended March 31, 2023 were $10.5 million and $11.1 million for the comparable period ended March 31, 2022.

This decrease of $0.6 million is primarily attributable to lower compensation, professional fees and legal expense in the three months ended March 31, 2023.

Operating expenses for the six months ended June 30, 2023 were $18.8 million and $22.2 million for the comparable period ended June 30, 2022.

This decrease of $3.4 million is primarily attributable to the $2.0 million of goodwill impairment in the six months ended June 30, 2022, lower stock based compensation and professional fees in the six months ended June 30, 2023 offset by $1.4 million of transaction costs in the 2023 period.

Other Income (Expense)

Other income/expense for the three months ended March 31, 2023 was a loss of $1.7 million as compared to a loss of $1.5 million for the three months ended March 31, 2022.

The three months ended March 31, 2023 included higher interest expense on short term debt and the three months ended March 31, 2022 included a $1.5 million unrealized loss on equity securities.

Other income/expense for the six months ended June 30, 2023 was a loss of $2.3 million as compared to a loss of $1.1 million for the six months ended June 30, 2022.

The six months ended June 30, 2023 included higher interest expense on short term debt and the six months ended June 30, 2022 included an approximate $1.3 million unrealized loss on equity securities.

Provision for Income Taxes

There is an income tax expense of approximately $2.5 million and $0.0 million for the three months ended March 31, 2023 and 2022, respectively.

The income tax expense in the three months ended March 31, 2023 includes a $2.6 million deferred tax expense to increase the valuation allowance, which is offset by a current tax benefit of $0.1 million, due to the Enterprise Apps Spin-off.

There is an income tax expense of approximately $2.5 million and $0.02 million for the six months ended June 30, 2023 and 2022, respectively.

The income tax expense in the six months ended June 30, 2023 includes a $2.6 million deferred tax expense to increase the valuation allowance, which is offset by a current tax benefit of $0.1 million, due to the Enterprise Apps Spin-off.

Loss from Discontinued Operations, Net of Tax

Loss from discontinued operations, net of tax for the three months ended March 31, 2023 was $4.9 million compared to a loss of $0.8 million for the three months ended March 31, 2022.

This increase in loss of $4.1 million was due to approximately $1.0 million of spin off transaction costs in the three months ended March 31, 2023 and the earnout compensation benefit of approximately $2.8 million in the three months ended March 31, 2022.

Loss from discontinued operations, net of tax for the six months ended June 30, 2023 was $4.9 million compared to a loss of $12.1 million for the six months ended June 30, 2022.

This decrease in loss of $7.3 million was primarily due to with the spin off occurring in March 2023, there are only 3 months of discontinued operations in the six months ended June 30, 2023 with there being 6 months of discontinued operations in the six months ended June 30, 2022.

Additionally, the June 2022 period includes approximately $5.5 million of goodwill impairment which is offset by a $2.8 million earnout compensation benefit.

Non-GAAP Financial information

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

Adjusted EBITDA for the three months ended March 31, 2023 was a loss of $7.7 million compared to a loss of $8.8 million for the prior year period.

The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three and three months ended March 31, 2023 and 2022 (in thousands):

For the Three Months Ended March 31,

Net loss attributable to stockholders of Inpixon $ (16,873) $ (17,362)

Adjusted EBITDA for the three months ended June 30, 2023 was a loss of $5.0 million million compared to a loss of $5.2 million million for the prior year period.

Adjusted EBITDA for the six months ended June 30, 2023 was a loss of $9.9 million compared to a loss of $11.7 million for the prior year period.

The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022 (in thousands):

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

2023 2022 2023 2022

Net loss attributable to Common Stockholders $ (6,966) $ (24,857) $ (23,840) $ (42,219)

Loss from discontinued operations, net of tax — 11,365 4,856 12,139

Interest expense/(income), net 1,756 (168) 3,481 (169)

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Acquisition transaction/financing costs 523 137 687 252

Earnout compensation benefit — (2,827)

Professional service fees — — — 8

Impairment of goodwill — 2,030 — 2,030

Transaction costs 43 — 1,443 —

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Distribution of equity method investment shares to employees as compensation — — 666 —

Gain on equity securities (1,142) — (1,142) —

Unrealized foreign exchange (gains)/losses 28 35 (145) 124

Bad debts expense/provision 24 — 24 —

Reserve for inventory obsolescense 16 — 16 —

Stock-based compensation - compensation and related benefits 241 741 570 2,274

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

the fair value of derivative liability, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with the public offering.

• We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation, amortization of intangibles, change in the fair value of shares to be issued, change in the fair value of derivative liability, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with the public offering.

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

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Proforma Non-GAAP Net Income (Loss) per Share

Basic and diluted net income (loss) per share for the three months ended March 31, 2023 was a loss of $1.38 compared to loss of $9.05 for the prior year period.

Basic and diluted net loss per share for the three months ended June 30, 2023 was $0.19 compared to loss of $12.87 for the prior year period.

Basic and diluted net loss per share for the six months ended June 30, 2023 was $1.16 compared to loss of $20.91 for the prior year period.

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

Proforma non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2023 was a loss of $1.01 per share compared to a loss of $4.79 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the three months ended June 30, 2023 was $0.18 per share compared to a loss of $2.72 per share for the prior year period.

Proforma non-GAAP net loss per basic and diluted common share for the six months ended June 30, 2023 was a loss of $0.79 per share compared to a loss of $5.88 per share for the prior year period.

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

For the Three Months Ended March 31,

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

(thousands, except per share data) 2023 2022 2023 2022

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Non-recurring one-time charges:

Loss from discontinued operations, net of tax — 11,365 4,856 12,139

Unrealized (gain)/loss on equity securities 92 (247) 58 1,256

Acquisition transaction/financing costs 523 137 687 252

Earnout compensation benefit — (2,827)

Professional service fees — — — 8

Impairment of goodwill — 2,030 — 2,030

Transaction costs 43 — 1,443 —

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Distribution of equity method investment shares to employees as compensation — — 666 —

Gain on equity securities (1,142) — (1,142) —

Unrealized foreign exchange (gains)/losses 28 35 (145) 124

Bad debts expense/provision 24 — 24 —

Reserve for inventory obsolescence 16 — 16 —

Stock-based compensation - compensation and related benefits 241 741 570 2,274

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

Liquidity and Capital Resources as of March 31, 2023

Our current capital resources and operating results as of and through March 31, 2023, consist of:

Liquidity and Capital Resources as of June 30, 2023

Our current capital resources and operating results as of and through June 30, 2023, consist of:

1) an overall working capital surplus of approximately $0.02 million;

2) cash of approximately $15.3 million;

3) net cash used by operating activities for the three months ended March 31, 2023 of $9.5 million.

The breakdown of our overall working capital surplus as of March 31, 2023 is as follows (in thousands):

2) cash and cash equivalents of approximately $15.7 million;

3) net cash used by operating activities for the six months ended June 30, 2023 of $15.8 million.

The breakdown of our overall working capital surplus as of June 30, 2023 is as follows (in thousands):

Working Capital Assets Liabilities Net

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Notes and other receivables / Short-term debt 785 13,800 (13,015)

Warrant liability — 1,500 (1,500)

Other 2,181 — 2,181

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

As of March 31, 2023, the total obligation for capitalized operating leases is approximately $0.5 million, of which approximately $0.2 million is expected to be paid in the next twelve months.

As of March 31, 2023, we owed approximately $15.0 million in principal under promissory notes with third parties.

June 30, 2023, the total obligation for capitalized operating leases is approximately $0.5 million, of which approximately $0.2 million is expected to be paid in the next twelve months.

As of June 30, 2023, we owed approximately $13.8 million in principal under promissory notes with third parties.

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

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

Net cash used in operating activities during the three months ended March 31, 2023 of $9.5 million consists of a net loss of $17.2 million offset by non-cash adjustments of approximately $5.6 million less net cash changes in operating assets and liabilities of approximately $2.0 million.

Although the Company has sustained significant losses during three months ended March 31, 2023, in addition to the cash we had on hand, we raised gross proceeds of approximately $19.6 million since January 1, 2023, in connection with the ATM Offering described above.

In addition, as of June 30, 2023, we have accrued a liability for outstanding warrants, of $1.5 million.

Each warrant is immediately exercisable for one share of Common Stock and will expire one year from the issuance date in May 2023 unless extended by the Company with the consent of the warrant holder.

See Note 15 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

Net cash used in operating activities during the six months ended June 30, 2023 of $15.8 million consists of a net loss of $24.5 million offset by non-cash adjustments of approximately $6.4 million less net cash changes in operating assets and liabilities of approximately $2.3 million.

Although the Company has sustained significant losses during six months ended June 30, 2023, in addition to the cash we had on hand, we raised gross proceeds of approximately $21.0 million in connection with the ATM Offering described above and received $2.3 million from warrants exercised since January 1, 2023.

Given our current cash balances, financing facilities and budgeted cash flow requirements, the Company believes such funds are sufficient to satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements.

However, general economic or other conditions resulting from COVID 19 or other events materially may impact the liquidity of our common stock or our ability to continue to access capital from the sale of our securities to support our growth plans.

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.

products impacting delivery times for our products.

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

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

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

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

Certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, and other general economic factors that are beyond our control may impact our results of operations.

However, general economic conditions may materially impact the liquidity of our common stock or our ability to continue to access capital from the sale of our securities to support our growth plans.

Certain global events, such as the recent military conflict between Russia and Ukraine, and other general economic factors that are beyond our control may impact our results of operations.

These factors can include interest rates;

unemployment trends;

the threat or possibility of war, terrorism or other global or national unrest;

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

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

The impact that these global events will have on general economic conditions is continuously evolving and the impact that they will have on our results of operations continues to remain uncertain.

There are no assurances that we will not be materially adversely effected.

The Company may continue to pursue strategic transactions and may raise such additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each transaction.

Liquidity and Capital Resources

The Company’s net cash flows used in operating, investing and financing activities for the three months ended March 31, 2023 and 2022 and certain balances as of the end of those periods are as follows (in thousands):

For the Three Months Ended March 31,

The Company’s net cash flows used in operating, investing and financing activities for the six months ended June 30, 2023 and 2022 and certain balances as of the end of those periods are as follows (in thousands):

For the Six Months Ended June 30,

Net cash used in operating activities $ (15,805) $ (19,544)

Net cash provided by (used in) investing activities (376) 27,813

Net cash (used in) provided by investing activities (480) 37,055

Net cash provided by (used in) financing activities 11,718 (4,163)

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Net (decrease)/increase in cash and cash equivalents $ (4,554) $ 13,275

As of March 31,

As of June 30,

2023 As of December 31,

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Working capital surplus $ 15 $ 5,152

Operating Activities for the three months ended March 31, 2023

Net cash used in operating activities during the three months ended March 31, 2023 was approximately $9.5 million.

The cash flows related to the three months ended March 31, 2023 consisted of the following (in thousands):

Operating Activities for the six months ended June 30, 2023

Net cash used in operating activities during the six months ended June 30, 2023 was approximately $15.8 million.

The cash flows related to the six months ended June 30, 2023 consisted of the following (in thousands):

Net income (loss) $ (24,507)

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1,686 Amortization of debt discount

(1,142) Gain on settlement of FOXO

666 Distribution of equity method investment shares to employees as compensation

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$ 2,301 Net cash used in the changes in operating assets and liabilities

Operating Activities for the three months ended March 31, 2022

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

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

Operating Activities for the six months ended June 30, 2022

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

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

Net income (loss) $ (31,887)

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(2,827) Earnout payment expense

(167) Unrealized loss on foreign currency transactions

(92) Amortization of debt discount

344 Unrealized gain/loss on note

(1) Deferred income tax

1,256 Unrealized loss on equity securities

7,570 Impairment of goodwill

$ 12,734 Total non-cash expenses

The net use of cash in the change in operating assets and liabilities aggregated approximately $0.4 million and consisted primarily of the following (in thousands):

$ (239) Increase in accounts receivable and other receivables

(3,385) Increase in inventory, prepaid expenses and other current assets and other assets

$ 361 Decrease in accounts receivable and other receivables

1,667 Decrease in inventory, prepaid expenses and other current assets and other assets

(1,498) Decrease in accounts payable

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

502 Increase in accrued liabilities, income tax liabilities and other liabilities

(327) Decrease in operating lease liabilities

1 unchanged sentence

$ (391) Net use of cash used in the changes in operating assets and liabilities

Cash Flows from Investing Activities as of March 31, 2023 and 2022

Net cash flows used in investing activities during the three months ended March 31, 2023 was approximately $0.4 million compared to net cash flows provided by investing activities during the three months ended March 31, 2022 of approximately $27.8 million.

Cash flows related to investing activities during the three months ended March 31, 2023 include $0.01 million for the purchase of property and equipment, $0.2 million for investment in capitalized software, $0.3 million for the issuance of a note receivable, and $0.2 million of proceeds from a note receivable.

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

Cash Flows from Financing Activities as of March 31, 2023 and 2022

Net cash flows provided by financing activities during the three months ended March 31, 2023 was $4.9 million.

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

During the three months ended March 31, 2023, the Company received incoming cash flows of $0.1 million from a promissory note, $15.0 million from a registered direct offering, paid $0.2 million of the CXApp acquisition liability, and distributed $10.0 million to the shareholders related to the spin-off of CXApp.

During the three months ended March 31, 2022, the Company received incoming cash flows $46.9 million for the issuance of preferred series 8 stock and warrants, paid $49.3 million for the redemption of preferred series 7 stock, paid $1.8 million of the CXApp acquisition liability, received $0.4 million of net proceeds from promissory notes and paid $0.3 million of taxes related to the net share settlement of restricted stock units.

Cash Flows from Investing Activities as of June 30, 2023 and 2022

Net cash flows used in investing activities during the six months ended June 30, 2023 was approximately $0.5 million compared to net cash flows provided by investing activities during the six months ended June 30, 2022 of approximately $37.1 million.

Cash flows related to investing activities during the six months ended June 30, 2023 include $0.05 million for the purchase of property and equipment, $0.1 million for investment in capitalized software, $0.5 million for the issuance of a note receivable, and $0.2 million of proceeds from a note receivable.

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

Cash Flows from Financing Activities as of June 30, 2023 and 2022

Net cash flows provided by financing activities during the six months ended June 30, 2023 was $11.7 million.

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

During the six months ended June 30, 2023, the Company received incoming cash flows of $0.1 million from a promissory note, received $20.4 million from a registered direct offering, received $1.4 million from the issuance of warrants, paid $0.2 million of the CXApp acquisition liability, and distributed $10.0 million to the shareholders related to the spin-off of CXApp.

During the six months ended June 30, 2022, the Company received incoming cash flows $46.9 million for the issuance of preferred series 8 stock and warrants, paid $49.3 million for the redemption of preferred series 7 stock, paid $1.8 million of the CXApp acquisition liability, received $0.4 million of net proceeds from promissory notes and paid $0.3 million of taxes related to the net share settlement of restricted stock units.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis