XTI Aerospace, Inc. XTIA US Equity☆

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Annual Report on Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements, due to a number of factors, including but not limited to, risks described in the section entitled “Risk Factors.”

Overview of Our Business

Inpixon is the Indoor IntelligenceTM 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,

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improve worker and employee satisfaction rates and drive a more connected workplace. We have focused our corporate strategy on being the primary provider of the full range of foundational technologies needed in order to offer a comprehensive suite of solutions that make indoor data available and meaningful to organizations and their employees.

Our Indoor Intelligence solutions are used by our customers for a variety of use cases including, but not limited to, employee and visitor experience enhancement through a customer branded app with features such as desk booking, wayfinding and navigation, and the delivery of content to tens of thousands of attendees in hybrid events. Our real time location (RTLS) and asset tracking products offer manufacturing and warehouse logistics optimization and automation, increase workforce productivity, and enhance worker safety and security.

In addition to our Indoor Intelligence technologies and solutions, we also offer:

• Digital solutions (eTearsheets; eInvoice, adDelivery) or cloudbased applications and analytics for the advertising, media and publishing industries y advertising management platform referred to as Shoom by Inpixon; and

• A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists referred to as SAVES by Inpixon.

We report financial results for three segments: Indoor Intelligence, Shoom and SAVES. For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services. For Shoom and SAVES we generate revenue from the sale of software licenses.

Revenues increased in the year ended December 31, 2021 over the same period in 2020 by approximately $6.7 million which is primarily attributable to an approximate $5.0 million increase in Indoor Intelligence sales, including our smart office app and real time location based technologies, and an increase of approximately $1.7 million of SAVES sales. We expect to continue to grow our Indoor Intelligence product line in 2022. The Indoor Intelligence product line does have long sales cycles, which result from customer-related issues such as budget and procurement processes but also because of the early stages of indoor-positioning technology and the learning curve required for customers to implement such solutions. Customers also often engage in a pilot program first which prolongs sales cycles and is typical of most emerging technology adoption curves. We anticipate sales cycles to improve in 2022 as our customer base moves from early adopters to mainstream customers. The sales cycle is also improving with the increased presence and awareness of beacon and Wi-Fi locationing technologies in the market. Indoor Intelligence sales can be licensed-based with government customers but commercial customers typically prefer a SaaS or subscription model. Our other digital solutions are also delivered on a SaaS model and allow us to generate industry analytics that complement our indoor-positioning solutions.

We experienced a net loss of approximately $70.1 million and $29.2 million for the years ended December 31, 2021 and 2020, respectively. This increase in loss of approximately $40.9 million was primarily attributable to the increase in operating expenses of $53.8 million primarily as a result of increased operating expenses related to the acquisitions completed in 2021, stock based compensation and a goodwill impairment offset by the higher gross margin of $4.9 million and reduced other loss of $6.6 million. 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.

Recent Events

2021 Financings

On January 24, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued in a registered direct offering, 5,800,000 shares of our common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.549 per share. At closing, the Company received $27.8 million in net proceeds after deducting placement agent commissions and offering expenses. The January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is or was immediately exercisable for

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one share of common stock for a period until the five year anniversary of the issuance date. The January 2021 Pre-funded Warrants were exercised in full as of February 8th, 2021. In addition, the investor exercised its purchase rights for 3 million shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021.

On February 12, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued in a registered direct offering, 7,000,000 shares of our common stock, and warrants to purchase up to 15,000,000 shares of common stock at an exercise price of $2.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $2.00 per share and pre-funded warrants to purchase up to 8,000,000 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.999 per share. At closing the Company received net proceeds of $27.8 million after deducting placement agent commissions and offering expenses. Each First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock until the five year anniversary of the issue date. The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021.

On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold and issued in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $2.009 per share. At clsoing the Company received net proceeds of $18.5 million after deducting placement agent commissions and offering expenses. Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is or was immediately exercisable for one share of common stock until the five year anniversary of the issuance date. The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021.

On September 13, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 58,750 shares of its newly designated Series 7 Convertible Preferred Stock at a stated value of $1,000 per shares ("Stated Value") convertible into 47,000,000 million shares of common stock at a conversion price of $1.25 (ii) related 5 year warrants to purchase up to an aggregate of 47,000,000 shares of common stock (the “Warrants”) at an exercise price of $1.25 per share beginning as of November 18, 2021 (the date on which the we effected a "capital event" resulting in sufficient authorized shares to issue the warrant shares. Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $920, representing an original issue discount of 8% of the Stated Value for an aggregate subscription amount of $54.1 million. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $50.6 million. If anytime after the effective date of the capital event (i) the volume weighted average price for each of any 10 consecutive trading day period following such event, exceeds $2.00 per share (subject to adjustments for splits, dividends, and the like); (ii) the volume for each trading day during any such period exceeds $2,000,000 of shares of common stock per trading day; and (iii) we satisfy certain Equity Conditions (as defined in the Certificate of Designation), we may elect to mandatorily convert all or a portion of the outstanding shares of Series 7 Preferred Stock (any such portion to be pro-rated across all holders thereof) at the then prevailing conversion price.

In addition, at any time beginning on the 6-month anniversary of the date the Series 7 Preferred Stock was issued (the “Redemption Triggering Date”) and ending ninety (90) days thereafter, each holder of such shares may require us to redeem all or part of the shares then held by such holder in cash for a redemption price per share equal to the Stated Value plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses, or amounts due in respect of such shares (the “Redemption Amount”), provided that in connection with certain events of default described in the Certificate of Designation, the Redemption Amount is increased to 110% of the Stated Value plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses, or amounts due in respect of such shares. If we fail to pay the full Redemption Amount timely, we will be obligated to pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from the due date until the redemption amount and all interest thereon are paid in full. Correspondingly, beginning on the Redemption Triggering Date for so long as the Shares remain outstanding the Company has the right to redeem all or part of the Shares then held by a holder for the Redemption Amount, subject to Equity Conditions. In the event, the Company elects to exercise its redemption right, the holder will have an option to convert such shares subject to redemption into the common stock within thirty (30) days following a written notice sent to the holder. Upon the receipt of the pertinent Redemption Amount, the holder of the Shares will forfeit 75% of the Warrants issued.

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Until the earlier of the conversion or redemption of all Shares and June 14, 2022, the Company is also required to maintain a cash balance (in the form of cash and cash equivalents equal to the sum of (i) the Stated Value of all of the Series 7 Preferred Stock then outstanding, (ii) the aggregate amount of any debt (including trade payables) and other securities that are issued that are senior to, or pari passu with, the Shares, and (iii) the aggregate amount of monetary judgments with respect to the Company and its subsidiaries or any of their respective property or assets.

2021 Strategic Transactions

Game Your Game Acquisition of Controlling Interest

On April 9, 2021 we acquired 522,000 shares of common stock of Game Your Game, Inc., a Delaware corporation (“GYG”), which represent 55.4% of the outstanding shares of common stock of GYG, pursuant to that certain Stock Purchase Agreement, dated as of March 25, 2021 (the “Purchase Agreement”), with GYG and certain selling stockholders. At the closing, Nadir Ali, the Company’s Chief Executive Officer and member of the Company’s board of directors, was appointed as the sole member of GYG’s board of directors. In connection with the closing of the transaction, we entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”), with GYG and certain other minority stockholders of GYG, pursuant to which the minority stockholders agreed to vote their shares to (i) ensure that GYG’s board of directors is comprised of one director and (ii) elect the person the Company designates from time to time to serve as GYG’s sole director.

In addition, we were granted a right of first refusal in the event a minority stockholder wants to transfer shares to a third party, as well as customary drag-along rights in the event a third party offers to purchase all of GYG’s outstanding capital stock, in addition to an option to purchase all of the remaining outstanding capital stock of GYG,. The purchase pption is exercisable by the Company at any time prior to the 3rd anniversary of the transaction closing date at a capped purchase price, subject to a downward adjustment if GYG is unable to achieve certain financial-based performance targets during a specified period of time.

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

Systat Purchase Option Exercise

On February 22, 2021, we entered into a Second Amendment to the Exclusive Software License and Distribution Agreement, as amended on June 30, 2020 (as amended, the “License Agreement”), with Cranes Software International Ltd. and Systat Software, Inc. (“Systat”) to allow for the exercise of the option to purchase software and other assets underlying the License Agreement, in whole or in part, any time during the purchase option period and to provide for cash consideration in lieu of an assignment of the Sysorex Note at our option. In addition, we exercised our option to purchase a portion of the underlying assets, including certain software, trademarks, solutions, domain names and websites from Systat in exchange for consideration in an amount equal to $900,000.

Sysorex Securities Settlement Agreement

On April 14, 2021, we entered into a Securities Settlement Agreement (the “SSA”) and a Rights Letter Agreement (the “RLA”), each with Sysorex, whereby Sysorex agreed to satisfy in full its outstanding debt, in the aggregate amount of $9,088,175.97 as of March 31, 2021, owed to us under that certain secured promissory note, originally dated December 31, 2018, as amended from time to time, and in connection with that certain settlement agreement, dated February 20, 2019, by and among us, Sysorex and Atlas Technology Group, LLC (the “Debt Settlement”). To effect the Debt Settlement, Sysorex agreed to issue to us (i) pursuant to the terms of the SSA, 12,972,189 shares of its common stock, $0.00001 par value per share, and (ii) rights to acquire 3,000,000 additional shares of its common stock pursuant to the terms of the RLA. The Debt Settlement was entered into in connection with Sysorex’s closing of a reverse triangular merger with TTM Digital Assets & Technologies, Inc.

Nadir Ali, our Chief Executive Officer and a member of our board of directors, resigned as a director of Sysorex, as of May 14, 2021. Nadir Ali entered into a consulting agreement with Sysorex, pursuant to which he agreed to provide certain business services specified in the agreement for the benefit of Sysorex in exchange for shares of Sysorex’s common stock.

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Visualix Asset Purchase Agreement

On April 23, 2021, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) by and among the Company, Visualix GmbH i.L. (the “Visualix”), Darius Vahdat-Pajouh and Michal Bucko (each, a “Founder,” and collectively, the “Founders”), and Future Energy Ventures Management GmbH (“FEVM”) pursuant to which we acquired certain computer vision, robust localization, large-scale navigation, mapping, and 3D reconstruction software technologies and intellectual property (collectively, the “Visualix Assets"). In accordance with the terms of the Asset Purchase Agreement, we purchased the Visualix Assets and certain patent applications related to the Visualix Assets from FEVM.

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

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

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

(iii) issued 52,795 to shares of Common Stock to FEVM.

The Asset Purchase Agreement includes customary representations and warranties, as well as certain covenants, including, inter alia, that the Founders are hired as employees of Inpixon GmbH and Visualix and the Founders shall not, for a period of two (2) years following the closing date, directly or indirectly, compete with us in the sectors of Mapping and Localization Technology (as defined in the Asset Purchase Agreement).

CXApp Acquisition

On April 30, 2021, we completed the acquisition of over 99.9% of the outstanding capital stock of Design Reactor, Inc., dba The CXApp, a California corporation (“The CXApp”), pursuant to the terms of that certain Stock Purchase Agreement, dated as of the Closing Date (the “Stock Purchase Agreement”), by and among us, The CXApp, the sellers set forth on the signature page thereto and each other person who owns outstanding capital stock of The CXApp (“CXApp Shares”) and executes a Joinder to Stock Purchase Agreement (collectively, the “Sellers”), and Leon Papkoff, as Sellers’ Representative (the “Sellers’ Representative”). The CXApp is a leading SaaS app platform that enables corporate enterprise organizations to provide a custom-branded, location-aware employee app focused on enhancing the workplace experience and hosting virtual and hybrid events.

On the closing date, the Sellers sold all of their CXApp Shares to us in exchange for consideration of (i) approximately $22,500,000 in cash, minus The CXApp’s transaction expenses, plus The CXApp’s closing cash, minus stock option payouts, minus the amount that equals 70% of deferred revenue as of the Closing Date, subject to such other adjustments set forth in the Stock Purchase Agreement, including a post-closing working capital adjustment (such amount, the “Cash Purchase Price”), of which $4,875,000 (the “Holdback Amount”) was retained from the Cash Purchase Price to secure the Sellers’ indemnification obligations under the Purchase Agreement, for a period of 18 months from the closing date and (ii) 8,820,239 shares of our common stock, which were valued at approximately $10,000,000 based on a share price of $1.13 (the “Per Share Price”), which was the closing price of our common stock immediately prior to executing the Stock Purchase Agreement (such shares, the “Purchaser Shares” and together with the Cash Purchase Price, the “Consideration”). In addition, we agreed to pay up to $12,500,000 in contingent earnout payments, subject to certain adjustments (the “Earnout Payment” and together with the Cash Purchase Price and the Purchaser Shares, the “Aggregate Purchase Price”), payable in shares of Common Stock at the Per Share Price (the "Earnout Shares").

On May 10, 2021, we, The CXApp and the non-signing Seller executed a Joinder to Stock Purchase Agreement pursuant to which we purchased such Non-Signing Seller’s CXApp Shares in exchange for approximately $50,000 in cash and 29,299 shares of our Common Stock. As of such time, the Company now owns 100% of The CXApp.

On December 30, 2021, we entered into an Amendment to the Stock Purchase Agreement (the “Amendment”), with the Sellers’ Representative, pursuant to which the parties to the Stock Purchase Agreement agreed to: (i) amend the amount of the earnout target (as defined in the Stock Purchase Agreement) from $8,270,000 to $4,200,000 in revenue; (ii) amend the

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duration of the earnout period from the period from the closing date through the twelve (12) month anniversary of the closing date to the period from the closing date through December 31, 2021; and (iii) eliminate the Sellers’ Representative’s right to accelerate the Earnout Payment upon a sale or change of control of the Company. The amendments are anticipated to result in certain tax advantageous benefits for the Company in addition to aiding in facilitating the integration of business operations.

On March 3, 2022, we entered into a Second Amendment to the Stock Purchase Agreement with the Sellers' Representative, pursuant to which the parties agreed that withholding taxes payable by the Sellers, as applicable, in connection with the issuance of the Earnout Shares would be offset up to the aggregate amount payable to such Seller by the Company from the Holdback Amount and the Holdback Amount would be reduced by an equal amount. On March 3, 2022, the Company issued 10,873,886 shares of Common Stock to the Sellers in connection with the satisfaction of the Earnout Payment.

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 250,000,000 to 2,000,000,000 shares effective as of November 18, 2021.

Warrant and Note Exchanges

On January 28, 2022, we entered into an exchange agreement with the holder (the “Warrant Holder”) of certain existing warrants to purchase up to an aggregate of 49,305,088 shares of our common stock (the “Existing Warrants”), pursuant to which we agreed to issue an aggregate of 13,811,407 shares of common stock (collectively, the “Exchange Common Shares”) and rights (the “Rights”) to receive an aggregate of 3,938,424 shares of common stock (collectively, the “Reserved Shares” and together with the Exchange Common Shares, the “Exchange Shares”) to such warrant holder in exchange for the cancellation of the Existing Warrants (the “Warrant Exchange”). Subject to the terms of the Exchange Agreement, the Rights may be exercised by the Warrant Holder for the Reserved Shares, in whole or in part, at any time or times on or after the date of the Exchange Agreement, subject to certain beneficial ownership limitations. On any Trading Day (as defined in the Existing Warrants) during the period commencing on the date of of the exchange agreement and ending on March 29, 2022 (such period, the “Restricted Period”), the warrant holder will not sell on such Trading Day, in the aggregate, any Exchange Shares in an aggregate amount representing more than 10% of the daily composite trading volume of common stock as reported by Bloomberg, LP on such applicable Trading Day.

On February 1, 2022, we entered into an exchange agreement with the holder of that certain outstanding unsecured promissory note, issued on March 18, 2020 in an aggregate initial principal amount of $6,465,000 (the “Original Note”), pursuant to which we and the holder agreed to: (i) partition a new promissory note in the form of the Original Note equal to $500,000 and then cause the outstanding balance of the Original Note to be reduced by $500,000; and (ii) exchange the partitioned note for the delivery of 1,191,611 shares of the Company’s Common Stock, at an effective price per share equal to $0.4196, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

On February 18, 2022, the Company entered into an exchange agreement with the holder of the Original Note, pursuant to which the Company and the holder agreed to: (i) partition a new promissory note in the form of the Original Note equal to $350,000 and then cause the outstanding balance of the Original Note to be reduced by $350,000; and (ii) exchange the partitioned note for the delivery of 966,317 shares of the Company’s Common Stock, at an effective price per share equal to $0.3622, which was equal to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

On March 15, 2022, the Company entered into an exchange agreement with the holder of the Original Note, pursuant to which the Company and the holder agreed to: (i) partition a new promissory note in the form of the Original Note equal to $650,000 and then cause the outstanding balance of the Original Note to be reduced by $650,000; and (ii) exchange the partitioned note for the delivery of 2,152,317 shares of the Company’s Common Stock, at an effective price per share equal to $0.3020, was equal to to Nasdaq’s “minimum price” as defined by Nasdaq Listing Rule 5635(d).

Critical Accounting Policies and Estimates

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Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 of the audited consolidated financial statements for the years ended December 31, 2021 and 2020 which are included elsewhere in this Annual Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not been material.

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.

Our contracts with customers often include promises to transfer multiple distinct products and services. Our licenses are sold as perpetual or term licenses and the arrangements typically contain various combinations of maintenance and professional services, which are accounted for as separate performance obligations. In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process. The most critical judgements required in applying ASC 606 Revenue Recognition from Customers, and our revenue recognition policy relate to the determination of distinct performance obligations.

•We receive fixed consideration for sales of hardware and software products.Revenue is recognized at point in time when the customer has title to the product and risks and rewards of ownership have transferred.

•Revenue related to software as a service contract is recognized over time using the output method (days of software provided) because we are providing continuous access to its service.

•Design and implementation revenue is accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract.Accounting for these contracts involves the use of estimates to determine total contract costs to be incurred.

•Professional services revenue under fixed fee contracts is recognized over time using the input method (direct labor hours) to recognize revenue over the term of the contract.We have elected the practical expedient to recognize revenue for the right to invoice because our right to consideration corresponds directly with the value to the customer of the performance completed to date.

•We recognize revenue related to Maintenance Services evenly over time using the output method (days of software provided) because we provide continuous service, and the customer simultaneously receives and consumes the benefits provided by our performance as the services are performed.

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We also consider whether an arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations. We offer discounts in the form of prompt payment discounts and rebates for a decrease in service level percentages. We have determined that the most likely amount method is most useful for contracts that provides these discounts and rebates as the contracts have two potential outcomes and a significant reversal in the amount of cumulative revenue recognized is not expected to occur. Discounts have not historically been significant, but we continue to monitor and evaluate these estimates based on historical experience, anticipated performance, and our best judgment. 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. If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period.

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

Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. The impairment test for long-lived assets requires us to assess the recoverability of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventual disposition of the assets. If the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows, we would be required to record an impairment charge equal to the excess, if any, of net carrying value over fair value.

When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, we make assumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of judgment and bear a significant impact on the assessment conclusions. Included among these assumptions are estimating undiscounted future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property and equipment and residual value of asset groups. We formulate estimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions. In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge. Based on our evaluation we did not record a charge for impairment for the years ended December 31, 2021 and 2020.

We evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted. Such events or circumstances may include (but are not limited to): the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in which we operate, known technological advances, legislative actions, or changes in the regulatory environment. If the estimated remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be amortized prospectively over that revised remaining useful life. We have determined that there were no events or circumstances during the years ended December 31, 2021 and 2020, which would indicate a revision to the remaining amortization period related to any of our long-lived assets. Accordingly, we believe that the current estimated useful lives of long-lived assets reflect the period over which they are expected to contribute to future cash flows and are therefore deemed appropriate.

We have recorded goodwill and other indefinite-lived assets in connection with our acquisitions of Shoom, Locality, Jibestream, GTX, the Systat Parties, Nanotron, CXApp, Game Your Game and IntraNav. Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is not amortized. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination. The recoverability of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the carrying amount may not be recoverable. We have determined that it operates and reports in three reporting units: Indoor Intelligence, Saves, and Shoom.

We analyzed goodwill first to assess qualitative factors, such as macroeconomic conditions, changes in the business environment and reporting unit specific events, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed goodwill impairment test as required. The more-likely-than-not threshold is defined as having a likelihood of more than 50%.

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If we bypass the qualitative assessment or conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.We calculate the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others made by management: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, we use internal analyses based primarily on market comparables. We base these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis. For example, a 100 basis points increase or decrease in only the discount rate utilized as part of the discounted cash flow method (income approach) related to the Indoor Intelligence reporting unit could impact the overall fair value of the reporting unit, on a weighted average, by approximately $2.0 million (decrease) and $2.5 million (increase), respectively.

We performed the annual impairment test and has recorded impairment of goodwill of $14.8 million and zero during the years ended December 31, 2021 and 2020, respectively.

Deferred Income Taxes

In accordance with ASC 740 “Income Taxes” (“ASC 740”), management routinely evaluates the likelihood of the realization of its income tax benefits and the recognition of its deferred tax assets. In evaluating the need for any valuation allowance, management will assess whether it is more likely than not that some portion, or all, of the deferred tax asset may not be realized on a jurisdictional basis. Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized. In performing its analyses, management considers both positive and negative evidence including historical financial performance, previous earnings patterns, future earnings forecasts, tax planning strategies, economic and business trends and the potential realization of net operating loss carry-forwards within a reasonable timeframe. To this end, management considered (i) that we have had historical losses in the prior years and cannot anticipate generating a sufficient level of future profits in order to realize the benefits of our deferred tax asset; (ii) tax planning strategies; and (iii) the adequacy of future income as of and for the year ended December 31, 2021, based upon certain economic conditions and historical losses through December 31, 2021. After consideration of these factors, management deemed it appropriate to establish a full valuation allowance with respect to the deferred tax assets for Inpixon, Inpixon Canada, Nanotron GmbH, Intranav GmbH and Active Mind Technology LTD.

A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax filings that do not meet these recognition and measurement standards. As of December 31, 2021 and 2020, no liability for unrecognized tax benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2021 and 2020.

Business Combinations

We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to our consolidated financial results will be adjusted. All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Separately recognized transactions associated with business combinations are generally expensed subsequent to the acquisition date. The application of business combination and impairment accounting requires the use of significant estimates and assumptions.

Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date and are included in our Consolidated Financial Statements from the acquisition date.

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RESULTS OF OPERATIONS

Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

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

For the Years Ended

* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.

Revenues

Revenues for the year ended December 31, 2021 were $16.0 million compared to $9.3 million for the comparable period in the prior year for an increase of approximately $6.7 million, or approximately 72%. This increase is primarily attributable to an approximate $5.0 million increase in Indoor Intelligence sales, including our smart office app and real time location based technologies, and an increase of approximately $1.7 million of SAVES sales. The increase in Indoor Intelligence sales of $5.0 million was driven by a $4.4 million increase in revenue due to the acquisitions of CXApp, Game Your Game, and IntraNav.

Gross Margin

Cost of revenues for the year ended December 31, 2021 were $4.4 million compared to $2.6 million for the comparable period in the prior year. This increase in cost of revenues of approximately $1.8 million, or approximately 67%, was primarily attributable to the increased sales during the year.

The gross profit margin for the year ended December 31, 2021 was 73% compared to 72% for the year ended December 31, 2020. This increased margin is primarily due to the sales mix during the year.

Operating Expenses

Operating expenses for the year ended December 31, 2021 were $84.2 million and $30.5 million for the comparable period ended December 31, 2020. This increase of $53.8 million is primarily attributable to increased operating expenses of the Indoor Intelligence segment by approximately $6.2 million due to the CXApp, Game Your Game, SAVES and, Nanotron acquisitions, approximately $6.5 million of accrued earnout compensation expense, $9.7 million of additional stock based compensation, $14.8 million impairment of goodwill and increases in other expenses including amortization of intangibles due to the acquisitions, professional fees and compensation costs as we are scaling for growth.

Loss From Operations

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Loss from operations for the year ended December 31, 2021 was $72.6 million as compared to $23.8 million for the comparable period in the prior year. This increase in loss of $48.8 million is primarily attributable to increased operating expenses of $53.8 million as detailed above offset by the increased gross profit margin of approximately $4.9 million.

Other Income/(Expense)

Other income/expense for the year ended December 31, 2021 was income of $1.1 million compared to a loss of $5.5 million for the comparable period in the prior year. This increase in other income of approximately $6.6 million is primarily attributable to a discounted net gain of approximately $49.8 million on the Sysorex note, a $7.3 million benefit from the release of the valuation allowance on the Sysorex note and approximately $1.6 million of interest received on the Sysorex note offset by the $57.1 million unrealized loss on the Sysorex note.

Provision for Income Taxes

There was an income tax benefit of approximately $1.4 million for the year ended December 31, 2021 compared to a income tax benefit of $0.1 million for the comparable period in the prior year. The net income tax benefit for the current year is related to a current income tax expense of $1.2 million primarily from the gain on the Sysorex note offset by a $2.6 million deferred tax benefit primarily related to the release of a valuation allowance following the acquisition of intangibles of Design Reactor. The income tax benefit of $0.1 million for the year ended December 31, 2020 related to intangibles and net operating losses of Jibestream amalgamated with Inpixon Canada during the period.

Net Income (Loss) Attributable To Non-Controlling Interest

Net income or loss attributable to non-controlling interest for the years ended December 31, 2021 and 2020 was a loss of $1.0 million and a income of $0.02 million, respectively. The increase in loss of approximately $1.0 million was mainly attributable to the loss of the Game Your Game entity.

Net Loss Attributable To Stockholders of Inpixon

Net loss attributable to stockholders for the year ended December 31, 2021 was $69.2 million compared to $29.2 million for the comparable period in the prior year. This increase in loss of approximately $39.9 million was primarily attributable to the increase in operating expenses of $53.8 million offset by the higher gross margin of $4.9 million and reduced other loss of $6.6 million.

Non-GAAP Financial information

EBITDA

EBITDA is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation.

Adjusted EBITDA for the year ended December 31, 2021 was a loss of $29.6 million compared to a loss of $17.1 million for the prior year period.

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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 years ended December 31, 2021 and 2020 (in thousands):

For the Years Ended December 31,

Net loss attributable to common stockholders $ (77,316) $ (29,229)

Adjustments:

Non-recurring one-time charges:

Loss on exchange of debt for equity 30 210

(Recovery) Provision for valuation allowance on held for sale loan (7,345) 2,370

Provision for the valuation allowance for related party receivable — 648

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

Unrealized loss on equity securities 57,067 —

Acquisition transaction/financing costs 1,248 1,057

Earnout compensation expense 6,524 —

Professional service fees 1,366 —

Accretion of series 7 preferred stock 8,161 —

Impairment of goodwill 14,789 —

Unrealized gains on notes, loans, investments 241 —

Bad debts expense/provision 121 956

Reserve for inventory obsolescense 300 —

Stock-based compensation - compensation and related benefits 10,879 1,194

Severance costs 294 —

Income tax benefit (1,412) (87)

Depreciation and amortization 6,451 3,371

We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:

•To review and assess the operating performance of our Company as permitted by ASC Topic 280, Segment Reporting;

•To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

•As a basis for allocating resources to various projects;

•As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and

•To evaluate internally the performance of our personnel.

We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:

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

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

•We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies.

Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include the fact that:

•Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

•Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and

•Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.

Proforma Non-GAAP Net Loss per Share

Basic and diluted net loss per share for the year ended December 31, 2021 was ($0.72) compared to ($1.01) for the prior year period. The decreased loss per share in 2021 was attributable to the changes discussed in our results of operations.

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

Proforma non-GAAP net loss per basic and diluted common share for the year ended December 31, 2021 was ($0.26) compared to a loss of ($0.71) per share for the prior year period.

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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 Years Ended December 31,

(thousands, except per share data) 2021 2020

Net loss attributable to common stockholders $ (77,316) $ (29,229)

Adjustments:

Non-recurring one-time charges:

Loss on the exchange of debt for equity 30 210

(Recovery) Provision for valuation allowance on held for sale loan (7,345) 2,370

Provision for the valuation allowance for related party receivable — 648

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

Unrealized loss on equity securities 57,067 —

Acquisition transaction/financing costs 1,248 1,057

Earnout compensation expense 6,524 —

Professional service fees 1,366 —

Accretion of series 7 preferred stock 8,161 —

Impairment of goodwill 14,789 —

Unrealized gains on notes, loans, investments 241 —

Bad debts expense/provision 121 956

Reserve for inventory obsolescense 300 —

Stock-based compensation - compensation and related benefits 10,879 1,194

Severance costs 294 —

Proforma non-GAAP net loss per basic and diluted common share $ (0.26) $ (0.71)

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

•To review and assess the operating performance of our Company as permitted by ASC Topic 280, Segment Reporting;

•To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

•As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and

•To evaluate internally the performance of our personnel.

We have presented proforma non-GAAP net loss per share above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss), and that by including this information we can provide investors with a more complete understanding of our business. Specifically, we present proforma non-GAAP net loss per share as supplemental disclosure because:

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

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

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

Liquidity and Capital Resources as of December 31, 2021

Our current capital resources and operating results as of and through December 31, 2021, consist of:

1)an overall working capital surplus of approximately $78.8 million;

2)cash of approximately $52.5 million and short-term investments of approximately $43.1 million;

3)net cash used by operating activities for the year ended December 31, 2021 of $37.1 million.

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

Working Capital Assets Liabilities Net

Accounts receivable, net / accounts payable 3,218 2,414 804

Operating lease obligation — 643 (643)

Notes and other receivables / Short-term debt 321 3,490 (3,169)

Contractual Obligations and Commitments

Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consists of operating lease liabilities and acquisition liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are legally binding. As of December 31, 2021, the total obligation for operating leases is approximately $1.9 million, of which approximately $0.7 million is expected to be paid in the next twelve months. Our vendor commitments are approximately $0.5 million all of which is expected in the next twelve months. As of December 31, 2021, our obligation for acquisition liabilities is approximately $5.3 million of which approximately $5.1 million is expected to be paid in the next twelve months. In addition, at any time beginning on the Redemption Triggering Date and ending ninety (90) days thereafter, each holder of our Series 7 Preferred Stock may require us to redeem all or part of the shares then held by such holder in cash for a redemption price per share equal to the Redemption Amount (which may be increased in the event of certain events of default). Any holder that elects to redeem its shares of Series 7 Preferred Stock will be required to forfeit 75% of the corresponding warrants held by such holder. The aggregate Redemption Amount that we may be required to pay is equal to $49.25 million. As of March 15, 2022, we received redemption notices in an aggregate amount equal to $33.0 million and as of the date of this filing have redeemed 33,000 shares of Preferred Stock and 19,800,000 corresponding warrants have been forfeited.

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Promissory Notes

As of March 16, 2022, the Company owed approximately $2.1 million in principal under promissory notes with approximately $3.5 million payable within the next twelve months inclusive of interest owed. The interest rate charged under the notes range from 8% to 10%. See Note 20 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Net cash used in operating activities during the year ended December 31, 2021 of $37.1 million consists of net loss of $70.1 million offset by non-cash adjustments of approximately $35.8 million less net cash changes in operating assets and liabilities of approximately $2.8 million. Although the Company has sustained significant losses during the 2021 year, during the twelve months ended December 31, 2021 we raised net proceeds of approximately $128 million from the sale of our securities in connection with registered direct offerings and the exercise of warrants. Given our current cash balances and budgeted cash flow requirements, the Company believes such funds are sufficient to satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements. However, general economic or other conditions resulting from COVID 19 or other events materially may impact the liquidity of our common stock or our ability to continue to access capital from the sale of our securities to support our growth plans. Our business has been impacted by the COVID-19 pandemic and may continue to be impacted. While we have been able to continue operations remotely, we have and continue to experience supply chain cost increases and constraints and delays in the receipt of certain components of our products impacting delivery times for our products. We have also seen some impact in the demand of certain products and delays in certain projects and customer orders either because they require onsite services which could not be performed as a result of new rules and regulations resulting from the pandemic, customer facilities being partially or fully closed during the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.

Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the year ended December 31, 2021 when compared to the year ended 2020, as a result of the addition of new product lines including a full year of sales associated with our SAVES and RTLS product lines, the addition of the CXApp and Game Your Game product lines during the second quarter of 2021 and the addition of the IIoT product line in the fourth quarter of 2021. The total impact that COVID-19 will have on general economic conditions is continuously evolving and the impact it may continue to have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected. The Company may continue to pursue strategic transactions and may raise such additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each acquisition.

Liquidity and Capital Resources as of December 31, 2021 Compared With December 31, 2020

The Company’s net cash flows used in operating, investing and financing activities for the years ended December 31, 2021 and 2020 and certain balances as of the end of those periods are as follows (in thousands):

For the Years Ended December 31,

Net cash used in operating activities $ (37,131) $ (20,601)

Net cash used in investing activities (53,508) (23,507)

Net cash provided by financing activities 125,037 57,259

Effect of foreign exchange rate changes on cash 86 (4)

Net increase in cash and cash equivalents $ 34,484 $ 13,147

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Operating Activities for the year ended December 31, 2021

Net cash used in operating activities during the year ended December 31, 2021 was approximately $37.1 million. The cash flows related to the year ended December 31, 2021 consisted of the following (in thousands):

Non-cash income and expenses 35,847

Net change in operating assets and liabilities (2,848)

Net cash used in operating activities $ (37,131)

The non-cash income and expense of approximately $35.8 million consisted primarily of the following (in thousands):

677 Amortization of right of use asset

(1,627) Accrued interest income, related party

30 Loss on exchange of debt for equity

224 Amortization of debt discount

300 Provision for inventory obsolescence

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

121 Provision for doubtful accounts

(92) Unrealized gain/loss on note

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

(2,593) Deferred income tax

57,067 Unrealized loss on equity securities

14,789 Impairment of goodwill

6,524 Earnout payment expense

24 Loss on disposal of property and equipment

$ 35,847 Total non-cash expenses

The net cash used in the change in operating assets and liabilities aggregated approximately $2.8 million and consisted primarily of the following (in thousands):

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$ (313) Increase in accounts receivable and other receivables

(3,919) Increase in inventory, other current assets and other assets

391 Increase in accounts payable

834 Increase in accrued liabilities and other liabilities

(658) Decrease in operating lease liabilities

817 Increase in deferred revenue

$ (2,848) Net cash used in the changes in operating assets and liabilities

Operating Activities for the year ended December 31, 2020

Net cash used in operating activities during the years ended December 31, 2020 was approximately $20.6 million. The cash flows related to the year ended December 31, 2020 consisted of the following (in thousands):

Non-cash income and expenses 11,846

Net change in operating assets and liabilities (3,233)

Net cash used in operating activities $ (20,601)

The non-cash income and expense of approximately $11.8 million consisted primarily of the following (in thousands):

490 Amortization of right of use asset

(32) Amortization of technology

210 Loss on exchange of debt for equity

2,594 Amortization of debt discount

2,370 Provision for the valuation allowance held for sale loan

(87) Income tax benefit

956 Provision for doubtful accounts

138 Provision for inventory obsolescence

648 Provision for the valuation allowance related party receivable

(6) Other

$ 11,846 Total non-cash expenses

The net use of cash in the change in operating assets and liabilities aggregated approximately $3.2 million and consisted primarily of the following (in thousands):

$ (964) Increase in accounts receivable and other receivables

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

(1,815) Decrease in accounts payable

722 Increase in accrued liabilities and other liabilities

(490) Decrease in operating lease liabilities

242 Increase in deferred revenue

$ (3,233) Net use of cash in the changes in operating assets and liabilities

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Cash Flows from Investing Activities as of December 31, 2021 and 2020

Net cash flows used in investing activities during 2021 was approximately $53.5 million compared to net cash flows used in investing activities during 2020 of approximately $23.5 million. Cash flows related to investing activities during the year ended December 31, 2021 include $0.3 million for the purchase of property and equipment, $1.0 million for investment in capitalized software, $63.4 million for the purchase of treasury bills, $2.0 million for the purchase of short term investments, $28.0 million sales of treasury bills, $2.0 million sale of short term investments, $0.9 million for the purchase of the Systat licensing agreement, $0.2 million received from the acquisition of Game Your Game, $15.0 million paid for the acquisition of CXApp, $61,000 paid for acquisition of Visualix, and $1.0 million paid for acquisition of IntraNav. Cash flows related to investing activities during the year ended December 31, 2020 include $1.0 million for the purchase of property and equipment, $0.9 million for investment in capitalized software, $8.0 million for a short term investments, $2.2 million for cash paid the in Systat License Agreement, $1.5 million for cash paid for the Ten Degrees acquisition, $7.8 million for cash paid for the Nanotron acquisition, $0.3 million of cash acquired in the Nanotron acquisition, and $2.5 million for a long term investment.

Cash Flows from Financing Activities as of December 31, 2021 and 2020

Net cash flows provided by financing activities during the year ended December 31, 2021 was $125.0 million. Net cash flows provided by financing activities during the year ended December 31, 2020 was $57.3 million. During the year ended December 31, 2021, the Company received incoming cash flows of $128.4 million for the issuance of common stock, preferred stock and warrants, loaned $0.1 million to related parties, paid $1.9 million of taxes related to the net share settlement of restricted stock units, paid a $0.5 million liability related to the CXApp acquisition, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Nanotron and paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality. During the year ended December 31, 2020, the Company received incoming cash flows of $55.4 million for the issuance of common stock, preferred stock and warrants, repaid $0.1 million of notes payable, loaned $2.6 million to related parties, received $0.2 million of repayments from related parties, received $5.0 million of net proceeds from promissory notes, paid a $0.5 million acquisition liability to the pre-acquisition shareholders of Locality, and made $0.2 million of repayments to a bank facility.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Standards

For a discussion of recently issued accounting pronouncements, please see Note 2 to our financial statements, which are included in this report beginning on page F-1.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INPIXON

INDEX TO FINANCIAL STATEMENTS

Page No.

ANNUAL FINANCIAL INFORMATION

Report of Independent Registered Public Accounting Firm (PCAOB NO. 688) F-2

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4

Notes to Consolidated Financial Statements F-15

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Inpixon and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Inpixon and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Intangible Assets for Business Acquisitions

Description of the Matter

During the year ended December 31, 2021 the Company completed certain business combinations for net aggregate consideration of approximately $36.3 million. The transactions were accounted for as business combinations. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed, based on their respective fair values identified including intangible assets with aggregate fair values of approximately $23.5 million. The Company, with the assistance of third party valuation experts, estimated the fair values of the identified intangible assets using valuation models. Such valuation models require significant assumptions; these assumptions are primarily related to the complexity of the valuation models used to measure the fair value as well as the sensitivity of the fair value identified. The significant assumptions used to estimate the fair value of the identified intangible assets included discount rates, attrition rates, economic lives and financial projections including comparable company specific data. These significant assumptions are forward looking and could be affected by future economic and market conditions.

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How We Addressed the Matter in our Audit

Our audit procedures related to the forecasts of future cash flows and the selection of certain attrition rates, terminal growth rates and discount rates for the identified intangible assets for the acquired entities included the following:

(1) We assessed the reasonableness of fiscal year 2022 forecasted cash flows of revenues and operating margins by comparing them to the acquired entities actual 2021 cash flows. (2) We assessed the reasonableness of the forecasted revenue growth rates and operating margins over the cash flow forecast period by comparing them to the acquired entities’ actual revenues and operating margins during the most recent historical period including the Company's marketing plans. (3) We evaluated the reasonableness of the (a) valuation methodologies; (b) terminal growth rates by comparing them to industry growth rates; (c) customer attrition rates by testing the mathematical accuracy of the rates used; and (d) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management. (4) We sensitized the projections and compared them to the valuation reports for reasonableness.

Valuation of Goodwill Impairment

Description of the Matter

The Company evaluates goodwill for impairment annually as of the end of the fourth fiscal quarter by comparing the carrying values of each of the Company’s reporting units to their estimated fair values as of the test dates. The estimates of fair value of the reporting units are computed using a combination of both an income approach and a market approach.

Under the income approach, the Company utilizes the discounted cash flow method to estimate the fair value of the reporting units. Some of the significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, operating income margin, and working capital) and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. The Company selected assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, management’s plans, and guideline companies. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.

The goodwill balance was $21.8 million as of December 31, 2021, of which $21.8 million was allocated to the Indoor Intelligence reporting unit. As of the measurement date the carrying value of the Indoor Intelligence reporting unit exceeded the fair values as of the measurement date and, therefore, the Company recorded an impairment of $14.8 million.

We identified goodwill impairment as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value given the sensitivity of operations to changes in demand for all reporting units and historical results and long-range strategic plans of the reporting units. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rates and forecasts of future net sales for all reporting units, and the future operating income margins for the Indoor Intelligence reporting unit.

How We Addressed the Matter in our Audit

The primary procedures we performed to address this critical audit matter included the following. (1) We evaluated the Company’s forecasted revenue (2) Evaluated the guideline companies used operated in a similar industry as the subject reporting unit. (3) The guideline companies and transaction appear appropriate (4) The Company used the appropriate modified capital asset pricing model and a weighted average cost of capital. (5) We sensitized the projections and compared them to the valuation report to materially assess the impact to the reported amount of the impairment.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2012.

New York NY

March 16, 2022

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INPIXON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares and par value data)

Assets

Current Assets

Notes and other receivables 321 152

Prepaid expenses and other current assets 4,842 1,197

Operating lease right-of-use asset, net 1,736 2,077

Software development costs, net 1,792 1,721

Investments in equity securities 1,838 —

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INPIXON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands, except number of shares and par value data)

Liabilities and Stockholders’ Equity

Current Liabilities

Operating lease obligation, current 643 647

Long Term Liabilities

Operating lease obligation, noncurrent 1,108 1,457

Other liabilities, noncurrent 28 7

Acquisition liability, noncurrent 220 750

Commitments and Contingencies

Mezzanine Equity

Stockholders’ Equity

Preferred Stock -$0.001 par value; 5,000,000 shares authorized

Treasury stock, at cost, 1 share (695) (695)

Accumulated other comprehensive income 44 660

Stockholders’ Equity Attributable to Inpixon 81,803 44,639

Non-controlling Interest 1,688 41

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INPIXON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands, except number of shares and par value data)

Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 156,673 $ 59,011

The accompanying notes are an integral part of these financial statements

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

For the Years Ended December 31,

Operating Expenses

Impairment of goodwill 14,789 —

Other Income (Expense)

Loss on exchange of debt for equity (30) (210)

Other income (expense) (173) (470)

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

Unrealized loss on equity securities (57,067) —

Total Other Income (Expense) 1,075 (5,476)

Net Income (Expense) Attributable to Non-controlling Interest (975) 15

Net Loss Attributable to Stockholders of Inpixon (69,155) (29,229)

Accretion of Series 7 preferred stock (8,161) —

Net Loss Attributable to Common Stockholders $ (77,316) $ (29,229)

Net Loss Per Share - Basic and Diluted $ (0.72) $ (1.01)

Weighted Average Shares Outstanding

The accompanying notes are an integral part of these financial statements

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

For the Years Ended December 31,

The accompanying notes are an integral part of these financial statements

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

(In thousands)

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Restricted stock grants forfeited — — — — — — (490,296) (1) — — — — — — $ (1)

Cumulative translation adjustment — — — — — — — — — — — (616) (162) 150 $ (628)

The accompanying notes are an integral part of these financial statements

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (CONTINUED)

(In thousands, except per share data)

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Cumulative translation adjustment — — — — — — — — — — — 564 — — $ 564

Net income (loss) — — — — — — — — — — — — (29,229) 15 $ (29,214)

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

/

For the Years Ended December 31,

Cash Flows Used in Operating Activities

Adjustment to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 1,344 826

Amortization of intangible assets 5,107 2,545

Amortization of right of use asset 677 490

Earnout payment expense 6,524 —

Loss on exchange of debt for equity 30 210

Amortization of debt discount 224 2,594

Accrued interest income, related party (1,627) (32)

Provision for doubtful accounts 121 956

Unrealized gain/loss on note (92) —

Provision for inventory obsolescense 300 138

Provision for valuation allowance for related party receivable — 648

Gain on settlement of related party promissory note (49,817) —

Deferred income tax (2,593) (87)

Unrealized loss on equity securities 57,067 —

Impairment of goodwill 14,789 —

Loss on disposal of property and equipment 24 —

Changes in operating assets and liabilities:

Accounts receivable and other receivables (313) (964)

Prepaid expenses and other current assets (4,006) (563)

Income tax liabilities 16 —

Operating lease obligation (658) (490)

Net Cash Used in Operating Activities $ (37,131) $ (20,601)

Cash Flows Used in Investing Activities

Purchase of property and equipment $ (346) $ (972)

Investment in capitalized software (1,019) (862)

Purchases of short term investments (2,000) (7,998)

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Sale of short term investments 2,000 —

Purchases of treasury bills (63,362) —

Sales of treasury bills 28,000 —

Investment in Systat licensing agreement (900) (2,200)

Purchase of intangible assets (4) —

Acquisition of the Ten Degrees — (1,500)

Acquisition of Nanotron — (7,786)

Acquisition of Intranav (1,023) —

Acquisition of Game Your Game 184 —

Acquisition of CXApp (14,977) —

Acquisition of Visualix (61) —

Investment in long term investment — (2,500)

Cash acquired in the Nanotron acquisition — 311

Net Cash Used in Investing Activities $ (53,508) $ (23,507)

Cash From Financing Activities

Net repayments to bank facility $ — $ (150)

Net proceeds from issuance of preferred stock and warrants 50,585 —

Net proceeds from issuance of common stock and warrants 77,852 55,352

Taxes paid related to net share settlement of restricted stock units (1,855) —

Net repayments of notes payable — (74)

Loans to related party (117) (2,569)

Repayments from related party — 200

Net proceeds from promissory notes — 5,000

Repayment of CXApp acquisition liability (461) —

Repayment of acquisition liability to Nanotron shareholders (467) —

Repayment of acquisition liability to Locality shareholders (500) (500)

Net Cash Provided By Financing Activities $ 125,037 $ 57,259

Effect of Foreign Exchange Rate on Changes on Cash 86 (4)

Net Increase in Cash and Cash Equivalents 34,484 13,147

Cash and Cash Equivalents - Beginning of year 17,996 4,849

Cash and Cash Equivalents - End of year $ 52,480 $ 17,996

Supplemental Disclosure of cash flow information:

Cash paid for:

Interest $ 3 $ 4

Income Taxes $ 2,389 $ —

Non-cash investing and financing activities

Common shares issued for extinguishment of liability $ — $ 200

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INPIXON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Common shares issued for extinguishment of debt $ 2,500 $ 9,936

Right of use asset obtained in exchange for lease liability $ 401 $ 557

Settlement of Sysorex Note $ 7,462 $ —

Investment in equity securities $ 58,905 $ —

Common shares issued for Ten Degrees acquisition $ — $ 600

Common shares issued for CXApp acquisition $ 10,000 $ —

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

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INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Note 1 - Organization and Nature of Business

Inpixon is the Indoor IntelligenceTM 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 y advertising management platform referred to as Shoom by Inpixon; and

•A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists referred to as SAVES by Inpixon.

We report financial results for three segments: Indoor Intelligence, Shoom and SAVES. For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services. For Shoom and SAVES we generate revenue from the sale of software licenses.

Note 2 - Summary of Significant Accounting Policies

Change in Segment Reporting

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. During the second quarter of 2021, the Company changed the level of detail at which the Chief Executive Office ("CEO") as the Chief Operating Decision Maker, or "CODM", regularly reviews and manages certain metrics of its businesses The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company. The Company has determined that it operates and reports in three segments: Indoor Intelligence, Saves and Shoom. See Note 28 for further details.

Liquidity

As of December 31, 2021, the Company has a working capital surplus of approximately $78.8 million, cash of approximately $52.5 million and short term investments of $43.1 million. For the year ended December 31, 2021, the Company incurred a net loss attributable to common stockholders of approximately $77.3 million The net loss includes a gain on the settlement of the Sysorex debt with the issuance of the Sysorex securities to the Company on April 14, 2021 offset by the unrealized loss on the related investment in equity securities as of December 31, 2021. See further details in Note 14 and Note 29.

On each of January 24, 2021, February 12, 2021 and February 16, 2021 the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company sold an aggregate of 15,800,000 shares of its common stock, warrants to purchase up to 44,305,088 shares of common stock at exercise prices ranging from $1.55 to $2.01 and

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INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

prefunded warrants to purchase up to 28,505,088 shares of common stock at an exercise price of $0.001 per share at purchase prices ranging from $1.549 to $2.01 per share. The Company raised net proceeds of $77.9 million after deduction of sales commissions and other offering expenses.

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 47,000,000 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. The net proceeds to the Company from this offering was $50.6 million after placement agent commissions and other offering costs. See further breakdown in Note 21 - Capital Raises.

On March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up to $50 million, which was increased on June 19, 2020 to $150 million pursuant to an amendment to the EDA, from time to time through Maxim, acting exclusively as the Company’s sales agent. The Company issued 33,416,830 shares of common stock during the year ended December 31, 2020 in connection with the ATM resulting in net proceeds to the Company of approximately $46.1 million after deduction of sales commissions and other offering expenses. The EDA was terminated by the parties on February 12, 2021.

On November 25, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor, pursuant to which it sold in a registered direct offering, 5,000,000 shares of its common stock, and warrants to purchase up to 8,000,000 shares of common stock at an exercise price of $1.25 per share (the “2020 Purchase Warrants”) for a combined purchase price of $1.25 per share and pre-funded warrants to purchase up to 3,000,000 shares of common stock ("2020 Pre-funded Warrants") at an exercise price of $0.001 per share at a purchase price of $1.249 per share for net proceeds of $9.2 million after deduction of sales commissions and other offering expenses.

Risks and Uncertainties

The Companycannot assure youthat we will everearnrevenuessufficient tosupport ouroperations,orthat we will everbe profitable.Inordertocontinueouroperations,wehavesupplementedtherevenuesweearnedwithproceedsfromthesaleof our equity and debt securities and proceeds from loans and bank credit lines. 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 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 compliance with new rules and regulations resulting from the pandemic, customer facilities being partially or fully closed during the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology. Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the year ended December 31, 2021 when compared to the year ended 2020, as a result of the addition of new product lines including a full year of sales associated with our SAVES and RTLS product lines, the addition of the CXApp and Game Your Game product lines during the second quarter of 2021 and the addition of the IIoT product line in the fourth quarter of 2021. The total impact that COVID-19 will have on general economic conditions is continuously evolving and the impact it may continue to have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected. The Company'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 this financial statements were made issued.

Consolidations

The consolidated financial statements have been prepared using the accounting records of Inpixon, Inpixon Canada, Inpixon Germany, Inpixon UK, Nanotron, Intranav, Inpixon India, Game Your Game, and CXApp. All material inter-company balances and transactions have been eliminated.

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INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“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 assets and liabilities acquired of Sysat, Ten Degrees, Nanotron, Game your Game, Visualix, CXApp, and Intranav as described in Note 4 , Note 5, Note 6, Note 7 , Note 8, Note 9 and Note 10 respectively, as well as the valuation of the Company’s common shares issued in the transaction;

•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.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, checking accounts, money market accounts and temporary investments with maturities of three months or less when purchased. As of December 31, 2021 and 2020, the Company had no cash equivalents.

Accounts Receivable, net and Allowance for Credit Losses

Accounts receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for credit losses to ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customer’s operating results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would be further adjusted. The Company has recorded an allowance for credit losses of approximately $0.3 million and $0.2 million as of December 31, 2021 and 2020, respectively.

Inventory

Finished goods are measured at the cost of manufactured products including direct materials and subcontracted services. Nanotron, states finished goods at the lower of cost and net realizable value on an average cost basis. As the inventory held by Nanotron is typically small dollar value items with small variances in price, an estimate or average is used to determine the balance of inventory. All other subsidiaries of the Company state inventory utilizing the first-in, first-out method. The Company

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INPIXON AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

continually analyzes its slow-moving, excess and obsolete inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company establishes reserves. If the Company does not meet its sales expectations, these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. As of December 31, 2021 and 2020, the Company had recorded an inventory obsolescence of approximately $0.4 million and $0.1 million, respectively.

Investments

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 Consolidated Statements of Operations. The Company recorded unrealized losses of approximately $0.2 million for the year end December 31, 2021 which was included on the other income (expense) line in the consolidated statements of operations. No unrealized gain or loss was recorded on available for sale securities for the year ended December 31, 2020.

Mezzanine equity

When ordinary 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 (“ASC 321”). These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary. 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 was $57.1 million, and zero, for the years ended December 31, 2021 and 2020, respectively.

Property and Equipment, net

Property and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.

Intangible Assets

Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, intellectual property agreements, export licenses and trade names/trademarks. They are amortized ratably over a range of 1 to 15 years, which approximates customer attrition rate and technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment each year. Based on its assessments, the Company did not incur any impairment charges for the years ended December 31, 2021 and 2020.

Acquired In-Process Research and Development (“IPR&D”)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date, and subsequently accounts for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off. During fiscal year 2014, the Company acquired IPR&D through the acquisition of AirPatrol, in 2015 through the acquisition of the assets of LightMiner, in 2019 through the acquisitions of Locality, Jibestream and certain assets of GTX, in 2020 through the SYSTAT licensing agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron, and in 2021 through the acquisitions of Game Your Game, certain assets of Visualix, CXApp and IntraNav. The Company's IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, Nanotron, Game Your Game, Visualix, CXApp and IntraNav, which was valued on the date of the acquisition. It will take additional financial resources to continue development of these technologies.

The Company continues to seek additional resources, through both capital raising efforts and meeting with industry experts, for further development of these technologies. Through December 31, 2021, the Company has made some progress with raising capital since these acquisitions, building their pipeline and getting industry acknowledgment. The Company has been recognized by leading industry analysts in a report on leading indoor positioning companies and was also awarded the IoT Security Excellence award by TMC and Crossfire Media. Management remains focused on growing revenue from these products and continues to pursue efforts to recognize the value of the technologies. If the Company chooses to abandon these efforts, or if the Company determines that such funding is not available, the related IPR&D will be subject to significant impairment.