Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information gives effect to the Merger but does not give effect to the proposed Inpixon Reverse Stock Split because the proposed reverse split is a range and is not final.

 

The following unaudited pro forma condensed combined financial information presents the combination of the financial information of Inpixon and Subsidiaries (the “Company” or “Inpixon”) and Legacy XTI (defined below) adjusted to give effect to the reverse Merger and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. Defined terms included below have the same meaning as terms defined and included elsewhere in this registration statement.

 

The historical financial information of Legacy XTI was derived from the unaudited financial statements of XTI Aircraft Company (“Legacy XTI”) as of and for the nine months ended September 30, 2023 and the audited financial statements of Legacy XTI for the year ended December 31, 2022, included elsewhere in the registration statement. The historical financial information of Inpixon was derived from the unaudited condensed consolidated financial statements of Inpixon and subsidiaries as of and for the nine months ended September 30, 2023 and the audited consolidated financial statements of Inpixon and subsidiaries for the year ended December 31, 2022. Such unaudited pro forma financial information has been prepared on a basis consistent with the financial statements of Legacy XTI and Inpixon and its subsidiaries, respectively. This information should be read together with the financial statements of Inpixon and Legacy XTI related notes, the sections titled “Inpixon Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “XTI Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information included in this registration statement, as applicable.

 

The Merger is anticipated to be accounted for using the acquisition method (as a reverse acquisition), with goodwill and other identifiable intangible assets recorded in accordance with GAAP, as applicable. Under this method of accounting, Inpixon is treated as the “acquired” company for financial reporting purposes. XTI has been determined to be the accounting acquirer because XTI maintains control of the Board of Directors and management of the combined company, and the preexisting shareholders of XTI will have majority voting rights of the combined company. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. Under the acquisition method of accounting (as a reverse acquisition), Legacy XTI’s assets and liabilities will be recorded at carrying value and the assets and liabilities associated with Inpixon will be recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired, if applicable, will be recognized as goodwill. Significant estimates and assumptions were used in determining the preliminary purchase price allocation reflected in the unaudited pro forma condensed combined financial statements. The process of valuing the net assets of Inpixon immediately prior to the merger for purposes of presentation within this unaudited pro forma condensed combined financial information is preliminary. As the unaudited pro forma condensed combined financial statements have been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2023 combines the historical balance sheets of Legacy XTI and Inpixon on a pro forma basis as if the Merger and related transactions had been consummated on September 30, 2023. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and for the year ended December 31, 2022 give pro forma effect to the Merger and related transactions as if they had occurred on January 1, 2022, the beginning of the earliest period presented. Inpixon and XTI had entered into a promissory note agreement prior to the Merger. Therefore, Inpixon’s note receivable and XTI’s note payable were eliminated by transaction accounting adjustment E.

 

These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Merger and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

 

 

 

 

Description of the Merger Agreement

 

On July 24, 2023, XTI entered into the Merger Agreement, by and among XTI, Inpixon, and Superfly Merger Sub, Inc., pursuant to which XTI will combine and merge with Merger Sub, whereupon the separate corporate existence of Merger Sub shall cease, and XTI will be the “combined company”. On or prior to the Closing Date, Inpixon will effectuate a transaction for the divestiture of its Shoom, SAVES, and Game Your Game (“GYG”) lines of business and investment securities, as applicable (the “Solutions Divestiture”) by any lawful means, including a sale to one or more third parties, spin-off, plan of arrangement, merger, reorganization, or any combination of the foregoing. Following the Solutions Divestiture, the Inpixon portion of the combined company will be the Industrial Internet of Things (“IIoT”) business line.

 

Pursuant to the Merger Agreement, each share of XTI common stock will be converted into the right to receive a number of shares of Inpixon common stock determined by multiplying such share by the Exchange Ratio determined pursuant to the Exchange Ratio Formula as described in more detail in the section titled “The Merger Agreement - Merger Consideration and Exchange Ratio” beginning on page [●] of this registration statement. Additionally, at the Effective Time, each outstanding option and warrant to purchase shares of XTI common stock will be assumed by the combined company and will be converted into an option or warrant, as applicable, to purchase shares of Inpixon common stock, with necessary adjustments to reflect the Exchange Ratio (collectively, the “Assumed Options and Warrants”). Prior to the Effective Time, all outstanding XTI convertible notes will be converted into XTI common stock and will participate in the merger on the same basis as the other shares of XTI common stock, except for (1) a promissory note dated April 1, 2023, in the initial principal amount of $1,817,980 plus additional proceeds of $150,000 received under the promissory note on May 9, 2023, which will be amended to extend the maturity date thereof until no sooner than December 31, 2026 and be assumed by the combined company at the Closing to become convertible into the shares of common stock of the combined company, and (2) a promissory note dated October 1, 2023, in the initial principal amount of $1,079,044, which will provide for, at Closing, payment in cash of $579,044 of the principal, and the conversion of the remaining $500,000 of outstanding principal plus interest accrued into shares of common stock of the combined company.

 

Each share of Inpixon capital stock, option and warrant to purchase Inpixon common stock that is outstanding at the Effective Time will remain outstanding in accordance with its terms, and such shares of capital stock, options, and warrants will be unaffected by the Merger.

 

Following the consummation of the Merger, the holders of the outstanding XTI common stock immediately prior to the closing of the Merger will own approximately 60% of the outstanding capital stock of the combined company and the holders of the outstanding capital stock of Inpixon immediately prior to the closing of the Merger will own approximately 40% of the outstanding capital stock of the combined company.

 

Prior to the consummation of the Merger, Inpixon intends to raise additional funds through the issuance of equity securities. Inpixon has previously executed agreements related to an at-the-market (“ATM”) offering and certain warrant financing agreements in place that Inpixon believes can be utilized for financing. However, there was no commitment in place at the time these unaudited condensed pro forma financial statements were prepared, and the amount of funds and number of securities issued for additional fundraising is uncertain. Capital raised under these agreements are subject to terms underlying each specific agreement. As such, there is no adjustment included in these pro forma financial statements in relation to the expected future financing events. Inpixon anticipates having a cash and cash equivalents balance of approximately $10,000,000 when the Merger is consummated.

 

Description of the Solutions Divestiture

 

On October 23, 2023, a Business Combination Agreement (the “Damon Business Combination Agreement”) was entered into by and among Inpixon, Grafiti Holding, Inc., 1444842 B.C. LTD (“Amalco Sub”), and Damon Motors, Inc. (“Damon”), pursuant to which Damon will combine and merge with Amalco Sub, a British Columbia corporation and a wholly-owned subsidiary of Grafiti Holding, Inc., with Damon continuing as the surviving entity and a wholly-owned subsidiary of Grafiti Holding, Inc. (the “Grafiti Holding Transaction”).

 

Pursuant to the Damon Business Combination Agreement, Inpixon formed a newly wholly owned subsidiary, Grafiti Holding, Inc for the sole purpose of consummation of the Grafiti Holding Transaction. On or prior to the effective time of the Grafiti Holding Transaction, Inpixon will contribute the assets and liabilities of Inpixon UK, a wholly owned subsidiary of Inpixon, to the then Inpixon wholly owned subsidiary Grafiti in accordance with the separation and distribution agreement. Following which, all outstanding shares of common stock of Grafiti owned by Inpixon will be distributed to Inpixon shareholders and certain other Inpixon security holders entitled to participate in the distribution as of a record date to be determined. Amalco Sub,a wholly-owned, direct subsidiary of Grafiti, will merge with Damon resulting in Damon as the surviving entity post-merger (“Damon Surviving Corporation”). Upon the consummation of the Merger, both Inpixon UK and Damon will be wholly-owned subsidiaries of Grafiti. Following the Merger, Grafiti shall be known as the “Grafiti Combined Company.” The combined company will be renamed Damon Motors, Inc., and the ticker symbol will be changed to a symbol to be determined concurrent with the closing. Any portion of Shoom, SAVES, and GYG that are not included in the Grafiti Holding Transaction will be divested through a sale or spin-off in accordance with the terms of the Merger Agreement.

 

2

 

 

   

INPX

(Historical)

     Pro Forma Adjustments for Divestiture of Shoom, SAVES, and Game Your Game     Pro Forma Adjustments for Subsequent Inpixon Transactions         INPX Pro Forma As Adjusted     XTI
(Historical)		     Subsequent Financing Transactions of XTI         Transaction Accounting Adjustments     Autonomous Adjustments     Pro Forma Combined  
          Note 1                                                      
ASSETS                                                                
Current assets:                                                                
Cash and cash equivalents   $ 13,489     $ (1,160 )   $ (3,000 ) B     $ 9,329     $ 236     $ —           $(579 )   D   $ —     $ 0  
                      —                                       (17,989 )   F                
                      —                                       12,028   F                
                                                              (3,025 )   F                
Accounts receivable, net of allowances     1,560       (932 )     —           628       —       —           —         —       628  
Notes and other receivables     2,210       (118 )     3,000   B       5,092       —       —           (2,415 )   E     —       3,027  
                                                              350   E                
Inventory     3,355       (1,353 )     —           2,002       —       —           —         —       2,002  
Prepaid expenses and other current assets     1,949       (252 )     —           1,697       13       —           —         —       1,710  
Total current assets     22,563       (3,815 )     —           18,748       249       —           (11,630 )       —       7,367  
                                                                                   
Property and equipment, net     1,013       (717 )     —           296       15       —           —         —       311  
Operating lease right-of-use asset, net     376       (10 )     —           366       —       —           —         —       366  
Software development costs, net     988       (605 )     —           383       —       —           (383 )   H     —       —  
Investments in equity securities     189       (189 )     —           —       —       —           —         —       —  
Long-term investments     50       (50 )     —           —       —       —           —         —       —  
Intangible assets, net     2,304       —       —           2,304       259       —           1,817     H     —       4,380  
Goodwill     —       —       —           —       —       —           4,368     H     —       4,368  
Other assets     164       (23 )     —           141       —       —           —       —       141  
Total Assets   $ 27,647     $ (5,409 )   $ —         $ 22,238     $ 523       —         $ (5,828 )   $ —     $ 16,933  
                                                                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                
Current liabilities:                                                                                
Accounts payable   $ 1,920     $ (922 )   $ —         $ 998     $ 2,372       —         $ —     $ —     $ 3,370  
Accrued liabilities     3,569       (900 )     (458 ) A       2,211       1,344       (72 ) C       (27 )   E     —       11,483  
                                                              (27 )   F                
                                                              12,028     F                
                                                              (3,025 )   F                
                                                              (690 )   I                
                                                              (259 )   K                
                                                                                   
Related party payables     —       —       —           —       430       —           —         —       430  
Accrued interest     —       —       —           —       871       —                       —       871  
Customer deposits     —       —       —           —       1,350       —           —         —       1,350  
Convertible and promissory notes - related party, net of unamortized discounts of $4,495 as of September 30, 2023     —       —       —           —       1,768       72   C       (1,079 )   D     —       125  
                                                              (636 )   I                
                                                                                   
Promissory note - 2023     —       —       —           —       2,038       —           (2,388 )   E     —       —  
                                                              350     E                
Warrant liability     1,410       —       —           1,410       460       —           —       —       1,870  
Xeriant obligation     —       —       —           —       5,583       —           (5,583 )   J     —       —  
Operating lease obligation, current     198       (7 )     —           191       —       —           —         —       191  
Deferred revenue     1,315       (782 )     —           533       —       —           —         —       533  
Short-term debt     11,165       —       (1,138 ) A       10,027       —       —           555     H     —       9,379  
                                                              (1,203 )   K                
Total current liabilities     19,577       (2,611 )     (1,596 )         15,370       16,216       —           (1,984 )       —       29,602  
Operating lease obligation, noncurrent     188       (4 )     —           184       —       —           —         —       184  
SBA loan     —       —       —           —       65       —           —                 65  
Convertible and promissory notes - related party, net of unamortized discounts and loan costs of $1,446,736 as of September 30, 2023     —       —       —           —       4,165       —           (2,178 ) I     —       1,987  
Total Liabilities     19,765       (2,615 )     (1,596 )         15,554       20,446       —           (4,162 )       —       31,838  
                                                                                   
Stockholders’ Equity (Deficit)                                                                                  
Series 4 Convertible Preferred Stock     —       —       —           —       —       —           —         —       —  
Series 5 Convertible Preferred Stock     —       —       —           —       —       —           —         —       —  
Common Stock     112       —       16   A       128       35       —           7     G     —       315  
                      —                           —           145     H                
Additional paid-in capital     358,692       (5,091 )     —           355,181       21,796       —           500     D     —       28,064  
                      —                                       993     G                
                      1,580   A                                   (360,955)     H                
                                                              3,504     I                
                                                              5,583     J                
                                                              1,462     K                
Treasury stock     (695 )     —       —           (695 )     —       —           695     H     —       —  
Accumulated other comprehensive (loss) income     41       —       —           41       —       —           (41 )   H     —       —  
Accumulated deficit     (347,971 )     —       —           (347,971 )     (41,754 )     —           (17,962 )   F     —       (43,284 )
                                                              (1,000 )   G                
                                                              365,403     H                
Stockholders’ Equity Attributable to Inpixon     10,179       (5,091 )     1,596           6,684       (19,923 )     —           (1,666 )       —       (14,905 )
                                                                                   
Non-controlling Interest     (2,297 )     2,297       —           —       —       —           —         —       —  
                                                                                   
Total stockholders’ equity (deficit)     7,882       (2,794 )     1,596           6,684       (19,923 )     —           (1,666 )       —       (14,905 )
Total Liabilities and Stockholder’s Equity   $ 27,647     $ (5,409 )   $ —         $ 22,238     $ 523     $ —         $ (5,828 )     $ —     $ 16,933  

 

3

 

 

   

INPX

(Historical)

     Pro Forma Adjustments for Divestiture of Shoom, SAVES, and Game Your Game     Pro Forma Adjustments for Subsequent Inpixon Transactions     Spin-Off of CXApp     INPX Pro Forma As Adjusted    

XTI

(Historical)

     Subsequent Financing Transactions of XTI     Transaction Accounting Adjustments         Autonomous Entity Adjustments       Pro Forma Combined  
          Note 1           Note 2                                              
Revenues   $ 7,177     $ (3,691 )   $ —     $ —     $ 3,486     $ —       —     $ —         $ —        $ 3,486  
Cost of revenues     1,632       (514 )     —       —       1,118       —       —       —           —         1,118  
Gross profit     5,545       (3,177 )     —       —       2,368       —       —       —           —         2,368  
                                                                                       
Operating expenses:                                                                                      
Research and development     6,380       (2,838 )     —       —       3,542       1,320       —       —           —         4,862  
Sales and marketing     3,506       (1,544 )     —       —       1,962       487       —       —           —         2,449  
General and administrative     13,596       (1,219 )     —       —       12,377       5,906       —       —           (1,305 ) AA     16,978  
Acquisition-related costs     2,343       —       —       —       2,343       —       —       —           —         2,343  
Transaction costs     2,970       —       —       —       2,970       —       —       —           (2,970 ) BB     —  
Amortization of intangibles     671       —       —       —       671       —       —       (207 ) CC       —         464  
Total operating expenses     29,466       (5,601 )     —       —       23,865       7,713       —       (207 )         (4,275 )       27,096  
                                                                                       
Loss from operations     (23,921 )     2,424       —       —       (21,497 )     (7,713 )     —       207           4,275         (24,728 )
                                                                                       
Other income (expense):                                                                                      
Interest income (expense), net     (4,300 )     236       —       —       (4,064 )     (806 )     —       241   GG       —         (4,531)  
                                                              98   HH                    
Loan cost amortization                     —       —       —       (66 )     —       —           —         (66)  
Change in value of Xeriant obligation                     —       —       —       (196 )     —       196   EE       —         —  
Change in value of warrant liability                     —                       (126 )     —                             (126)  
Other (expense) income     1,169       (120 )     —       —       1,049       —       —       —           —         1,049  
Unrealized gain/(loss) on equity securities     5,733       —       —       —       5,733       —       —       —           —         5,733  
Realized loss on equity securities     (6,692 )     —       —       —       (6,692 )     —       —       —           —         (6,692 )
Total other income (expense)     (4,090 )     116       —       —       (3,974 )     (1,194 )     —       535           —         (4,633)  
                                                                                       
Net Loss from continuing operations, before tax     (28,011 )     2,540       —       —       (25,471 )     (8,907 )     —       742           4,275         (29,361 )
Income tax provision     (2,488 )     —       —       —       (2,488 )     —       —       —           —         (2,488 )
Net Loss from continuing operations     (30,499 )     2,540       —       —       (27,959 )     (8,907 )     —       742           4,275         (31,849 )
                                                                                       
Loss from discontinued operations, net of tax     (4,856 )     —       —       4,856       —       —       —       —           —         —  
                                                                                       
Net Loss     (35,355 )     2,540       —       4,856       (27,959 )     (8,907 )     —       742           4,275         (31,849 )
                                                                                       
Net Loss Attributable to Non-controlling Interest     (1,131 )     1,131       —       —       —       —       —       —           —         —  
                                                                                       
Net Loss Attributable to Common Stockholders   $ (34,224 )   $ 1,409     $ —     $ 4,856     $ (27,959 )   $ (8,907 )   $ —     $ 742         $ 4,275        $ (31,849 )
                                                                                       
Net Loss Per Share - Basic and Diluted                                                                                      
Continuing Operations   $ (0.82 )                                                                           $(0.10 )
Discontinued Operations   $ (0.14 )                                                                          $ —  
Net Loss Per Share - Basic and Dilutive   $ (0.95 )                                                                          $ (0.10 )
                                                                                       
Weighted Average Shares Outstanding                                                                                      
Basic and Diluted     35,845,916                                                                             321,130,428  

 

4

 

 

    INPX (Historical)     Pro Forma Adjustments for Divestiture of Shoom, SAVES, and Game Your Game     Pro Forma Adjustments for Subsequent Inpixon Transactions       Spin-Off of CXApp     INPX Pro Forma As Adjusted    

XTI

(Historical)

     Subsequent Financing Transactions of XTI     Transaction Accounting Adjustments       Autonomous Entity Adjustments     Pro Forma Combined  
          Note 1             Note 2                                          
Revenues   $ 10,948     $ (4,839 )   $ —       $ —     $ 6,109     $ —     $ —     $ —       $ —      $ 6,109  
Cost of revenues     3,425       (1,304 )   $ —         —       2,121       —       —       —         —       2,121  
Gross profit     7,523       (3,535 )     —         —       3,988       —       —       —         —       3,988  
                                                                                     
Operating expenses:                                                                                    
Research and development     8,338       (3,854 )     —         —       4,484       2,964       —       —         —       7,448  
Sales and marketing     3,876       (1,662 )     —         —       2,214       729       —       —         —       2,943  
General and administrative     15,520       (1,466 )     —         —       14,054       10,669       —       —         (1,169 ) AA   23,554  
Acquisition-related costs     410       —       —         —       410       —       —       18,962   DD     —       19,372  
Impairment of goodwill     6,659       (5,476 )     —         —       1,183       —       —       —         —       1,183  
Amortization of intangibles     1,526       (639 )     —         —       887       —       —       (268 ) CC     —       619  
Total operating expenses     36,329       (13,097 )     —         —       23,232       14,362       —       18,694         (1,169 )     55,119  
                                                                                     
Loss from operations     (28,806 )     9,562       —         —       (19,244 )     (14,362 )     —       (18,694 )       1,169       (51,131 )
                                                                                       
Other income (expense):                                                                                    
Interest income (expense), net     (677 )     77       360   FF     —       (240 )     (790 )     —       302   GG     —       (676 )
                                                                52   HH                
Loan cost amortization     —       —       —         —       —       (88 )     —       —         —       (88 )
Income from stock option forfeitures     —       —       —         —       —       14,470       —       —         —       14,470  
Change in value of warrant liability     —       —       —         —       —       12       —       —         —       12  
Change in value of Xeriant obligation     —       —       —         —       —       331       —       (331 ) EE     —       —  
Other expense, net     693       (71 )     —         —       622       —       —       —         —       622  
Unrealized loss on equity method investment     (1,784 )     —       —         —       (1,784 )             —       —         —       (1,784 )
Unrealized gain/(loss) on equity securities     (7,904 )     —       —         —       (7,904 )     —       —       —         —       (7,904 )
Total other income (expense)     (9,672 )     6       360         —       (9,306 )     13,935       —       23         —       4,652  
                                                                                     
Net Loss from continuing operations, before tax     (38,478 )     9,568       360         —       (28,910 )     (427 )     —       (18,671 )       1,169       (46,479 )
Income tax provision     249       36       —         —       285       —       —       —         —       285  
Net Loss from continuing operations     (38,229 )     9,604       360         —       (28,625 )     (427 )     —       (18,671 )       1,169       (46,194 )
                                                                                     
Loss from discontinued operations, net of tax     (28,075 )     —       —         28,075       —       —       —       —         —       —  
                                                                                     
Net Loss     (66,304 )     9,604       360         28,075       (28,625 )     (427 )     —       (18,671 )       1,169       (46,194 )  
                                                                                     
Net Loss Attributable to Non-controlling Interest     (2,910 )     2,910       —         —       —       —       —       —         —       —  
                                                                                     
Net Loss Attributable to Stockholders     (63,394 )     6,694       360         28,075       (28,625 )     (427 )     —       (18,671 )       1,169       (46,194 )
Accretion of Series 7 Preferred Stock     (4,555 )     —                 —       (4,555 )     —               —         —       (4,555 )
Accretion of Series 8 Preferred Stock     (13,090 )     —                 —       (13,090 )     —               —         —       (13,090 )
Deemed dividend for the modification related to Series 8 Preferred Stock     (2,627 )     —                 —       (2,627 )     —               —         —       (2,627 )
Deemed contribution for the modification related to Warrants issued in connection with Series 8 Preferred Stock     1,469       —                 —       1,469       —               —         —       1,469  
Amortization premium - modification related to Series 8 Preferred Stock     2,627       —                 —       2,627       —               —         —       2,627  
Net Loss Attributable to Common Stockholders   $ (79,570 )   $ 6,694     $ 360       $ 28,075       (44,801 )     (427 )   $ —     $ (18,671 )     $ 1,169     $ (62,370 )
                                                                                     
Net Loss Per Share - Basic and Diluted                                                                                    
Continuing Operations   $ (22.08 )                                                                         $(0.19 )
Discontinued Operations   $ (12.04 )                                                                       $ —  
Net Loss Per Share - Basic and Dilutive   $ (34.12 )                                                                       $ (0.19 )
                                                                                     
Weighted Average Shares Outstanding                                                                                    
Basic and Diluted     2,332,041                                                                           321,130,428  

 

5

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Note 1. Basis of Presentation

 

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Merger. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Merger and related transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of XTI and Inpixon and subsidiaries.

 

Unaudited Pro Forma Condensed Combined Balance Sheet

 

Note 1: Derived from the balance sheet items as of September 30, 2023 of Shoom, SAVES, and Game Your Game that will be divested in tandem with the Merger.

 

Unaudited Pro Forma Condensed Combined Statement of Operations

 

For the Nine Months Ended September 30, 2023

 

Note 1: Derived from the statement of operations of Shoom, SAVES, and Game Your Game for the nine months ended September 30, 2023.

 

Note 2: To remove discontinued operations related to the CXApp spin-off which was completed in March 2023. Derived from the unaudited condensed consolidated statement of operations of Inpixon and its subsidiaries for the nine months ended September 30, 2023, as presented in the Company’s quarterly 10-Q filing.

 

For the Year Ended December 31, 2022

 

Note 1: Derived from the statement of operations of Shoom, SAVES, and Game Your Game for the year ended December 31, 2022.

 

Note 2: To remove discontinued operations related to the CXApp spin-off which was completed in March 2023.

 

Note 2. Accounting Policies and Reclassifications

 

Upon consummation of the Merger, management will perform a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of Legacy XTI. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

 

Note 3. Estimated Purchase Price Consideration

 

Estimated purchase price of approximately $10,348,000 related to the Merger is comprised of the following components (in thousands):

 

Fair value of Common Stock   $ 8,938  
Fair value of Warrants     1,410  
Total Equity Consideration   $ 10,348  

 

The fair value of common stock of approximately $8,938,000 included in the total equity consideration is based on Inpixon’s closing share price of $0.07 on November 17, 2023. The fair value of common stock included in the estimated purchase price will change based on fluctuations in the share price of Inpixon’s common stock and the number of equity instruments held by preexisting shareholders of Inpixon on the closing date.

 

The Merger will be considered a reverse acquisition. As such, the acquisition-date fair value of the consideration transferred is calculated based on the number of equity interests held by Inpixon’s preexisting shareholders and retained post-combination. The Company determined the estimated fair value of common stock included in consideration to be calculated based on the Inpixon’s common stock outstanding of 127,688,550 multiplied by the price of Inpixon’s common stock on November 17, 2023. The Company determined the stock price of Inpixon will be utilized in determining fair value as it is more reliably measurable than the value of the Legacy XTI’s (accounting acquirer) equity interests given it is not a publicly traded entity prior to the Merger.

 

The fair value of warrants of approximately $1,410,000 included in the total equity consideration represents 141,000,000 warrants outstanding by the Company. The fair value of the warrants was determined using level 3 inputs utilizing a Monte-Carlo simulation. The Company determined the fair value of the 141,000,000 warrants outstanding approximates its redemption value of $0.01 per warrant.

 

6

 

 

The fair value of certain consideration related to additional warrants to purchase Inpixon common stock outstanding immediately prior to the consummation of the Merger and equity incentive awards which will remain outstanding with the combined company were not deemed to be significant and were not included in the purchase price consideration for pro forma purposes.

 

The fair value of common stock included in the estimated purchase price will depend on the market price of Inpixon’s common stock when the Merger is consummated. The Company believes that a 10% fluctuation in the market price of its common stock is reasonably possible based on historical volatility, and the potential effect on purchase price would be:

 

    Company’s share price     Fair Value of Common Stock
Included in Consideration (in thousands)		     Total Equity Consideration (in thousands)  
As presented   $ 0.0700     $ 8,938     $ 10,348  
10% increase   $ 0.0770     $ 9,832     $ 11,242  
10% decrease   $ 0.0630     $ 8,044     $ 9,454  

 

Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Merger and related transactions and has been prepared for informational purposes only.

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Merger and related transactions and has been prepared for informational purposes only. The Company has elected not to present management adjustments and will only be presenting transaction accounting adjustments and autonomous entity adjustments in the unaudited pro forma condensed combined financial information. The autonomous entity adjustments are management estimates to reflect costs of the IIoT business line being a standalone entity.

 

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statement of operations are based upon the number of shares of the combined company Common Stock outstanding, assuming the Merger and related transactions occurred on January 1, 2022.

 

Pro Forma Adjustments for Subsequent Inpixon Equity Transactions

 

The pro forma adjustments for subsequent Inpixon equity transactions represent significant transactions completed by the Company subsequent to September 30, 2023 are as follows:

 

A. To account for the issuance of 15,996,346 shares of common stock issued by Inpixon at various dates between October 1, 2023 to November 17, 2023 related to the conversion of debt and interest of approximately $1,596,000.

 

B. To account for the purchase of a convertible note from Damon on October 23, 2023 in an aggregate principal amount of $3,000,000 for a purchase price of $3,000,000. The full principal balance and interest on the convertible note will automatically convert into common shares of Damon upon the public listing of Damon.

 

Pro Forma Adjustments for Subsequent XTI Financing Transactions

 

The pro forma adjustments for subsequent XTI financing transactions represent significant transactions completed by XTI subsequent to September 30, 2023 are as follows:

 

C. To reflect the modification of the outstanding Brody 2021 Promissory Note with a new principal balance of $1,079,000. The difference between the original Brody 2021 Promissory Note principal balance and the new Brody 2021 Promissory Note principal balance is $72,000, which was the accrued interest of the Brody 2021 Promissory Note.

 

7

 

 

Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

 

The transaction accounting adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2023 are as follows:

 

D. To settle XTI’s obligation related to Brody’s 2021 Promissory Note with a principal balance of $1,079,000 as of September 30, 2023, which will be settled at the closing of the Merger. The principal will be settled through cash payment of $579,000 and issuance of common shares of the combined company at fair value of $500,000. The total amount settled through cash and issuance of common shares was approximately $1,079,000.

 

E. To account for the November 13, 2023 amendment of the promissory note entered into between Inpixon and Legacy XTI, which provided for an additional $700,000 in future loans. On November 14, 2023, Inpixon advanced an additional $350,000 to Legacy XTI. The adjustment also eliminates the principal balance of the promissory note of $2,388,000, inclusive of the additional $350,000 advanced in November 2023, and associated accrued interest of approximately $27,000. The total amount of $2,415,000 will be accounted for as an intercompany transaction and eliminated upon consolidation of the combined company. Interest income is reflected net of interest expense on the Unaudited Pro Forma Condensed Combined Statement of Operations, and no pro forma adjustment is required.

 

F. Represents estimated non-recurring transaction costs of approximately $17,962,000 that are expected to be incurred subsequent to September 30, 2023. The estimated transaction costs are inclusive of advisory, banking, printing, legal and accounting fees, as well as employee incentive amounts incurred in connection with the Merger. Total estimated transaction costs expected to be incurred by Inpixon and Legacy XTI in connection with the Merger are estimated to be $17,989,000 and $4,230,000, respectively. As of September 30, 2023, $4,257,000 of the total combined estimated costs of $22,219,000 were accrued by Legacy XTI and Inpixon and were not included in the pro forma adjustment. As such, the pro forma adjustment related to Legacy XTI represents accrued transaction costs of $1,530,000. Inpixon estimated transaction costs to be incurred subsequent to September 30, 2023 are expected to be paid at the close of the Merger and therefore $17,989,000 is reflected as a pro forma adjustment to cash. Legacy XTI transaction costs expected to be paid at the close of the Merger in cash total $3,025,000. Transaction costs for Inpixon and Legacy XTI that are expected to be paid at the close of the Merger are presented as cash paid at closing, to the extent cash is available. Therefore, approximately $12,028,000 of transaction costs will be accrued as of September 30, 2023 and payment funded post close of the Merger.

 

G. Represents the issuance of common stock to Maxim Group, LLC as payment for its services associated with the Merger, which have a fair value of approximately $1,000,000.

 

H. Represents adjustments for the estimated preliminary purchase price allocation for the Merger. The preliminary calculation of total consideration is presented below as if the Merger was consummated on September 30, 2023:

 

   

Fair Value

(in thousands)

  
Equity consideration(1)   $ 10,348  
Total consideration   $ 10,348  
         
Assets acquired:        
Cash and cash equivalents   $ 10,000  
Accounts receivable     628  
Notes and other receivables     2,093  
Inventory     2,003  
Prepaid assets and other current assets     1,696  
Property and equipment     295  
Other assets     507  
Tradename & trademarks     763  
Proprietary technology     2,254  
Customer relationships     721  
In-process research and development     383  
Goodwill     4,368  
Total assets acquired     25,711  
         
Liabilities assumed:        
Accounts payable     995  
Accrued liabilities     2,668  
Operating lease obligation     376  
Deferred revenue     533  
Warrant liability     1,410  
Short term debt     9,381  
Total liabilities assumed     15,363  
Estimated fair value of net assets acquired   $ 10,348  

(1) See Note 3

 

8

 

 

Below is a summary of intangible assets identified and acquired in connection with the Merger based on the preliminary purchase price allocation and the resulting adjustments to recognize the step-up in basis:

 

Identified Intangible Assets (in thousands)   Fair Value     Fair Value Adjustment    

Useful Life

(Years)

  
Tradename & trademarks   $ 763     $ 663       5.00  
Proprietary technology     2,254       860       7.00  
Customer relationships     721       (49 )     5.00  
In-process research and development     383       383       Indefinite  
IP Agreement     —       (40 )     N/A  
Total   $ 4,121     $ 1,817          

 

Approximately $4,368,000 has been allocated to goodwill pursuant to the preliminary purchase price allocation. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that the value of goodwill or other intangible assets have become impaired, an accounting charge for impairment during the period in which the determination is made may be recognized.

 

An adjustment of $555,000 was also included to record the assumed debt at fair value, which is due within one year.

 

This adjustment also eliminates the pro forma historical equity of Inpixon of approximately $11,528,000 in accordance with the acquisition accounting at closing. This adjustment also reflects the incremental issuance of 152,091,239 shares of the combined company Common Stock, which represents total of 186,914,463 shares of the combined company Common Stock to preexisting XTI shareholders less 34,823,224 shares outstanding of Legacy XTI that were cancelled and replaced. Additionally, this adjustment accounts for the merger consideration in excess of common stock at closing as additional paid-in capital.

 

I. Represents the conversion of XTI’s convertible notes and promissory notes and associated accrued interest to equity with a fair value of approximately $3,504,000 at the date of the Merger. The pro forma adjustment reduces the principal balance and accrued interest balance in the amount of $2,814,000 and $690,000, respectively. The only debt expected to remain outstanding is related to Denehy Note convertible note which had a principal and accrued interest balance of $1,987,000 and $78,000, respectively, as of September 30, 2023. The principal balance of $1,987,000 related to the Denehy Note will become due in December 2026. In addition, a promissory note that had a principal and accrued interest balance of $125,000 and $4,000, respectively, as of September 30, 2023 will also remain outstanding. The promissory note is due within 30 days of closing of the Merger or in January 2024, whichever occurs first.

 

J. Represents the conversion of XTI’s Xeriant liability to equity of approximately $5,583,000 on the consummation of the Merger. XTI entered into a joint venture agreement with Xeriant Inc., in which XTI and Xeriant reached an agreement to settle the liability through the issuance of equity.

 

K. Represents the conversion of Inpixon’s short term debt to equity related to the Solutions Divestiture of approximately $1,203,000 in principal and $259,000 of accrued interest, for a total of $1,462,000, prior to consummation of the Merger.

 

Autonomous Entity Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

 

The autonomous entity adjustments included in the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and the year ended December 31, 2022 are as follows:

 

AA. Represents the removal of Inpixon’s CEO, CFO, and internal legal counsel costs for the nine months ended September 30, 2023 and the year ended December 31, 2022 of approximately $1,305,000 and $1,169,000, respectively, as these costs will not be incurred by the combined company.

 

BB. Represents adjustment to remove $2,970,000 in expenses that were incurred for the nine months ended September 30, 2023 regarding the CXApp spin-off which was completed in March 2023.

 

9

 

 

Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

 

The transaction accounting adjustments included in the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and the year ended December 31, 2022 are as follows:

 

CC. Represents incremental adjustments to intangible asset amortization for the step-up in basis of intangible assets subject to amortization acquired in connection with the Merger assuming the Merger occurred on January 1, 2022. The following table is a summary of information related to certain intangible assets acquired, including information used to calculate the amortization expense for each period presented:

 

                Amortization for Period  
Identified Intangible Assets (in thousands)   Fair Value     Years of Amortization     Nine Months Ended September 30, 2023     Year Ended December 31, 2022  
Tradename & trademarks   $ 763       5.00     $ 114     $ 153  
Proprietary technology     2,254       7.00       242       322  
Customer relationships     721       5.00       108       144  
In-process research and development     383       Indefinite       —       —  
Total amortization expense                   $ 464     $ 619  

 

DD. Reflects the estimated transaction costs of approximately $23,219,000 to be expensed as if incurred on January 1, 2022, the date the Merger occurred for the purposes of the unaudited pro forma condensed combined statement of operations. This is a non-recurring item. Below represents a summary of the transaction costs associated with the Merger (in thousands).

 

Third party fees (legal, accounting, investment, etc.)   $ 2,700  
Bonuses/incentives in connection with Merger     1,530  
Estimated Legacy XTI transaction costs     4,230  
         
Third party fees (legal, accounting, investment, etc.)     2,500  
Bonuses/incentives in connection with Merger     13,196  
Severance packages in connection with Merger     2,293  
Estimated Inpixon transaction costs     17,989  
Resulting Company transaction costs (Maxim Group, LLC)     1,000  
Total Estimated Transaction Costs   $ 23,219  

 

Of the amounts above approximately $4,257,000 had previously been expensed. As such, $18,962,000 was expensed on the statement of operations. See Note F and G for pro forma adjustments related to accounting of additional transaction costs expected to be incurred subsequent to September 30, 2023 on the Balance Sheet.

 

EE. Represents adjustment to remove the change in fair value related to Legacy XTI’s JV obligation which is to be converted into equity at the time of the Merger. The Change in fair value for the nine months ended September 30, 2023 represented a gain of $196,000. The change in fair value for the year ended December 31, 2022 represented a loss of $331,000.

 

FF. Represents adjustment to record interest income of $360,000 for the year ended December 31, 2022 regarding the convertible note from Damon outlined in Note D, which has an interest rate of 12% per annum. The note has a term of one year and as such did not include interest income for the nine months ended September 30, 2023 as a pro forma adjustment.

 

GG. Represents adjustment to remove interest expense of $241,000 and $302,000 related to the convertible notes to be converted at the closing of the Merger, outlined in Note I, for the nine months ended September 30, 2023 and for the year ended December 31, 2022, respectively. The interest expense would not be incurred as a result of the conversion on consummation of the Merger.

 

HH. Represents adjustments to remove interest expense of $98,000 and $52,000 related to Inpixon’s conversion of debt, outlined in Note A, for the for the nine months ended September 30, 2023 and for the year ended December 31, 2022, respectively.

 

10

 

 

Note 5. Net Loss per Share

 

Net loss per share was calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Merger and the related transactions, assuming the shares were outstanding since January 1, 2022. As the Merger and the related transactions are being reflected as if they had occurred at the beginning of the earliest period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Merger and related transacti=ons have been outstanding for the entirety of all periods presented.

 

The unaudited pro forma condensed combined financial information has been prepared for the nine months ended September 30, 2023 and for the year ended December 31, 2022 (in thousands, except share and per share data):

 

    Nine Months Ended September 30, 2023 (1)     Year Ended December 31, 2022 (1)  
    Common Stock     Common Stock  
Pro forma net loss attributable to common stockholders   $ (31,849 )   $ (62,370 )
Weighted average shares outstanding - basic and diluted     321,130,428       321,130,428  
Pro forma net loss per share attributable to common stockholders - basic and diluted   $ (0.10 )   $ (0.19 )
Excluded securities:(2)                
Options     49,229,448       49,229,448  
Warrants     177,393,085       177,393,085  
Convertible preferred stock     13       13  
Convertible notes     7,889,626       7,889,626  

 

(1) Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined Financial Information.”

 

(2) The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive.  The total amount of dilutive warrants includes 141 million unexercised of the 150 million warrants that were issued in May 2023.

 

Note 6. Reverse Stock Split Adjustments

 

The Inpixon Reverse Stock Split, at a ratio of at a minimum of 1-for-2 and a maximum of 1-for-50, has been approved by Inpixon’s stockholders. Inpixon is seeking approval from Inpixon stockholders to increase the maximum reverse split ratio from 1-for-50 to 1-for-200 at the Inpixon special meeting. The Inpixon Reverse Stock Split, once implemented, will reduce the number of shares of Inpixon Common Stock outstanding in proportion to the reverse split ratio to be determined in the discretion of Inpixon’s Board of Directors. Management notes that the most likely scenario to occur is a 1-for-50 reverse stock split.

 

The following tables show the effects on the unaudited pro forma condensed combined balance sheet as of September 30, 2023 of a 1-for-2, 1-for-25, and 1-50 reverse stock split (the low, mid, and high points of the reverse split ratio range).

 

    Reverse Split Ratio  
    Pre-Split     1-for-2     1-for-25     1-for-50  
Pro Forma Balance Sheet:                        
Stockholders’ equity:                        
Common stock   $ 315     $ 158     $ 13     $ 6  
Additional paid-in capital     28,064       28,222       28,366       28,373  
Accumulated deficit     (43,284 )     (43,284 )     (43,284 )     (43,284 )
Total stockholders’ equity   $ (14,905 )   $ (14,905 )   $ (14,905 )   $ (14,905 )

 

The reverse stock split will have no effect on the total assets and total liabilities included in the unaudited pro forma condensed combined balance sheet as of September 30, 2023.

 

11

 

 

The following tables show the effects on the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and for the year ended December 31, 2022 (in thousands, except share and per share data).

 

    Reverse Split Ratio  
    Pre-Split     1-for-2     1-for-25     1-for-50  
Pro Forma Statement of Operations:                        
For the Nine Months Ended September 30, 2023                        
Net loss   $ (31,849 )   $ (31,849 )   $ (31,849 )   $ (31,849 )
Loss per share - basic and diluted   $ (0.10 )   $ (0.20 )   $ (2.48 )   $ (4.96 )
Weighted average shares outstanding - basic and dilutive     321,130,428       160,565,214       12,845,217       6,422,609  
                                 
For the Year Ended December 31, 2022                                
Net loss   $ (62,370 )   $ (62,370 )   $ (62,370 )   $ (62,370 )
Loss per share - basic and diluted   $ (0.19 )   $ (0.39 )   $ (4.86 )   $ (9.71 )
Weighted average shares outstanding - basic and dilutive     321,130,428       160,565,214       12,845,217       6,422,609  
                                 
Excluded securities(1):                                
Options     49,229,448       24,614,724       1,969,178       984,587  
Warrants     177,393,085       88,696,543       7,095,723       3,547,861  
Convertible preferred stock     13       7       1       1  
Convertible debt     7,889,626       3,944,813       315,585       157,792  

 

(1) The potentially dilutive outstanding securities were excluded from the computation of pro forma net loss per share for the nine months ended September 30, 2023 and the year ended December 31, 2022, basic and diluted, because their effect would have been anti-dilutive.

 

The reverse stock split will have no effect on the operating expenses and non-operating income (expense) included in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 and for the year ended December 31, 2022.

 

 

 

12