Inpixon
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KINPIXON - INPXFiled: March 30, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number 001-36404 SYSOREX GLOBAL(Exact name of registrant as specified in its charter) NEVADA 88-0434915(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 2479 E. Bayshore RoadSuite 195Palo Alto, CA 94303(Address of principal executive offices)(Zip Code) (408) 702-2167(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange onwhich each is registeredCommon Stock, par value $.0001 NASDAQ Capital Market Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer ☐ Accelerated filer ☐Non-accelerated filer ☐ Smaller reporting company ☒(Do not check if a smaller reporting company) Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recentlycompleted second fiscal quarter. As of June 30, 2015, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the last saleprice of the common equity was $20,074,733. Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of March 21, 2016, the issuer has 25,354,863 and 25,116,035 shares of common stock, par value $.001, issued and outstanding, respectively. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the 2016 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this AnnualReport on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of theregistrant's fiscal year ended December 31, 2015. Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL TABLE OF CONTENTS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT2 PART I ITEM 1: BUSINESS3 ITEM 1A: RISK FACTORS14 ITEM 1B: UNRESOLVED STAFF COMMENTS43 ITEM 2: PROPERTIES43 ITEM 3: LEGAL PROCEEDINGS44 ITEM 4: MINE SAFETY DISCLOSURES44 PART II ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES44 ITEM 6: SELECTED FINANCIAL DATA.45 ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS46 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK61 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA62 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE63 ITEM 9A: CONTROLS AND PROCEDURES63 ITEM 9B: OTHER INFORMATION64 PART III ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE65 ITEM 11: EXECUTIVE COMPENSATION65 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS65 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE65 ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES65 PART IV ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES66 1 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATIONCONTAINED IN THIS REPORT This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions ofSection 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the“Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact thatthey do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,”“believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may,” or other similar expressions inthis report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; futureperformance or results of anticipated products; and projected expenses and financial results. These forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that couldcause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: ●our limited cash and our history of losses; ●our ability to achieve profitability; ●our limited combined operating history; ●emerging competition and rapidly advancing technology in our industry that may outpace our technology; ●customer demand for the products and services we develop; ●the impact of competitive or alternative products, technologies and pricing; ●our ability to manufacture any products we develop; ●general economic conditions and events and the impact they may have on us and our potential customers; ●our ability to obtain adequate financing in the future; ●our ability to continue as a going concern; ●our success at managing the risks involved in the foregoing items; and ●other factors discussed in this report. The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake noobligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-lookingstatements. 2 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART I ITEM 1: BUSINESS (Unless otherwise stated or the context otherwise requires, the terms “Sysorex” “we,” “us,” “our” and the “Company” refers collectively to Sysorex Global ,f/k/a Sysorex Global Holdings Corp., and its wholly-owned subsidiaries.) Introduction Sysorex provides data analytics and location based solutions and services to commercial and government customers worldwide. We have developeda new kind of discovery platform that blends data from traditional software and network systems with the growing universe of mobile and Internet of Things(IoT). In doing so we have created a high velocity, secure and scalable platform that we believe allows our customers to evaluate their most complex businessissues, and compete successfully in their respective markets. Our products are designed to help customers derive real time value by combining both thephysical and digital worlds. Our data analytics products integrate with our AirPatrol product line, which includes technology for enterprises, government agencies, developers,and services providers aimed at improving mobile security, improving information access and boosting application engagement by adding location-baseddelivery and management by collecting data from any wireless device in close proximity (Cellular, WiFi, BLE, RFID, etc.) and extending to any connecteddevice in the Internet of Things (IoT) landscape. We believe our products can deliver critical information at the right time based on our integrated solutionsallowing us to uniquely blend the real world and the digital world. We believe our AirPatrol product line is also well positioned for the Cyber Securitymarket as a mobile device management and detection technology solution. We believe our location accuracy of less than 10-feet and ability to capture all RFfrequencies is unmatched. Detecting rogue devices that could be a security threat to an enterprise or government agency and then providing accurate locationof that device is an important security application for our customers. Our AirPatrol product line has two patents and several others pending worldwide. Sysorex also provides supporting products and services including enterprise computing and storage, virtualization, business continuity, datamigration; custom application development, networking and information technology business consulting services. These allow Sysorex to offer turnkeysolutions when requested by customers. Corporate Strategy Management is focused on transforming Sysorex from its legacy systems integration business to a data analytics products business providingturnkey solutions from collection of data to delivering insights from that data to our customers. We have successfully acquired certain technology/IP relatedto the IT industry and may complete additional strategic acquisitions in the future to expand our products and services. Management believes acquiringproducts/IP will add value to the Company and may allow us to command a higher market valuation or sales price should there be a sale or a spinoff. We areseeking opportunities with the following profiles: ● Innovative and commercially proven technologies primarily in Big Data analytics, cyber-security, IoT, Cloud and mobile/bring your owndevice (“BYOD”). ●Companies with proven technologies that are complementary to the Company’s overall strategy. We are looking at companies primarily in theUnited States. However, we may expand our search into other geographies such as India, Europe and beyond, if there are significant strategicand financial reasons to do so. An important element of our mergers and acquisitions strategy is to acquire companies with complementary capabilities/technologies and anestablished customer base in each of the above categories. We believe that the customer base of each potential acquisition will also present an opportunity tocross-sell our existing solutions. 3 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We intend to acquire these innovative technologies and established, reputable IT services companies, using restricted common stock, cash and debtfinancing in combinations appropriate for each potential acquisition. Industry Overview Worldwide Big Data Technology and Services market is estimated to grow to $48.6 billion in 2019, representing a compound annual growth rate(“CAGR”) of 23.1% over the period of 2014-2019 (Source: http://www.idc.com/getdoc.jsp?containerId=prUS40560115). Big Data Analytics market is expected to grow to about $13.9 billion by 2017, at a CAGR of 54.9% from 2012 to 2017 (Source:cloudtimes.org/2013/06/25/hadoop-as-a-service-market-growing/). The Internet of Things is a Massive Disruptive Force. Growth in “Connected” Devices Leading to Explosive Growth in Data – 20 billion devicesgrowing to 50 billion by 2020-Royal Bank of Canada. According to a new report by Allied Market Research titled, "Global Mobile Security Market, Solution, Types, OS, Trends, Opportunities, Growthand Forecast, 2013 - 2020", the global Mobile Security Market would reach $34.8 billion by 2020, registering a CAGR of 40.8% during 2014 - 2020. Worldwide Cybersecurity market estimated at $63.7 billion in 2012 and is projected to grow at an 11.3% CAGR to $120.1 billion by 2017 (Source:Global Cyber Security Market 2013 – 2023, ASD Media Reports). According to industry sources, Cloud based business analytics and business intelligence is expected to grow from $5.2 billion in 2013 to $16.52billion in 2018 at a 25.8% CAGR (Source: PRWeb Article - Cloud Analytics Market is Growing at an Estimated CAGR of 25.8% & to Reach $16.52 Billionby 2018 - New Report by Markets and Markets April 2, 2013) . The U.S. Government spends approximately $80 billion in IT annually and this level of spending is expected to continue at a 3% CAGR, comparedwith 6% historically in the first decade of the 21st Century (Source: Market Research Media - U.S. Federal IT Market Forecast 2013-2018). Corporate Structure In 2015 Sysorex had five operating subsidiaries: (i) Sysorex Federal, Inc. (100% ownership) (“Sysorex Federal”) and its wholly owned subsidiarySysorex Government Services, Inc. (“Sysorex Government” or “Sysorex Government Services”) based in Herndon, Virginia, which focuses on the U.S. FederalGovernment market; (ii) Lilien Systems (100% ownership) (“Lilien”) based in Larkspur, California; (iii) Shoom, Inc. (100% ownership) (“Shoom”) based inEncino, California, (iv) AirPatrol Corporation (100% ownership) (“AirPatrol”) based in Maple Lawn, Maryland and its wholly owned subsidiary AirPatrolResearch Corp. based in Coquitlam, British Columbia, and (v) Sysorex Arabia LLC (50.2% ownership) (“Sysorex Arabia”) based in Riyadh, Saudi Arabia. OnDecember 4, 2015, the board of directors of the Company resolved by unanimous written consent to carry out a series of reorganization transactions tostreamline the organizational structure of the Company and its direct and indirect subsidiaries. See “Corporate History”. Effective January 1, 2016 Sysorex has three operating subsidiaries: (i) Sysorex USA (100% ownership) based in Larkspur, California and its wholly-owned subsidiary Sysorex Government based in Herndon, Virginia, which focuses on the U.S. Federal Government market; (ii) Sysorex Canada Corp. basedin Coquitlam, British Columbia; and (iii) Sysorex Arabia LLC (50.2% ownership) based in Riyadh, Saudi Arabia (which is contemplated to be dissolved laterthis year). 4 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. These consolidated subsidiaries operate in the following business segments: ●Mobile, IoT & Big Data Products: These products currently include our AirPatrol product line (location-based security and marketing platformfor wireless and cellular devices that can detect, monitor and manage the content and behavior of smartphones, tablets and other mobile devicesbased on their location and user); on-premise big data appliance product (Light Miner Studio “LMS”) and will include future Sysorex ownedproducts. ●Storage and Computing: This segment includes third party hardware, software and related maintenance/warranty products and services thatSysorex resells. It includes but is not limited to products for enterprise computing; storage; virtualization; networking; etc. ●SaaS Revenues: These are Software-as-a-Services (SaaS) or internet based hosted services including the Shoom product line and cloud based bigdata analytics services (based on our LMS product) and other data science services; analytics services for AirPatrol products and other managedservices on a SaaS basis. ●Professional Services: These are general IT services including but not limited to: custom application/software design; architecture anddevelopment; project management; C4I system consulting; strategic outsourcing; staff augmentation; data center design and operationsservices; data migration services and other non-SaaS services. Mr. Nadir Ali is the President and Chief Executive Officer (“CEO”) of Sysorex and the subsidiaries except for Sysorex Government where he is thesole Director. Ms. Wendy Loundermon is President of Sysorex Government. Future acquisitions may be operated as separate business units or merged intoone of the existing subsidiaries depending on its business focus. Although the subsidiaries are separate legal entities, the Company is structured by functionand organized to operate in an integrated fashion as one business. Corporate History The Company was formed in Nevada in April 1999, under the name Liquidation Bid, Inc. It changed its name to Softlead, Inc. on September 9,2003. On March 1, 2011 by a majority vote of shareholders at a special meeting, the Company elected to change its name to Sysorex Global HoldingsCorp.; effect a 1-for-20 reverse split of its stock; increase the authorized shares to 30,000,000 and acquire the Sysorex operational businesses. On June 2,2011, the Company effected a 1-for-20 reverse split and changed its name to Sysorex Global Holdings Corp. On July 29, 2011, the Company acquired all of the stock of the U.S. Federal Government business of Sysorex (Sysorex Federal and its subsidiarySysorex Government) and 50.2% of the stock of the operating unit of Sysorex engaged in Saudi Arabian Government contracts (Sysorex Arabia, LLC). Theacquisition was based on a share exchange, with Sysorex shareholders being issued 14,600,000 restricted common shares of the Company in exchange forstock of the three operating entities. The Company recapitalized itself by amending its Articles of Incorporation on August 3, 2011 and increased its authorized common stock to30,000,000 shares, with a par value $0.001 per share, which was approved at the Shareholder Meeting on March 1, 2011. On September 1, 2011, the Board ofDirectors and the majority shareholders authorized the increase of the authorized shares from 30,000,000 to 40,000,000; however, the filing of theAmendment to the Articles of Incorporation was not filed with the State of Nevada until April, 2012. 5 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On March 20, 2013, the Company completed the acquisition of the assets of Lilien LLC, for an aggregate purchase price of $9,000,000 inaccordance with the terms and conditions of an Asset Purchase and Merger Agreement (the “APMA”), effective March 1, 2013. The purchase price consistedof $3,000,000 in cash and 3,000,000 shares of restricted common stock of Sysorex deemed to have a fair value of $6,000,000, or $2.00 per share, issued to themembers of Lilien, LLC (the “Former Lilien Members”) in exchange for all of the outstanding capital stock of Lilien Systems, Inc. (“Lilien” and the “LilienAcquisition”). The cash consideration of $3,000,000 was obtained by the Company under a credit facility entered into for the purpose of completing theacquisition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, the Company contingentlyguaranteed (the “Guaranty”) to the Former Lilien Members the net sales price of $2.00 per share (as adjusted) for a two year period following the closing,provided the Former Lilien Members complied with the terms and conditions of the lock-up agreement. At the end of the two-year Guaranty period, theFormer Lilien Members had an option within ten days after the Guaranty period to put all, but not less than all, of their unsold shares to the Company, for theprice of $2.00 per unsold share. None of the Former Lilien Members exercised that option. Under the APMA, the Former Lilien Members were entitled to any excess cash above $1,000,000, provided both Lilien’s net worth immediatelypreceding the closing was greater than $1,000,000 and its net worth less excess cash of at least $1,000,000 was greater than $1,000,000. As a result of a post-closing adjustment, Lilien’s net worth was less than $1,000,000 and the Former Lilien Members refunded $153,000 to the Company, subject to furtheradjustment. The refund was subsequently adjusted to $38,750 and settled. Lilien Systems is based in Larkspur, California and an information technology company, which significantly expanded the Company’s operationsproviding it a Big Data analytics platform and enterprise infrastructure capabilities. Lilien delivers right-fit information technology solutions that helporganizations reach their next level of business advantage. Lilien brings unsurpassed commitment, a highly qualified and educated staff of data scientists andcomputer engineers, premier technology certifications, key manufacturer partnerships, and business vision to its solutions in enterprise computing andstorage, virtualization, business continuity, networking and IT business consulting. Lilien Systems was renamed Sysorex USA effective January 1, 2016. Effective upon the completion of the Lilien Acquisition, Geoffrey Lilien, Bret Osborn and Dhruv Gulati were elected to Sysorex Global’s thenexisting Board of Directors of three persons. Mr. Osborn and Mr. Gulati subsequently resigned as directors; however, they currently serve as the Chief SalesOfficer and Executive Vice President, respectively, of Sysorex USA f/k/a Lilien Systems. Effective August 23, 2013, the Board of Directors and the majority shareholders authorized the increase of the authorized common shares from40,000,000 to 50,000,000. Effective August 31, 2013, the Company acquired 100% of the stock of Shoom. Pursuant to an Agreement and Plan of Merger dated as of August 31,2013, a wholly owned subsidiary of Sysorex was merged with and into Shoom which continued its existence as a wholly-owned subsidiary of Sysorex.Sysorex issued approximately 1,381,000 shares of its common stock to the former shareholders of Shoom, plus their pro rata share of $2,500,000 cashconsideration, subject to adjustment based on the Net Worth (as defined in the Agreement of Plan and Merger) of Shoom as of August 31, 2013 comparedwith $6,038,020, the net worth of Shoom on July 31, 2013. Of this amount, approximately 250,000 shares of Sysorex common stock, plus approximately$500,000 of the cash consideration is being held in escrow for the benefit of the former Shoom stockholders, pro rata, for one year as security to satisfy anyclaim for indemnity claims, other than tax matters for which there is a seven-year escrow. As of December 31, 2015 all the escrow shares have been released tothe former Shoom stockholders and approximately $352,000 remains in the escrow for tax matters to be released pro-rata over the next five years. All of theCompany’s 1,381,000 shares issued in the Shoom Acquisition were restricted and subject to lock-up agreements for a six-month period which ended onOctober 8, 2014. In addition, the Company issued stock options to Shoom employees to purchase an aggregate of 100,000 shares of Sysorex common stock. Shoom is based in Encino, California and a provider of Cloud based data analytics and enterprise solutions to the media, publishing andentertainment industries. Management believes based on its knowledge of the industry that Shoom is a leading provider of Cloud based data analytics andenterprise solutions to the media, publishing and entertainment industries with approximately 675 active publications in North America. Shoom specializesin providing comprehensive and integrated Internet/intranet based information services and electronic delivery systems to its expanding client base aroundthe world. Shoom has been in business and providing its Cloud solutions for over 15 years. Shoom was merged into Sysorex USA effective January 1, 2016. On April 8, 2014, the Company effected a one-for-two reverse split of the Company’s common stock, with no reduction in authorized capital. 6 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On April 9, 2014, the Company consummated its initial public offering of 3,166,666 shares of common stock, which raised net proceedsof approximately $17.7 million, after deducting the underwriting discounts and commissions. Simultaneously the Company listed its common stock fortrading on the Nasdaq Capital Market. Effective April 18, 2014, the Company acquired 100% of the stock of AirPatrol Corporation, a company in the mobile cyber-security and location-based services space with leading-edge solutions and proprietary intellectual property (“AirPatrol” and the “AirPatrol Acquisition”), in accordance with theterms and conditions of an Agreement and Plan of Merger (the “Merger Agreement”), dated December 20, 2013, as amended on February 28, 2014 for anaggregate purchase price equal to (a) $10,000,000 in cash, subject to certain adjustments, allocated to and among certain creditors, payees and holders ofAirPatrol’s issued and outstanding capital stock and (b) 2,000,000 shares of Company’s common stock, of which 800,000 was held in escrow for one year, assecurity to satisfy any indemnity claims that may be owed by the AirPatrol shareholders to the Company (the “Merger Consideration”). The MergerConsideration included an earnout, half of the value of which shall be in stock and the other half in cash (unless otherwise agreed or required pursuant to theMerger Agreement) payable to the shareholders of AirPatrol in 2015 in accordance with the following formula: if for the five quarter period ending March 31,2015, AirPatrol Net Income (as defined in the Merger Agreement) meets or exceeds $3,500,000, the Company shall pay to the AirPatrol shareholders anearnout payment equal to (i) AirPatrol Net Income, divided by $5,000,000, times (ii) $10,000,000, provided that the total earnout payment shall not exceed$10,000,000. On April 18, 2014, the Company consummated the AirPatrol Acquisition, and on the closing date paid adjusted Merger Consideration of$8,466,258 in cash, and 1,842,809 shares of common stock (800,000 shares of which were deposited into a holdback escrow for indemnity purposes). On May 30, 2014 the Company and AirPatrol entered into a Waiver and Amendment No. 3 to the Agreement and Plan of Merger (this “Waiver andAmendment”) which was a post-closing waiver and amendment to the Merger Agreement. The fees of the shareholder representative of AirPatrol, ShareholderRepresentative Services LLC (the “Representative”) were inadvertently not paid by AirPatrol, and not reflected as an AirPatrol merger expense at the time ofclosing. Upon execution and delivery of the Waiver Amendment, the Company paid $37,500, representing the total amount of the engagement fee owed tothe Representative. The total recorded purchase price for the transaction was $19.7 million which consisted of $9.5 million cash paid and $10.2 million for the value ofstock. The Company evaluated the fair value of the contingent earn out liability and determined nothing was owed. During 2015 an agreement was reachedbetween the Company and the Representative regarding the 800,000 shares that were deposited in the holdback escrow whereby the sum of 561,172 shareswere authorized to be released to the AirPatrol shareholders and 238,828 shares were released to the Company for cancellation. AirPatrol is a company in the mobile cyber-security and location-based services space with leading-edge solutions and proprietary intellectualproperty. AirPatrol develops indoor device locationing, monitoring and management technologies for mobile devices operating on WiFi, cellular andwideband RF networks. AirPatrol has two product lines ZoneDefense and ZoneAware. AirPatrol’s products and technologies deliver solutions to address anexploding global location-based mobile security and services (LBS) market estimated to be more than $8.12 billion in 2014 and $39.8 billion by 2019,growing at 37.5% (marketandmarket.com, 2014). It also serves as a location-based services, sales and marketing system. In these cases, the security platformconnects to third party apps on a user’s mobile device that provide functions such as location-based offers, discounts and suggestive selling, VIP servicefunctions (for hotels, resorts, casinos, etc.), and location-based information delivery such as mobile-based guided tours of historic sites, points of interest andmuseums, shopping center maps, building floor plans and so on. AirPatrol has been awarded one patent in 2015 and two patents in 2014 and has 10 patentscurrently pending world-wide in the areas of context-aware policy management, RF detection, cellular monitoring, end node network applications for mobiledevices and related technologies. Customers for the products are big box retailers, healthcare facilities, property managers (malls, shopping centers, etc.),hotels and resorts, gaming operators and government agencies. These products require no app installation for anonymous collection of behavioral data suchas traffic flow, entry and exit patterns, length of stay and other business intelligence and analytics functions. AirPatrol was merged into Sysorex USA effectiveJanuary 1, 2016. 7 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On April 24, 2015, in accordance with the terms and conditions of an Asset Purchase Agreement (the “APA”), the Company completed theacquisition of substantially all of the assets of LightMiner Systems, Inc. (“LightMiner”), which is in the business of developing and commercializing in-memory SQL databases (the “Acquisition”). At closing, the Company paid $19,000 in cash to the owner (the “Owner”) of approximately 19% ofLightMiner’s outstanding securities prior to closing and agreed to issue to LightMiner or its designees upon the one year anniversary of the closing (the“First Anniversary”), shares of the Company’s common stock in an amount equal to the quotient of (A) $3,200,000 (the “Purchase Price”) divided by (B) theSysorex Weighted Average Price (as defined below) as of the fifth trading day prior to the First Anniversary (the “Seller Stock Consideration”), less a holdback of Seller Stock Consideration having an aggregate value of $567,150, as determined by the Sysorex Weighted Average Price, for the purpose ofsatisfying indemnification obligations of LightMiner. The Sysorex Weighted Average Price means the volume-weighted daily average of the price of theCompany’s common stock for the twenty (20) trading days immediately prior to the date of determination; however, the price may not be less than $2.00 pershare. The Company also agreed to issue to the Owner an aggregate of 127,000 restricted shares of common stock (the “Owner Stock Consideration”) witha fair value of $286,000 at the date of closing on the First Anniversary and issue to the Owner an option to purchase up to 100,000 shares of Company’scommon stock in accordance with the terms and conditions of the Company’s 2011 Employee Stock Incentive Plan, as amended, pursuant to an at-willemployment offer letter. In addition, the Company agreed to issue to another pre-acquisition principal of LightMiner additional shares of the Company’scommon stock equal to $200,000 divided by the Sysorex Weighted Average Price; however, the price may not be less than $2.00 per share. LightMiner is in the business of developing and commercializing in-memory SQL databases. The assets acquired from LightMiner include an in-memory, real-time, data analysis system designed to perform very large, highly complex and extremely difficult calculations using off-the-shelf hardware andmemory. It supports both traditional SQL-based business intelligence and analytics applications as well as a host of integrated statistical, machine learningand artificial intelligence algorithms allowing it to provide supercomputer-like performance at competitive prices. On September 25, 2015, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC, asrepresentative of the several underwriters named therein (the “Underwriters”), relating to the issuance and sale of 5,250,000 shares of the Company’s commonstock, par value $0.001 per share. The price to the public in this offering was $1.00 per share. Under the terms of the Underwriting Agreement, the Companyalso granted the Underwriters an option, exercisable for 30 days from the closing date, to purchase up to an additional 787,500 shares at the public offeringprice. The offering was made pursuant to the Company’s registration statement on Form S-3 (Registration Statement No. 333-204159) filed with theSecurities and Exchange Commission and declared effective May 28, 2015 and a related prospectus supplement filed with the Securities and ExchangeCommission. The offering closed September 30, 2015. After deducting underwriting discounts and commissions and offering expenses, the net proceeds fromthe offering were approximately $4.7 million. On December 4, 2015 and effective January 1, 2016, the Company’s Board of Directors resolved by unanimous written consent to carry out thefollowing reorganization transactions: (1) statutory mergers of AirPatrol and Shoom with and into Lilien, pursuant to which Lilien is the survivingcorporation and changed its name to “Sysorex USA”; and (2) a short-form statutory merger of the Company with a newly-formed wholly-owned Nevadacorporation, pursuant to which the Company changed its name to “Sysorex Global”. Immediately prior to the consummation of these mergers, the Companycarried out an (i) an assignment from AirPatrol to the Company of all shares of capital stock of AirPatrol Research Corp. (“AirPatrol Research”), pursuant towhich AirPatrol Research became a direct subsidiary of the Company; (ii) the amendment of AirPatrol Research’s Notice of Articles to change its name to“Sysorex Canada Corp.”; (iii) the dissolution and winding up of Sysorex Federal, in which Sysorex Federal assigned and transferred all of its assets, includingall outstanding shares of capital stock of Sysorex Government, to the Company, and the Company assumed Sysorex Federal’s debts and liabilities; (iv) anassignment from the Company to Lilien of all outstanding shares of capital stock of Sysorex Government, pursuant to which Sysorex Government became adirect subsidiary of Lilien. 8 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sysorex Products and Services ●LightMiner Analytics Platform — is an advanced solution for aggregating and mining multi-terabyte Big Data sets in real time for instantinsights. Cloud-based so there’s nothing to install and fully scalable to meet even the most demanding business requirements. Sysorex QuickStart analytics modules are available for a variety of industry verticals and applications. ● Data Science and Advanced Analytics Consulting Services — are backed by our data science and analytics team that develops data drivensolutions for the most complex challenges. Our team’s extensive experience and unique strategies allow it to leverage Big Data in new ways touncover hidden insights and create new business opportunities. ● AirPatrol for Security (formerly ZoneDefense) - a mobile security and detection product that locates devices operating within a monitoredarea, determines their compliance with network security policies for that zone, and then can trigger policy modification of device apps and/orfeatures - either directly or via third party mobile device, application and network management tools. ● AirPatrol for Retail (formerly ZoneAware) - a commercial product for enabling location and/or context-based marketing services andinformation delivery to mobile devices based on zones as small as 10 feet or as large as a square mile. The monitored areas may include abuilding, a campus, a mall, and outdoor regions like a downtown. Unlike other mobile locationing technologies, AirPatrol technologies usepassive sensors that work over both cellular and WiFi networks and offer device locationing and zone-based app and information deliveryaccurate to within 10 feet. Additionally, unlike geo-fencing systems, AirPatrol technologies are capable of simultaneously enabling differentpolicies and delivering different apps or information to multiple devices within the same zone based on contexts such as the type of device,the device user and time of day. ● Shoom Product Line (eTearsheets; eInvoice, AdDelivery, ePaper) - the Shoom products are Cloud based applications and analytics for theMedia & Publishing industry. These products also generate critical data analytics for its customers. ● Enterprise Infrastructure Solutions and Services — help organizations tackle challenges and accelerate business goals by implementing bestof breed technology solutions. Sysorex believes its deep expertise in a broad range of infrastructure solutions, from storage and Big Datasolutions to converged infrastructure and cyber security, delivers impactful results for its clients. ● IT Services — from enterprise architecture design to custom application development, Sysorex offers a full scope of information technologydevelopment and implementation services. With expertise in a broad range of IT practices including project design and management, systemsintegration, outsourcing, independent validation and verification, cyber security and more. Market Size Worldwide, companies and organizations are expected to spend a combined $3.8 trillion on hardware, software, IT services and telecommunicationsin 2014 with an approximate 3.1% growth rate over the next five years (Source: Gartner, Inc. January 2014 Forecast.) Worldwide Big Data Technology and Services market is estimated to grow to $48.6 billion in 2019, representing a compound annual growth rate(“CAGR”) of 23.1% over the period of 2014-2019 (Source: http://www.idc.com/getdoc.jsp?containerId=prUS40560115) The big data and analytics market will reach $125 billion worldwide in 2015, according to IDC.(Source: http://whatsthebigdata.com/2015/01/02/2015-predictions-for-the-big-data-analytics-market/). 9 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Internet of Things is a Massive Disruptive Force. Growth in “Connected” Devices Leading to Explosive Growth in Data – 20 billion devicesgrowing to 50 billion by 2020-Royal Bank of Canada. According to a new report by Allied Market Research titled, "Global Mobile Security Market, Solution, Types, OS, Trends, Opportunities, Growthand Forecast, 2013 - 2020", the global Mobile Security Market would reach $34.8 billion by 2020, registering a CAGR of 40.8% during 2014 - 2020. The Worldwide Cybersecurity market estimated at $81.4 billion in 2016 due to the inexorable rise of cyber-attacks worldwide. (Source:https://www.asdreports.com/market-research-report-262240/cyber-security-market-report) According to industry sources, Cloud based business analytics and business intelligence is expected to grow to $23.1 billion in 2020. (Source:http://www.marketsandmarkets.com/PressReleases/cloud-based-business-analytics.asp). Government IT Services and Solutions Market The U.S. government spends approximately $80 billion on IT annually. This spending is expected to continue at a 3% growth rate vs. 6%historically because of the government’s budget challenges. (Source: Market Research Media - U.S. Federal IT Market Forecast 2013-2018.) Security of allforms, especially cyber-security, are significant growth areas (Source: Market Research Media - U.S. Federal Cyber Security Market Forecast 2013-2018) andSysorex intends to increase its role in this sector. Sysorex Government is servicing U.S. Government customers in both civilian and defense agencies.Sysorex Government provides a variety of IT solutions and services (custom application development, project management, systems integration, etc.)through its various government contract vehicles including our GSA Schedule, SPAWAR, TEIS-III, SEWP, and others. Sysorex Government serves as a primeand subcontractor depending on the contract. We believe Sysorex Government is also well positioned to win foreign military sales contracts leveraging theSysorex Group presence overseas. Through Sysorex Government, the Company enters into various types of contracts with our customers, such as Indefinite Delivery IndefiniteQuantity (IDIQ), Cost-Plus-Fixed-Fee (CPFF) Level of Effort (LOE), Cost-Plus-Fixed-Fee (CPFF) Completion, Cost-reimbursement (CR), Firm-Fixed-Price(FFP), Fixed-Price Incentive (FPI) and Time-and-materials (T&M). IDIQ contracts provide for an indefinite quantity of services or stated limits of supplies for a fixed period. They are used when the customer cannotdetermine, above a specified minimum, the precise quantities of supplies or services that the government will require during the contract period. IDIQs helpstreamline the contract process and speed service delivery. IDIQ contracts are most often used for service contracts and architect-engineering services. Awardsare usually for base years and option years. The customer places delivery orders (for supplies) or task orders (for services) against a basic contract forindividual requirements. Minimum and maximum quantity limits are specified in the basic contract as either a number of units (for supplies) or as dollarvalues (for services). CPFF LOE contracts will be issued when the scope of work is defined in general terms requiring only that the contractor devote a specified LOE for astated time period. A CPFF completion contract will be issued when the scope of work defines a definite goal or target which leads to an end productdeliverable (e.g., a final report of research accomplishing the goal or target). CR contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of totalcost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of thecontracting officer and are suitable for use only when uncertainties involved in contract performance do not permit costs to be estimated with sufficientaccuracy to use any type of fixed-price contract. FFP contracts will be issued when acquiring supplies or services on the basis of definite or detailed specifications and fair and reasonable prices canbe established at the outset. 10 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FPI target delivery contracts will be issued when acquiring supplies or services on the basis of reasonably definite or detailed specifications and costcan be reasonably predicted at the outset wherein the cost risk will be shared. A firm target cost, target profit, and profit adjustment formula will be negotiatedto provide a fair and reasonable incentive and a ceiling that provides for the contractor to assume an appropriate share of the risk. T&M contracts provide for acquiring supplies or services on the basis of (1) direct labor hours at specified fixed hourly rates that include wages,overhead, general and administrative expenses, and profit; and (2) actual cost for materials. A customer may use this contract when it is not possible at thetime of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. Sales and Marketing Sysorex utilizes direct marketing through approximately 47 outside and inside sales representatives, who are compensated with a base salary andsome sales positions receive incentive plans such as commission or bonus plans. Sysorex utilizes webinars, conferences, tradeshows and other direct andindirect marketing activities to generate demand for its products and services. Sysorex also has extensive relationships with channel partners to directlyengage with customers and to perform the installation services. Sysorex trains its partners and has its own channel/partner managers to support and augmentpartners as needed. Sysorex has built a core competency in bidding on government requests for proposals. It utilizes its internal bid and proposal team as well asconsultants to prepare the proposal responses for Government clients. Sysorex also uses business development, sales and account management employees orconsultants and expects to increase these departments as the Company grows. Customers Sysorex has worked with over 1,000 customers company-wide since inception. These customers including federal and international governmentagencies to enterprise customers in retail, manufacturing, life sciences, bio-tech, high-tech, agriculture, financial services, state and local government,utilities, media & entertainment, telecom and many other verticals. A partial list of recent customers include: -Healthnet -Gilead Sciences -Dow Jones Local Media Group -Gannett -RockStar Games -Hewelett Packard -Evault -Hawaii Electric -Hearst Corporation -E&J Gallo Winery -U.S. Army -U.S. Navy -Business Wire -Premera Blue Cross -City of Seattle Competition Sysorex faces competition from different companies, both small and large, for different parts of its business. The management team at Sysorex has 30plus years of experience in these areas and knows how to compete against start-ups as well as larger businesses. In the Big Data analytics space, thesecompetitors and sometimes partners could include, HP, IBM, Splunk, Fusion Storm, Global Inc., Bear Data, LLC. 11 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our AirPatrol products compete with WiFi based detection companies such as Aruba, Cisco, Euclid Analytics and other smaller companies.However, these companies can only do WiFi detection and therefore we believe cannot get the accuracy that AirPatrol can. AirPatrol has partnered orreplaced some of these types of companies because it offers WiFi, cellular, RFID, blue-tooth, etc. and approximately sub-10-feet in location accuracy. Mobiledevice management companies like AirWatch, Mobile Iron and Good Technology have also integrated with AirPatrol instead of developing competingproducts. MerlinOne and PressTeligence have part of our Shoom products functionality but usually only provide information for the specific customer andnot for their competitors or for the industry. In our government services sector there are large systems integrators and defense contractors as well as small businesses, 8a, Women-owned, VeteranDisabled, Alaskan Native, etc. Some of these competitors include global defense and IT service companies including IBM Global Services, LogicaCMG,CSC, ATOS Origins, Northrop Grumman, Raytheon IT Services and SAIC. This complex landscape of domestic and multi-national services companies creates a challenging environment. However, Sysorex has a successfulhistory and brand that it believes it can leverage. Our strategy is to be a global services provider with a focus in two high growth markets cyber-security anddata analytics. Intellectual Property The Company currently does not have any legally filed trademarks for the name Sysorex. The Company owns trademarks relating to products andservices of AirPatrol Corporation, in addition to three patents and ten pending patents world-wide. The awarded patents were issued September 23, 2015,September 23, 2014 and September 16, 2014.Sysorex is investigating a trademark for its name and is actively seeking future acquisitions, which may involvethe acquisition of intellectual property. Management believes that use of the Company’s intellectual property does not infringe upon any rights held byother parties. Employees As of March 21, 2016, Sysorex has 127 employees, including 2 part-time employees. This includes 6 officers, 47 sales people, 4 marketing people,53 technical/engineering people and 17 finance & administration persons. None of our employees are subject to collective bargaining agreements. Emerging Growth Company As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” asdefined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growthcompany, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies thatare not emerging growth companies. These provisions include: ●Reduced disclosure about our executive compensation arrangements; ●No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; ●Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and Reduced disclosure of financial information in this report, limited to two years of audited financial information and two years of selected financialinformation. 12 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As a smaller reporting company, each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions for up tofive years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than$1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large accelerated filer under the rules of the Securities and ExchangeCommission, or if we issue more than $1.0 billion of non-convertible debt over a three-year-period. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accountingstandards applicable to public companies. We are choosing to “opt out” of this provision. Therefore, we will be subject to the same new or revisedaccounting standards as other public companies that are not emerging growth companies. Corporate Information Our principal executive offices are located at 2479 E. Bayshore Road, Suite 195, Palo Alto, CA 94303, and our telephone number is (408) 702-2167.Our subsidiaries maintain offices in Herndon Virginia, Larkspur California, Honolulu Hawaii, Bellevue Washington, Beaverton Oregon, Carlsbad California,Encino California, Maple Lawn Maryland and Coquitlam, British Columbia. Our Internet website is www.sysorex.com. The information on, or that can beaccessed through, our website is not part of this report, and you should not rely on any such information in making any investment decision relating to ourcommon stock. 13 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 1A: RISK FACTORS We are subject to various risks that may materially harm our business, prospects, financial condition and results of operations. An investment inour common stock is speculative and involves a high degree of risk. In evaluating an investment in shares of our common stock, you should carefullyconsider the risks described below, together with the other information included in this report. The risks described below are not the only risks we face. If any of the events described in the following risk factors actually occurs, or if additionalrisks and uncertainties later materialize, that are not presently known to us or that we currently deem immaterial, then our business, prospects, results ofoperations and financial condition could be materially adversely affected. In that event, the trading price of our common stock could decline, and investorsin our common stock may lose all or part of their investment in our shares. The risks discussed below include forward-looking statements, and our actualresults may differ substantially from those discussed in these forward-looking statements. Risks Related to Our Consolidated Operations We have recently completed several acquisitions since 2013, including Lilien, Shoom, AirPatrol and LightMiner, which may make it difficult for potentialinvestors to evaluate our future consolidated business. We completed the Lilien Acquisition on March 20, 2013, the Shoom Acquisition on September 6, 2013, the AirPatrol Acquisition on April 16, 2014(Effective January 1, 2016, Shoom and AirPatrol were merged into Lilien, which changed its name to Sysorex USA), and the LightMiner acquisition on April24, 2015. Our limited combined operating history makes it difficult for potential investors to evaluate our business or prospective operations or the merits ofan investment in our securities. We are subject to the risks inherent in the financing, expenditures, complications and delays characteristic of a newlycombined business. These risks are described below under the risk factor titled “Any future acquisitions that we may make could disrupt our business, causedilution to our stockholders and harm our business, financial condition or operating results.” In addition, while the former members of Lilien, and theshareholders of Shoom and AirPatrol have indemnified the Company from any undisclosed liabilities there may not be adequate resources to cover suchindemnity. Furthermore, there are risks that the vendors, suppliers and customers of these acquired entities may not renew their relationships for which there isno indemnification. Accordingly, our business and success faces risks from uncertainties inherent to developing companies in a competitive environment.There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability. Our ability to successfully execute our business plan may require additional debt or equity financing, which may otherwise not be available on reasonableterms or at all. As of December 31, 2015, we had $4.1 million of cash on hand. On March 15, 2013, we entered into a revolving credit line for up to$5,000,000 from Bridge Bank, N.A. n/k/a Western Alliance Bank, which was increased to $10,000,000 with a $2,000,000 term loan on May 4, 2015. As ofDecember 31, 2015, the Company owed $8.6 million under its revolving credit line which matures April 29, 2017 and $1.6 million under the term loan whichmatures April 29, 2018. According to our business plan we may need additional debt or equity financing. Future financings through equity offerings by uswill be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable to new investors thanour current investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities. We mayalso issue incentive awards under employee equity incentive plans, which may have additional dilutive effects. We may also be required to recognize non-cash expenses in connection with certain securities we may issue in the future such as convertible notes and warrants, which would adversely impact ourfinancial condition and results of operations. Our ability to obtain needed financing may be impaired by factors, including the condition of the economy andcapital markets, both generally and specifically in our industry, and the fact that we are not profitable, which could impact the availability or cost of futurefinancing. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy ourcapital needs, we may need to reduce our operations accordingly. 14 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Failure to manage or protect growth may be detrimental to our business because our infrastructure may not be adequate for expansion. The Lilien, Shoom, AirPatrol and LightMiner Acquisitions require a substantial expansion of the Company’s systems, workforce and facilities(Effective January 1, 2016, Shoom and AirPatrol were merged into Lilien, which changed its name to Sysorex USA). We may fail to adequately manage ouranticipated future growth. The substantial growth in our operations as a result of the Lilien, Shoom, AirPatrol and LightMiner Acquisitions is expected toplace a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational andadministrative systems, controls and other resources. For instance Lilien (n/k/a Sysorex USA)’s growth strategy includes broadening its service and productofferings, implementing an aggressive marketing plan and employing leading technologies. There can be no assurance that our systems, procedures andcontrols will be adequate to support our operations as they expand. We cannot assure you that our existing personnel, systems, procedures or controls will beadequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy.As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employeebase, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able toeffectively integrate them into our existing staff and systems. To the extent we acquire other businesses, we will also need to integrate and assimilate new operations, technologies and personnel. The integrationof new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving marketrequires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reportingsystems and procedures, and will need to continue to expand, train and manage our work force. There can be no assurance that the Company would be ableto accomplish such an expansion on a timely basis. If the Company is unable to affect any required expansion and is unable to perform its contracts on atimely and satisfactory basis, its reputation and eligibility to secure additional contracts in the future could be damaged. The failure to perform could alsoresult in contract terminations and significant liability. Any such result would adversely affect the Company’s business and financial condition. We will need to increase the size of our organization, and we may experience difficulties in managing growth, which could hurt our financial performance. In addition to employees hired from Lilien, Shoom, AirPatrol and LightMiner (who have all become employees of Sysorex USA since January 1,2016) and any other companies which we may acquire in the future, we anticipate that we will need to expand our employee infrastructure for managerial,operational, financial and other resources at the parent company level. Future growth will impose significant added responsibilities on members ofmanagement, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability tocommercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. In order to manage our future growth, we will need to continue to improve our management, operational and financial controls and our reportingsystems and procedures. All of these measures will require significant expenditures and will demand the attention of management. If we do not continue toenhance our management personnel and our operational and financial systems and controls in response to growth in our business, we could experienceoperating inefficiencies that could impair our competitive position and could increase our costs more than we had planned. If we are unable to managegrowth effectively, our business, financial condition and operating results could be adversely affected. The reorganization transactions we carried out in 2015 may cause us to be in a technical breach of certain third-party agreements. In 2015, we carried out a series of reorganization transactions to streamline the organizational structure within the Company and both its direct andindirect subsidiaries. Although these transactions occurred solely within the Company and its subsidiaries, there still may have been an obligation to eitherprovide notice and/or seek consent from certain third parties pursuant to the contracts we have with these parties. We have reviewed and addressed theserequirements; however, our failure to comply with any of these notice or consent requirements may have left us in a technical breach, thus possiblysubjecting us to potential liabilities or an early termination under the applicable contracts. As of the date of this filing there are no known breaches. 15 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our business depends on experienced and skilled personnel, and if we are unable to attract and integrate skilled personnel, it will be more difficult for usto manage our business and complete contracts. The success of our business depends on the skill of our personnel. Accordingly, it is critical that we maintain, and continue to build, a highlyexperienced management team and specialized workforce, including software programs and sales professionals. Competition for personnel, particularly thosewith expertise in government consulting and a security clearance, is high, and identifying candidates with the appropriate qualifications can be costly anddifficult. We may not be able to hire the necessary personnel to implement our business strategy given our anticipated hiring needs, or we may need toprovide higher compensation or more training to our personnel than we currently anticipate. In addition, our ability to recruit, hire and indirectly deployformer employees of the U.S. Government is subject to complex laws and regulations, which may serve as an impediment to our ability to attract such formeremployees. Our business is labor intensive and our success depends on our ability to attract, retain, train and motivate highly skilled employees, includingemployees who may become part of our organization in connection with our acquisitions. The increase in demand for consulting, technology integration andmanaged services has further increased the need for employees with specialized skills or significant experience in these areas. Our ability to expand ouroperations will be highly dependent on our ability to attract a sufficient number of highly skilled employees and to retain our employees and the employeesof companies that we have acquired. We may not be successful in attracting and retaining enough employees to achieve our desired expansion or staffingplans. Furthermore, the industry turnover rates for these types of employees are high and we may not be successful in retaining, training or motivating ouremployees. Any inability to attract, retain, train and motivate employees could impair our ability to adequately manage and complete existing projects andto accept new client engagements. Such inability may also force us to increase our hiring of independent contractors, which may increase our costs andreduce our profitability on client engagements. We must also devote substantial managerial and financial resources to monitoring and managing ourworkforce. Our future success will depend on our ability to manage the levels and related costs of our workforce. In the event we are unable to attract, hire and retain the requisite personnel and subcontractors, we may experience delays in completing contracts inaccordance with project schedules and budgets, which may have an adverse effect on our financial results, harm our reputation and cause us to curtail ourpursuit of new contracts. Further, any increase in demand for personnel may result in higher costs, causing us to exceed the budget on a contract, which inturn may have an adverse effect on our business, financial condition and operating results and harm our relationships with our customers. We have allocated a portion of the net proceeds of our initial public offering to expand our business, in part, through future acquisitions, but we may notbe able to identify or complete suitable acquisitions, which could harm our financial performance. Acquisitions are a significant part of our growth strategy. On April 9, 2014 we raised net proceeds of $16.6 million in our initial public offering fromthe sale of 3,166,666 shares. Out of the net proceeds of our initial public offering we utilized approximately $8.5 million for the AirPatrol Acquisition. Wecontinually review, evaluate and consider potential investments and acquisitions. In such evaluations, we are required to make difficult judgments regardingthe value of business opportunities and the risks and cost of potential liabilities. We plan to use acquisitions of companies or technologies to expand ourproject skill sets and capabilities, expand our geographic markets, add experienced management and increase our product and service offerings. Although wehave identified several acquisition considerations, we may be unable to implement our growth strategy if we cannot reach agreement with acquisition targetson acceptable terms or arrange required financing for acquisitions on acceptable terms. If we cannot make acquisitions to expand our business, our futurefinancial performance could be harmed. In addition, the time and effort involved in attempting to identify acquisition candidates and consummateacquisitions may divert members of our management from the operations of our company, which could also harm our business and results of operations. 16 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition oroperating results. If we are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including, but not limited to: ●the purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves or result in dilution to our existingstockholders; ●we may find that the acquired company or technologies do not improve our market position as planned; ●we may have difficulty integrating the operations and personnel of the acquired company, as the combined operations will place significantdemands on the Company’s management, technical, financial and other resources; ●key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of theacquisition; ●we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting; ●we may assume or be held liable for risks and liabilities (including environmental-related costs) as a result of our acquisitions, some of which wemay not be able to discover during our due diligence investigation or adequately adjust for in our acquisition arrangements; ●our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity ofmanaging geographically or culturally diverse enterprises; ●we may incur one-time write-offs or restructuring charges in connection with the acquisition; ●we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges toearnings; and ●we may not be able to realize the cost savings or other financial benefits we anticipated. We cannot assure you that we will successfully integrate the business of Sysorex USA (combining the businesses of Lilien, Shoom, AirPatrol andLightMiner) or profitably manage any future acquired business. In addition, we cannot assure you that, following any acquisition, our continued businesswill achieve sales levels, profitability, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings for us in anyfuture period. These factors could have a material adverse effect on our business, financial condition and operating results. Insurance and contractual protections may not always cover lost revenue, increased expenses or liquidated damages payments, which could adverselyaffect our financial results. Although we maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels andattempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance, warranties, performance guarantees or risk sharingarrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments that may be required in the future. 17 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If we are unable to comply with certain financial and operating restrictions in our credit facilities, we may be limited in our business activities and accessto credit or may default under our credit facilities Pursuant to our existing credit facility with Bridge Bank, N.A. n/k/a Western Alliance Bank, all of the Company’s and our subsidiaries’ assets, otherthan excluded and future projects, are secured with our senior lender. As of December 31, 2015 the Company owed approximately $8.6 million under itsrevolving line of credit and $1.6 million under a term loan. Provisions in our credit facilities and debt instruments impose restrictions or require priorapproval on our ability, and the ability of certain of our subsidiaries to, among other things: ●incur additional debt; ●pay cash dividends and make distributions; ●make certain investments and acquisitions; ●guarantee the indebtedness of others or our subsidiaries; ●redeem or repurchase capital stock; ●create liens or encumbrances; ●enter into transactions with affiliates; ●engage in new lines of business; ●sell, lease or transfer certain parts of our business or property; ●incur obligations for capital expenditures; ●issue additional capital stock of the Company or any subsidiary of the Company; ●acquire new companies and merge or consolidate. These agreements also contain other customary covenants, including covenants that require us to meet specified financial ratios and financial tests.We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event ofdefault and cause us to be unable to borrow under our credit facilities and debt instruments. In addition to preventing additional borrowings under theseagreements, an event of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under these agreements,which would require us to pay all amounts outstanding. If the maturity of our indebtedness is accelerated, we may not have sufficient funds available forrepayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all. Ourfailure to repay our bank indebtedness would result in the bank foreclosing on all or a portion of our assets and force us to curtail our operations. We may be subject to damages resulting from claims that the Company or our employees have wrongfully used or disclosed alleged trade secrets of theirformer employers. Upon completion of any acquisitions by the Company, we may be subject to claims that our acquired companies and their employees may haveinadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors. Litigation may be necessary todefend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction tomanagement. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A lossof key research personnel or their work product could hamper or prevent our ability to commercialize certain products, which could severely harm ourbusiness. 18 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The loss of our Chief Executive Officer or other key personnel may adversely affect our operations. The Company’s success depends to a significant extent upon the operation, experience, and continued services of certain of its officers, includingour CEO, as well as other key personnel. While our CEO and key personnel are employed under employment contracts, there is no assurance we will be ableto retain their services. The loss of our CEO or several of the other key personnel could have an adverse effect on the Company. If our CEO or other executiveofficers were to leave we would face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any successorobtains the necessary training and experience. Furthermore, we do not maintain “key person” life insurance on the lives of any executive officer and theirdeath or incapacity would have a material adverse effect on us. The competition for qualified personnel is intense, and the loss of services of certain keypersonnel could adversely affect our business. Internal system or service failures could disrupt our business and impair our ability to effectively provide our services and products to our customers,which could damage our reputation and adversely affect our revenues and profitability. Any system or service disruptions, on our hosted Cloud infrastructure or those caused by ongoing projects to improve our information technologysystems and the delivery of services, if not anticipated and appropriately mitigated, could have a material adverse effect on our business including, amongother things, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the amounts that have been billed and produceaccurate financial statements in a timely manner. We are also subject to systems failures, including network, software or hardware failures, whether caused byus, third-party service providers, cyber security threats, natural disasters, power shortages, terrorist attacks or other events, which could cause loss of data andinterruptions or delays in our business, cause us to incur remediation costs, subject us to claims and damage our reputation. In addition, the failure ordisruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Our propertyand business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure ordisruption and, as a result, our future results could be adversely affected. Customer systems failures could damage our reputation and adversely affect our revenues and profitability. Many of the systems and networks that we develop, install and maintain for our customers on premise or host on our infrastructure involve managingand protecting personal information and information relating to national security and other sensitive government functions. While we have programsdesigned to comply with relevant privacy and security laws and restrictions, if a system or network that we develop, install or maintain were to fail orexperience a security breach or service interruption, whether caused by us, third-party service providers, cyber security threats or other events, we mayexperience loss of revenue, remediation costs or face claims for damages or contract termination. Any such event could cause serious harm to our reputationand prevent us from having access to or being eligible for further work on such systems and networks. Our errors and omissions liability insurance may beinadequate to compensate us for all of the damages that we may incur and, as a result, our future results could be adversely affected. Our financial performance could be adversely affected by decreases in spending on technology products and services by our public sector customers. Our sales to our public sector customers are impacted by government spending policies, budget priorities and revenue levels. Although our sales tothe federal government are diversified across multiple agencies and departments, they collectively accounted for approximately 12% and 13% of 2015 and2014 net sales, respectively. An adverse change in government spending policies (including budget cuts at the federal level), budget priorities or revenuelevels could cause our public sector customers to reduce their purchases or to terminate or not renew their contracts with us, which could adversely affect ourbusiness, results of operations or cash flows. 19 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our business could be adversely affected by the loss of certain vendor partner relationships and the availability of their products. We purchase products for resale from vendor partners, which include OEMs, software publishers, and wholesale distributors. For the year endedDecember 31, 2015, approximately 78% of our revenue was from purchases from vendor partners as defined above. We are authorized by vendor partners tosell all or some of their products via direct marketing activities. Our authorization with each vendor partner is subject to specific terms and conditionsregarding such things as sales channel restrictions, product return privileges, price protection policies and purchase discounts. In the event we were to loseone of our significant vendor partners, our business could be adversely affected. We have entered, and expect to continue to enter, into joint venture, teaming and other arrangements, and these activities involve risks anduncertainties. A failure of any such relationship could have material adverse results on our business and results of operations. We have entered, and expect to continue to enter, into joint venture, teaming and other arrangements. These activities involve risks anduncertainties, including the risk of the joint venture or applicable entity failing to satisfy its obligations, which may result in certain liabilities to us forguarantees and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement, the risk of conflictsarising between us and our partners and the difficulty of managing and resolving such conflicts, and the difficulty of managing or otherwise monitoring suchbusiness arrangements. A failure of our business relationships could have material adverse results on our business and results of operations. Our business and operations expose us to numerous legal and regulatory requirements and any violation of these requirements could harm our business. We are subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection, employment and laborrelations, immigration, taxation, anticorruption, import/export controls, trade restrictions, internal and disclosure control obligations, securities regulationand anti-competition. Compliance with diverse and changing legal requirements is costly, time-consuming and requires significant resources. We are alsofocused on expanding our business in certain identified growth areas, such as health information technology, energy and environment, which are highlyregulated and may expose us to increased compliance risk. Violations of one or more of these diverse legal requirements in the conduct of our business couldresult in significant fines and other damages, criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation.Violations of these regulations or contractual obligations related to regulatory compliance in connection with the performance of customer contracts couldalso result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictionson our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations. If we do not adequately protect our intellectual property rights, we may experience a loss of revenue and our operations may be materially harmed. We have not registered copyrights on any of the software we have developed. We rely upon confidentiality agreements signed by our employees,consultants and third parties to protect our intellectual property. We cannot assure you that we can adequately protect our intellectual property orsuccessfully prosecute actual or potential infringement of our intellectual property rights. Also, we cannot assure you that others will not assert rights in, orownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. Ourfailure to protect our intellectual property rights may result in a loss of revenue and could materially adversely affect our operations and financial condition. 20 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our performance and ability to compete are dependent to a significant degree on our proprietary technology. Our proprietary software is protectedby common law copyright laws, as opposed to registration under copyright statutes. Common law protection may be narrower than that which we couldobtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. As part ofour confidentiality-protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, oursoftware, documentation and other proprietary information. There can be no assurance that the steps we have taken will prevent misappropriation of ourtechnology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford us little or no protection of ourintellectual property. We also rely on a variety of technology that we license from third parties. There can be no assurance that these third party technologylicenses will continue to be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain or obtain upgrades to any of thesetechnology licenses could result in delays in completing software enhancements and new development until equivalent technology could be identified,licensed or developed and integrated. Any such delays would materially and adversely affect our business. The growth of our business is dependent on increasing sales to our existing clients and obtaining new clients, which, if unsuccessful, could limit ourfinancial performance. Our ability to increase revenues from existing clients by identifying additional opportunities to sell more of our products and services and ourability to obtain new clients depends on a number of factors, including our ability to offer high quality products and services at competitive prices, thestrength of our competitors and the capabilities of our sales and marketing departments. If we are not able to continue to increase sales of our products andservices to existing clients or to obtain new clients in the future, we may not be able to increase our revenues and could suffer a decrease in revenues as well. Our business depends on the continued growth of the market for IT products and services, which is uncertain. Our IT products and services solutions are designed to address the growing markets for off-premises services (including migrations, consolidations,Cloud computing and disaster recovery), technology integration services (including storage and data protection services and the implementation ofvirtualization solutions) and managed services (including operational support and client support). These markets are still evolving. Competing technologiesand services or reductions in corporate spending may reduce the demand for our products and services. Decreases, or slow growth, in the newspaper publishing industry may negatively impact our results from operation as it relates to our Cloud basedapplications and analytics for media and publishing. The newspaper industry as a whole is experiencing challenges to maintain and grow print circulation and revenues. This results from, among otherfactors, increased competition from other media, particularly the growth of electronic media, and shifting preferences among some consumers to receive all ora portion of their news other than from a newspaper. The customer base for our Cloud based applications and analytics for media and publishing is focused onthe newspaper publishing industry and therefore sales from this operating sector will be subject to the future of the newspaper industry. Our competitiveness depends significantly on our ability to keep pace with the rapid changes in IT. Failure by us to anticipate and meet our clients’technological needs could adversely affect our competitiveness and growth prospects. We operate and compete in an industry characterized by rapid technological innovation, changing client needs, evolving industry standards andfrequent introductions of new products, product enhancements, services and distribution methods. Our success depends on our ability to develop expertisewith these new products, product enhancements, services and distribution methods and to implement IT solutions that anticipate and respond to rapidchanges in technology, the IT industry, and client needs. The introduction of new products, product enhancements and distribution methods could decreasedemand for current products or render them obsolete. Sales of products and services can be dependent on demand for specific product categories, and anychange in demand for or supply of such products could have a material adverse effect on our net sales if we fail to adapt to such changes in a timely manner. 21 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We operate in a highly competitive market and we may be required to reduce the prices for some of our products and services to remain competitive, whichcould adversely affect our results of operations. Our industry is developing rapidly and related technology trends are constantly evolving. In this environment, we face significant price competitionfrom our competitors. We may be unable to offset the effect of declining average sales prices through increased sales volumes and/or reductions in our costs.Furthermore, we may be forced to reduce the prices of the products and services we sell in response to offerings made by our competitors. Finally, we may notbe able to maintain the level of bargaining power that we have enjoyed in the past when negotiating the prices of our services. We face substantial competition from other national, multi-regional, regional and local value-added resellers and IT service providers, some ofwhich may have greater financial and other resources than we do or that may have more fully developed business relationships with clients or prospectiveclients than we do. Many of our competitors compete principally on the basis of price and may have lower costs or accept lower selling prices than we do and,therefore, we may need to reduce our prices. In addition, manufacturers may choose to market their products directly to end-users, rather than through ITsolutions providers such as us, and this could adversely affect our business, financial condition and results of operations. Our profitability is dependent on the rates we are able to charge for our products and services. The rates we are able to charge for our products andservices are affected by a number of factors, including: ●our clients’ perceptions of our ability to add value through our services; ●introduction of new services or products by us or our competitors; ●our competitors’ pricing policies; ●our ability to charge higher prices where market demand or the value of our services justifies it; ●procurement practices of our clients; and ●general economic and political conditions. If we are not able to maintain favorable pricing for our products and services, our results of operations could be adversely affected. Sales of our IT products and services are subject to quarterly and seasonal variations that may cause significant fluctuations in our operating results,therefore period-to-period comparisons of our operating results may not be reliable predictors of future performance. The timing of our revenues can be difficult to predict. Our sales efforts involve educating our clients about the use and benefit of the products wesell and our services and solutions, including their technical capabilities and potential cost savings to an organization. Clients typically undertake asignificant evaluation process that has in the past resulted in a lengthy sales cycle, which typically lasts several months, and may last a year or longer. Wespend substantial time, effort and money on our sales efforts without any assurance that our efforts will produce any sales during a given period. In addition, many of our clients spend a substantial portion of their IT budgets in the second half of the year. Other factors that may cause ourquarterly operating results to fluctuate include changes in general economic conditions and the impact of unforeseen events. We believe that our revenueswill continue to be affected in the future by cyclical trends. As a result, you may not be able to rely on period-to-period comparisons of our operating resultsas an indication of our future performance. 22 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A delay in the completion of our clients’ budget processes could delay purchases of our products and services and have an adverse effect on our business,operating results and financial condition. We rely on our clients to purchase products and services from us to maintain and increase our earnings, and client purchases are frequently subject tobudget constraints, multiple approvals and unplanned administrative, processing and other delays. If sales expected from a specific client are not realizedwhen anticipated or at all, our results could fall short of public expectations and our business, operating results and financial condition could be materiallyadversely affected. The profit margins from our IT products and services depend, in part, on the volume of products and services sold. A failure to achieve increases in ourprofit margins in the future could have a material adverse effect on our financial condition and results of operations. Given the significant levels of competition that characterize the IT reseller market, it is unlikely that we will be able to increase gross profit marginsthrough increases in sales of IT products alone. Any increase in gross profit margins from this operating sector in the future will depend, in part, on the growthof our higher margin businesses such as IT consulting and professional services. In addition, low margins increase the sensitivity of our results of operationsto increases in costs of financing. Any failure by us to maintain or increase our gross profit margins could have a material adverse effect on our financialcondition and results of operations. Any failures or interruptions in our services or systems could damage our reputation and substantially harm our business and results of operations. Our success depends in part on our ability to provide reliable remote services, technology integration and managed services to our clients. Theoperations of our IT products and services as well as our Cloud based applications and analytics are susceptible to damage or interruption from human error,fire, flood, power loss, telecommunications failure, terrorist attacks and similar events. We could also experience failures or interruptions of our systems andservices, or other problems in connection with our operations, as a result of: ●damage to or failure of our computer software or hardware or our connections; ●errors in the processing of data by our systems; ●computer viruses or software defects; ●physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events; ●increased capacity demands or changes in systems requirements of our clients; and ●errors by our employees or third-party service providers. Any interruptions in our systems or services could damage our reputation and substantially harm our business and results of operations. While wemaintain disaster recovery plans and insurance with coverage we believe to be adequate, claims may exceed insurance coverage limits, may not be coveredby insurance or insurance may not continue to be available on commercially reasonable terms. Some of our services and solutions involve storing and replicating mission-critical data for our clients and are highly technical in nature. If client data islost or corrupted, our reputation and business could be harmed. Our IT data center and technology integration services and software-as-a-service solutions include storing and replicating mission-critical data forour clients. The process of storing and replicating that data within their data centers or at our facilities is highly technical and complex. If any data is lost orcorrupted in connection with the use of our products and services, our reputation could be seriously harmed and market acceptance of our IT solutions couldsuffer. In addition, our solutions have contained, and may in the future contain, undetected errors, defects or security vulnerabilities. Some errors in oursolutions may only be discovered after a solution has been in use by clients. Any errors, defects or security vulnerabilities discovered in our solutions afteruse by clients could result in loss of revenues, loss of clients, increased service and warranty cost and diversion of attention of our management and technicalpersonnel, any of which could significantly harm our business. In addition, we could face claims for product liability, tort or breach of warranty. Defending alawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our service offeringsand solutions. 23 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We do not have long-term recurring revenue generating contracts with our clients that utilize our IT products and services, and such clients may ceaseproviding new purchase orders at any time or reduce the amount of purchases they make that would depress the revenues we receive from our IT productsand services and harm our results of operations. Our operations depend upon our relationships with our clients. Revenues from out IT products and services are typically driven by purchase ordersreceived every month. The majority of revenues from our IT products and services come from one time purchase orders that do not guarantee any futurerecurring revenues. Approximately twenty five percent of such revenues are recurring and based on contracts that range from 1-5 years for warranty andmaintenance support. For these contracts the customer is invoiced one time and pays up front for the full term of the warranty and maintenance contract.Revenue from these contracts is determinable ratably over the contract period with the unearned revenue recorded as deferred revenue and amortized over thecontract period. Clients with these type of contacts may cease providing new purchase orders at any time, may elect not to renew such contracts, cancel andrequest a refund of maintenance/warranty services that have not yet been provided (upon 30 days advance written notice) or reschedule purchases. If clientscease providing us with new purchase orders, diminish the services purchased from us, cancel executed purchase orders or delay future purchase orders,revenues received from the sale of our IT products and services would be negatively impacted, which could have a material adverse effect on our business andresults of operations. There is no guarantee that we will be able to retain or generate future revenue from our existing clients or develop relationships withnew clients. There is a risk that we could lose a large client without being able to find a ready replacement. The loss of any large client, the failure of any large client to pay its accounts receivable on a timely basis or a material reduction in the amount ofpurchases made by any large client could have a material adverse effect on our business, financial position, results of operations and cash flows. Consolidation in the industries that we serve or from which we purchase could adversely affect our business. Some of the clients we serve may seek to achieve economies of scale by combining with or acquiring other companies. If two or more of our currentclients combine their operations, it may decrease the amount of work that we perform for these clients. If one of our current clients merges or consolidateswith a company that relies on another provider for its consulting, systems integration and technology, or outsourcing services, we may lose work from thatclient or lose the opportunity to gain additional work. If two or more of our suppliers merge or consolidate operations, the increased market power of thelarger company could also increase our product costs and place competitive pressures on us. Any of these possible results of industry consolidation couldadversely affect our business. The loss of any key manufacturer or distributor relationships, or related industry certifications, could have an adverse effect on our business. As part of our end-to-end IT solutions, we are authorized resellers of the products and services of leading IT manufacturers and distributors. In manycases, we have achieved the highest level of relationship the manufacturer or distributor offers. In addition, our employees hold certifications issued by thesemanufacturers and by industry associations relating to the configuration, installation and servicing of these products. We differentiate ourselves from ourcompetitors by the range of manufacturers and distributors we represent, the relationship level we have achieved with these manufacturers and distributorsand the scope of the manufacturer and industry certifications our employees hold. There can be no assurance that we will be able to retain these relationshipswith our manufacturers and distributors, that we will be able to retain the employees holding these manufacturer and industry certifications, or that ouremployees will maintain their manufacturer or industry certifications. The loss of any of these relationships or certifications could have a material adverseeffect on our business. 24 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may experience a reduction in the incentive programs offered to us by our vendors. Any such reduction could have a material adverse effect on ourbusiness, results of operations and financial condition. We receive payments and credits from vendors, including consideration pursuant to volume sales incentive programs and marketing developmentfunding programs. These programs are usually of finite terms and may not be renewed or may be changed in a way that has an adverse effect on us. Vendorfunding is used to offset, among other things, inventory costs, cost of goods sold, marketing costs and other operating expenses. Certain of these funds arebased on our volume of net sales or purchases, growth rate of net sales or purchases and marketing programs. If we do not grow our net sales or if we are not incompliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by vendors. Noassurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in atimely manner, or at all. Any sizeable reduction in, the discontinuance of, or a significant delay in receiving or the inability to collect such incentives,particularly related to incentive programs with one of our largest partners, Hewlett-Packard Company, could have a material adverse effect on our business,results of operations and financial condition. If we are unable to react timely to any fundamental changes in the programs of vendors, including theelimination of funding for some of the activities for which we have been compensated in the past, such changes would have a material adverse effect on ourbusiness, results of operations and financial condition. We may need additional cash financing and any failure to obtain cash financing, could limit our ability to grow our business and develop or enhance ourservice offerings to respond to market demand or competitive challenges. Our management believes that current consolidated cash and cash flow from operations should be sufficient to meet our anticipated consolidatedcash needs for at least the next 12 months from the date of filing this report assuming we meet our revenue and gross profit estimates. We may, however,require additional cash resources due to changed business conditions, revenue delays in any of our businesses or other future developments, including anynew lines of business we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may need to seek additional financing tosupport our operating. If we are unable to raise the required cash, our ability to grow our business and develop or enhance our service offerings to respond tomarket demand or competitive challenges could be limited. We rely on inventory financing and vendor credit arrangements for our daily working capital and certain operational functions, the loss of which couldhave a material adverse effect on our future results. We rely on inventory financing and vendor financing arrangements for daily working capital and to fund equipment purchases for our technologysales business. The loss of any of our inventory financing or vendor credit financing arrangements, a reduction in the amount of credit granted to us by ourvendors, or a change in any of the material terms of these arrangements could increase our need for and the cost of working capital and have a materialadverse effect on our future results. These credit arrangements are discretionary on the part of our creditors and require the performance of certain operationalcovenants. There can be no assurance that we will continue to meet those covenants and failure to do so may limit availability of, or cause us to lose, suchfinancing. There can be no assurance that such financing will continue to be available to us in the future on acceptable terms. If we cannot collect our receivables or if payment is delayed, our business may be adversely affected by our inability to generate cash flow, provideworking capital or continue our business operations. Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for products received from us andany work performed by us. The timely collection of our receivables allows us to generate cash flow, provide working capital and continue our businessoperations. Our clients may fail to pay or delay the payment of invoices for a number of reasons, including financial difficulties resulting frommacroeconomic conditions, or lack of an approved budget. An extended delay or default in payment relating to a significant account will have a materialand adverse effect on the aging schedule and turnover days of our accounts receivable. If we are unable to timely collect our receivables from our clients forany reason, our business and financial condition could be adversely affected. 25 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If our location based security and detection and context aware marketing products fail to satisfy customer demands or to achieve increased marketacceptance our results of operations, financial condition and growth prospects could be materially adversely affected. The market acceptance of our products, particularly our location based security and detection and context aware marketing products are critical toour continued success. Demand for these products is affected by a number of factors beyond our control, including continued market acceptance, the timingof development and release of new products by competitors, technological change, and growth or decline in the mobile device management market. Weexpect the proliferation of mobile devices to lead to an increase in the data security demands of our customers, and our products may not be able to scale andperform to meet those demands. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of these products,our business operations, financial results and growth prospects will be materially and adversely affected. Our inventory management systems and related supply chain tools may not be able to forecast accurately and effectively manage supply of ourproducts. If we ultimately determine that we have excess supply, we may have to reduce our prices and write-down inventory, which in turn could result inlower gross margins. If actual component usage and product demand are lower than the forecast, losses on manufacturing commitments in excess of forecasteddemand may be accrued. Any production interruptions for any reason, such as a natural disaster, epidemic, capacity shortages, or quality problems, at one of ourmanufacturing partners would negatively affect sales of product lines manufactured by that manufacturing partner and adversely affect our business andoperating results. Defects, errors, or vulnerabilities in our location based security and detection products or services or the failure of such products or services to prevent asecurity breach, could harm our reputation and adversely impact our results of operations. Because our location based security products and services are complex, they have contained and may contain design or manufacturing defects orerrors that are not detected until after their commercial release and deployment by customers. Defects may cause such products to be vulnerable to advancedpersistent threats (APTs) or security attacks, cause them to fail to help secure information or temporarily interrupt customers’ networking traffic. Because thetechniques used by hackers to access sensitive information change frequently and generally are not recognized until launched against a target, we may beunable to anticipate these techniques and provide a solution in time to protect customers’ data. In addition, defects or errors in our subscription updates orproducts could result in a failure to effectively update customers’ hardware products and thereby leave customers vulnerable to APTs or security attacks. Any defects, errors or vulnerabilities in our products could result in: ●Expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defectsor to address and eliminate vulnerabilities; ●Delayed or lost revenue; ●Loss of existing or potential customers or partners; ●Increased warranty claims compared with historical experience, or increased cost of servicing warranty claims, either of which would adverselyaffect gross margins; and ●Litigation, regulatory inquiries, or investigations that may be costly and harm our reputation 26 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Cloud strategy, including our Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Data as a Service(DaaS) offerings, may adversely affect our revenues and profitability. We offer customers a full range of consumption models including the deployment of our products via our cloud based SaaS, PaaS, IaaS and DaaSofferings. These business models continue to evolve, and we may not be able to compete effectively, generate significant revenues or maintain theprofitability of our cloud offerings. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors mayunfavorably impact the pricing of our on-premises enterprise software offerings and our cloud offerings, and has a dampening impact on overall demand forour on-premises software product and service offerings, which could reduce our revenues and profitability, at least in the near-term. If we do not successfullyexecute our cloud computing strategy or anticipate the cloud computing needs of our customers, our reputation as a cloud services provider could be harmedand our revenues and profitability could decline. Our cloud offerings are generally purchased by customers on a subscription basis and revenues from these offerings are generally recognized ratablyover the term of the subscriptions. The deferred revenue that results from sales of our cloud offerings may prevent any deterioration in sales activityassociated with our cloud offerings from becoming immediately observable in our consolidated statement of operations. This is in contrast to revenuesassociated with our new software licenses arrangements whereby new software licenses revenues are generally recognized in full at the time of delivery of therelated software licenses. We incur certain expenses associated with the infrastructures and marketing of our cloud offerings in advance of our ability torecognize the revenues associated with these offerings. As customer demand for our cloud offerings increases, we experience volatility in our reportedrevenues and operating results due to the differences in timing of revenue recognition between our new software licenses arrangements and cloud offeringarrangements. Our current research and development efforts may not produce successful products or features that result in significant revenue, cost savings or otherbenefits in the near future. If we do not realize significant revenue from our research and development efforts, our business and operating results could beadversely affected. Developing products and related enhancements in our field is expensive. Investments in research and development may not result in significantdesign improvements, marketable products or features or may result in products that are more expensive than anticipated. We may not achieve the costsavings or the anticipated performance improvements expected, and we may take longer to generate revenue from products in development, or generate lessrevenue than expected. Our future plans include significant investments in research and development and related product opportunities. Our management believes that wemust continue to dedicate a significant amount of resources to research and development efforts to maintain a competitive position. However, we may notreceive significant revenue from these investments in the near future, or these investments may not yield the expected benefits, either of which couldadversely affect our business and operating results. Misuse of our products could harm our reputation. Our products, particularly our location based security and detection and context aware marketing may be misused by customers or third parties thatobtain access to such products. For example, these products could be used to protect information kept by criminals from government agencies. Such use ofthese products for censorship could result in negative press coverage and negatively affect our reputation. If the general level of advanced attacks declines, or is perceived by current or potential customers to have declined, this could harm our location basedsecurity and detection operating segment, and our financial condition, operating results and growth prospects. Our location based security and detection operating segment is substantially dependent upon enterprises and governments recognizing that APTsand other security attacks are pervasive and are not effectively prevented by legacy security solutions. High visibility attacks on prominent enterprises andgovernments have increased market awareness of the problem of APTs and security attacks and help to provide an impetus for enterprises and governments todevote resources to protecting against attacks, such as testing our platform, purchasing it, and broadly deploying it within their organizations. If APTs andother security attacks were to decline, or enterprises or governments perceived that the general level of attacks has declined, our ability to attract newcustomers and expand its offerings for existing customers could be materially and adversely affected, which would, in turn, have a material adverse effect onour financial condition, results of operations and growth prospects. 27 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If our location based security and detection products do not effectively interoperate with our customers’ IT infrastructure, installations could be delayed orcancelled, which would harm our financial condition, operating results and growth prospects. Our products must effectively interoperate with our customers’ existing or future IT infrastructure, which often has different specifications, utilizesmultiple protocol standards, deploys products from multiple vendors, and contains multiple generations of products that have been added over time. As aresult, when problems occur in a company’s infrastructure, it may be difficult to identify the sources of these problems. If we find errors in the existingsoftware or defects in the hardware used in our customers’ infrastructure, we may have to modify its software or hardware so that our products will interoperatewith the infrastructure of our customers. In such cases, our products may be unable to provide significant performance improvements for applicationsdeployed in the infrastructure of our customers. These issues could cause longer installation times for our products and could cause order cancellations, eitherof which would adversely affect our business, results of operations and financial condition. In addition, other customers may require products to comply withcertain security or other certifications and standards. If our products are late in achieving or fail to achieve compliance with these certifications andstandards, or competitors sooner achieve compliance with these certifications and standards, we may be disqualified from selling our products to suchcustomers, or may otherwise be at a competitive disadvantage, either of which would harm our business, results of operations, and financial condition. Failure to protect our intellectual property rights could adversely affect our financial condition, operating results and growth prospects. The success of our business depends, in part, on our ability to protect proprietary methods and technologies that we develop under patent and otherintellectual property laws of the United States so that we can prevent others from using our inventions and proprietary information. If Sysorex or oursubsidiaries fail to protect intellectual property rights adequately, competitors might gain access to our technology, and our business might be adverselyaffected. However, defending our intellectual property rights might entail significant expenses. Any patents issued in the future may not provide us with anycompetitive advantages, and our patent applications may never be granted. The process of obtaining patent protection is expensive and time-consuming, andwe may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be noassurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope ofprotection of patent and other intellectual property rights are complex and often uncertain. Our inability to protect our property rights could adversely affectour financial condition, operating results and growth prospects. We may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future into our ongoingbusiness operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations,which could have a material adverse effect on our business, financial position and/or results of operations. We are in the process of integrating the operations of Lilien, AirPatrol, Shoom and LightMiner into Sysorex USA, and this process involves complexoperational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing businessoperations. Furthermore, integration involves a number of risks, including, but not limited to: ●difficulties or complications in combining the companies' operations; ●differences in controls, procedures and policies, regulatory standards and business cultures among the combined companies; ●the diversion of management's attention from our ongoing core business operations; 28 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ●increased exposure to certain governmental regulations and compliance requirements; ●the potential loss of key personnel; ●the potential loss of key customers or suppliers who choose not to do business with the combined business; ●difficulties or delays in consolidating the acquired companies’ technology platforms, including implementing systems designed to continue toensure that the Company maintains effective disclosure controls and procedures and internal control over financial reporting for the combinedcompany and enable the Company to continue to comply with U.S. GAAP and applicable U.S. securities laws and regulations; ●unanticipated costs and other assumed contingent liabilities; ●difficulty comparing financial reports due to differing financial and/or internal reporting systems; ●making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules andregulations promulgated thereunder; and/or ●possible tax costs or inefficiencies associated with integrating the operations of the combined company. These factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the previous acquisitions and the recentreorganization, which could have a material adverse effect on our business, financial condition and/or results of operations. Even if we are able to successfully operate the businesses of Lilien, Shoom, AirPatrol and LightMiner within Sysorex, we may not be able to realizethe revenue and other synergies and growth that we anticipate from the previous acquisitions and the recent reorganization in the time frame that we currentlyexpect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to: ●the possibility that the acquisition may not further our business strategy as we expected; ●the possibility that we may not be able to expand the reach and customer base for the acquired companies current and future products asexpected; ●the possibility that the carrying amounts of goodwill and other purchased intangible assets may not be recoverable; and As a result of these risks, the acquisitions and integration may not contribute to our earnings as expected, we may not achieve expected revenuesynergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits ofthe acquisitions and the reorganization. 29 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A significant portion of the purchase price for our acquisition of Lilien, Shoom, AirPatrol and LightMiner is allocated to goodwill and intangible assetsthat are subject to periodic impairment evaluations. An impairment loss could have a material adverse impact on our financial condition and results ofoperations. The Company acquired $4.5 million of goodwill and $5.4 million of intangibles assets relating to our acquisition of Lilien, $1.2 million of goodwilland $2.8 million of intangibles assets relating to our acquisition of Shoom, $7.4 million of goodwill and $13.3 million of intangibles assets relating to ouracquisition of AirPatrol and $3.5 million of intangible assets relating to our acquisition of LightMiner. As required by current accounting standards, wereview intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. Therisk of impairment to goodwill is higher during the early years following an acquisition. This is because the fair values of these assets align very closely withwhat we paid to acquire the reporting units to which these assets are assigned. As a result, the difference between the carrying value of the reporting unit andits fair value (typically referred to as “headroom”) is smaller at the time of acquisition. Until this headroom grows over time, due to business growth or lowercarrying value of the reporting unit, a relatively small decrease in reporting unit fair value can trigger impairment charges. When impairment charges aretriggered, they tend to be material due to the size of the assets involved. Our business would be adversely affected, and impairment of goodwill could betriggered, if any of the following were to occur: higher attrition rates than planned as a result of the competitive environment or our inability to provideproducts and services that are competitive in the marketplace, lower-than-planned adoption rates by customers, higher-than-expected expense levels toprovide services to clients, and changes in our business model that may impact one or more of these variables. Our acquisitions may expose us to additional liabilities, and insurance and indemnification coverage may not fully protect us from these liabilities. Upon completion of acquisitions, we may be exposed to unknown or contingent liabilities associated with the acquired entity, and if these liabilitiesexceed our estimates, our results of operations and financial condition may be materially and negatively affected. The risks arising with respect to the historic business and operations of Lilien, Shoom, AirPatrol and LightMiner may be different from what we anticipate,which could significantly increase the costs and decrease the benefits of the acquisition and materially and adversely affect our operations going forward. Although we performed significant financial, legal, technological and business due diligence with respect to Lilien, Shoom, AirPatrol andLightMiner (which have been combined into Sysorex USA), we may not have appreciated, understood or fully anticipated the extent of the risks associatedwith the acquisitions. As mentioned above, we have secured indemnification for certain matters from the former equity holders of Lilien, Shoom andAirPatrol in order to mitigate the consequences of breaches of representations, warranties and covenants under the merger agreements and the risks associatedwith historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures,tax matters and undisclosed liabilities, and certain matters known to us. We believe that the indemnification provisions of the merger agreements, togetherwith the holdback escrow (in the case of AirPatrol, Shoom and LightMiner) and insurance policies that we and Lilien, Shoom and AirPatrol (which all mergedinto Sysorex USA) have in place will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels.Notwithstanding our exercise of due diligence and risk mitigation strategies, the risks of the acquisition and the costs associated with these risks may begreater than we anticipate. We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially andadversely affect our business, liquidity, capital resources or results of operations. We depend on the U.S. Government for a substantial portion of our business and government budget impasses together with changes in government defensespending could have adverse consequences on our financial position, results of operations and business. A substantial portion of our U.S. revenues from our operations have been from and will continue to be from sales and services rendered directly orindirectly to the U.S. Government. Consequently, our revenues are highly dependent on the Government’s demand for computer systems and related services.Our revenues from the U.S. Government largely result from contracts awarded to us under various U.S. Government programs, primarily defense-relatedprograms with the Department of Defense (DoD), as well as a broad range of programs with the Department of Homeland Security, the IntelligenceCommunity and other departments and agencies. Cost cutting including through consolidation and elimination of duplicative organizations and insurancehas become a major initiative for DoD. The funding of our programs is subject to the overall U.S. Government budget and appropriation decisions andprocesses which are driven by numerous factors, including geo-political events and macroeconomic conditions. It is expected that U.S. Governmentspending on IT will decrease from 6% CAGR during the first decade of the 21st Century to 3%. (Source: Market Research Media - U.S. Federal IT MarketForecast 2013-2018). The overall level of U.S. defense spending increased in recent years for numerous reasons, including increases in funding of operationsin Iraq and Afghanistan. However, with the winding down of both wars, defense spending levels are becoming increasingly difficult to predict and areexpected to be affected by numerous factors. Such factors include priorities of the Administration and the Congress, and the overall health of the U.S. andworld economies and the state of governmental finances. 30 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Budget Control Act of 2011 enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings for the U.S.Government, a substantial portion of which comes from DoD baseline spending reductions. In addition, the Budget Control Act of 2011 provides foradditional automatic spending cuts (referred to as “sequestration”) totaling $1.2 trillion over nine years which were implemented beginning in the U.S.Government fiscal year ending September 30, 2013 (GFY13). These reduction targets will further reduce DoD and other federal agency budgets. Although theOffice of Management and Budget has provided guidance to agencies on implementing sequestration cuts, there remains much uncertainty about howexactly sequestration cuts will be implemented and the impact those cuts will have on contractors supporting the government. We are not able to predict theimpact of future budget cuts, including sequestration, on our Company or our financial results. However, we expect that budgetary constraints and concernsrelated to the national debt will continue to place downward pressure on DoD spending levels and that implementation of the automatic spending cutswithout change will reduce, delay or cancel funding for certain of our contracts - particularly those with unobligated balances - and programs and couldadversely impact our operations, financial results and growth prospects. A significant reduction in defense spending could have long-term consequences for our size and structure. In addition, reduction in governmentpriorities and requirements could impact the funding, or the timing of funding, of our programs, which could negatively impact our results of operations andfinancial condition. In addition, we are involved in U.S. Government programs, which are classified by the U.S. Government and our ability to discuss theseprograms, including any risks and disputes and claims associated with and our performance under such programs, could be limited due to applicable securityrestrictions. The U.S. Government Systems integration business is intensely competitive and we may not be able to win government bids when competing against muchlarger companies, which could reduce our revenues. Large computer systems integration contracts awarded by the U.S. Government are few in number and are awarded through a formal competitivebidding process, including IDIQ, GSA Schedule and other multi-award contracts. Bids are awarded on the basis of price, compliance with technical biddingspecifications, technical expertise and, in some cases, demonstrated management ability to perform the contract. There can be no assurance that the Companywill win and/or fulfill additional contracts. Moreover, the award of these contracts is subject to protest procedures and there can be no assurance that theCompany will prevail in any ensuing legal protest. The Company’s failure to secure a significant dollar volume of U.S. Government contracts in the futurewould adversely affect our Sysorex Government Services subsidiary. The U.S. Government Systems integration business is intensely competitive and subject to rapid change. The Company competes with a largenumber of systems integrators, hardware and software manufacturers, and other large and diverse companies attempting to enter or expand their presence inthe U.S. Government market. Many of the existing and potential competitors have greater financial, operating and technological resources than theCompany. The competitive environment may require us to make changes in our pricing, services or marketing. The competitive bidding process involvessubstantial costs and a number of risks, including significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded tous, or that may be awarded, but for which we do not receive meaningful revenues. Accordingly, our success depends on our ability to develop services andproducts that address changing needs and to provide people and technology needed to deliver these services and products. To remain competitive, we mustconsistently provide superior service, technology and performance on a cost-effective basis to our customers. Our response to competition could cause us toexpend significant financial and other resources, disrupt our operations, strain relationships with partners, any of which could harm our business and/orfinancial condition. 31 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sysorex Government’s financial performance is dependent on our ability to perform on our U.S. Government contracts, which are subject to termination forconvenience, which could harm our results of operations and financial condition. Sysorex Government’s financial performance is dependent on our performance under our U.S. Government contracts. The Company’s strategy is topursue a limited number of relatively large contracts. As a result, prior to the Lilien Acquisition, the Company derived a significant portion of its revenuesfrom a small number of contracts. Government customers have the right to cancel any contract at their convenience. An unanticipated termination of, orreduced purchases under, one of the Company’s major contracts whether due to lack of funding, for convenience or otherwise, or the occurrence of delays,cost overruns and product failures could adversely impact our results of operations and financial condition. If one of our contracts were terminated forconvenience, we would generally be entitled to payments for our allowable costs and would receive some allowance for profit on the work performed. If oneof our contracts were terminated for default, we would generally be entitled to payments for our work that has been accepted by the government. Atermination arising out of our default could expose us to liability and have a negative impact on our ability to obtain future contracts and orders.Furthermore, on contracts for which we are a subcontractor and not the prime contractor, the U.S. Government could terminate the prime contract forconvenience or otherwise, irrespective of our performance as a subcontractor. The termination or cancellation of U.S. Government contracts, no matter whatthe reason, could harm our results of operations and financial condition. Our failure to comply with a variety of complex procurement rules and regulations could result in our being liable for penalties, including termination ofour U.S. Government contracts, disqualification from bidding on future U.S. Government contracts and suspension or debarment from U.S. Governmentcontracting that could adversely affect our financial condition. We must comply with laws and regulations relating to the formation, administration and performance of U.S. Government contracts, which affecthow we do business with our customers and may impose added costs on our business. U.S. Government contracts generally are subject to the FederalAcquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. Government,department-specific regulations that implement or supplement DFAR, such as the DoD’s Defense Federal Acquisition Regulation Supplement (DFARS) andother applicable laws and regulations. We are also subject to the Truth in Negotiations Act, which requires certification and disclosure of cost and pricingdata in connection with certain contract negotiations; the Procurement Integrity Act, which regulates access to competitor bid and proposal information andgovernment source selection information, and our ability to provide compensation to certain former government officials; the Civil False Claims Act, whichprovides for substantial civil penalties for violations, including for submission of a false or fraudulent claim to the U.S. Government for payment or approval;and the U.S. Government Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-basedU.S. Government contracts. These regulations impose a broad range of requirements, many of which are unique to government contracting, including variousprocurement, import and export, security, contract pricing and cost, contract termination and adjustment, and audit requirements. A contractor’s failure tocomply with these regulations and requirements could result in reductions to the value of contracts, contract modifications or termination, and the assessmentof penalties and fines and lead to suspension or debarment, for cause, from government contracting or subcontracting for a period of time. In addition,government contractors are also subject to routine audits and investigations by U.S. Government agencies such as the Defense Contract Audit Agency(DCAA) and Defense Contract Management Agency (DCMA). These agencies review a contractor’s performance under its contracts, cost structure andcompliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of and a contractor’s compliance with its internal controlsystems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. During the term ofany suspension or debarment by any U.S. Government agency, contractors can be prohibited from competing for or being awarded contracts by U.S.Government agencies. The termination of any of the Company’s significant Government contracts or the imposition of fines, damages, suspensions ordebarment would adversely affect the Company’s business and financial condition. 32 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The U.S. Government may adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time. Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of an increased focuson affordability, efficiencies, and recovery of costs, among other items. U.S. Government agencies may face restrictions or pressure regarding the type andamount of services that they may obtain from private contractors. Legislation, regulations and initiatives dealing with procurement reform, mitigation ofpotential conflicts of interest and environmental responsibility or sustainability, as well as any resulting shifts in the buying practices of U.S. Governmentagencies, such as increased usage of fixed price contracts, multiple award contracts and small business set-aside contracts, could have adverse effects ongovernment contractors, including us. Any of these changes could impair our ability to obtain new contracts or renew our existing contracts when thosecontracts expire and are subject to a renewed bidding process. Any new contracting requirements or procurement methods could be costly or administrativelydifficult for us to implement and could adversely affect our future revenues, profitability and prospects. We may incur cost overruns as a result of fixed priced government contracts, which would have a negative impact on our operations. Most of our U.S. Government contracts are multi-award, multi-year IDIQ task order based contracts, which generally provide for fixed priceschedules for products and services, have no pre-set delivery schedules, have very low minimum purchase requirements, are typically competed over amongmultiple awardees and force us to carry the burden of any cost overruns. Due to their nature, fixed-priced contracts inherently have more risk than costreimbursable contracts. If we are unable to control costs or if our initials cost estimates are incorrect, we can lose money on these contracts. In addition, someof our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we may not realize theirfull benefits. Lower earnings caused by cost overruns and cost controls would have a negative impact on our results of operations. The U.S. Government hasthe right to enter into contract with other suppliers, which may be competitive with the Company’s IDIQ contracts. The Company also performs fixed pricedcontracts under which the Company agrees to provide specific quantities of products and services over time for a fixed price. Since the price competition towin both IDIQ and fixed price contracts is intense and the costs of future contract performance cannot be predicted with certainty, there can be no assuranceas to the profits, if any, that the Company will realize over the term of such contracts. Misconduct of employees, subcontractors, agents and business partners could cause us to lose existing contracts or customers and adversely affect ourability to obtain new contracts and customers and could have a significant adverse impact on our business and reputation. Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of laws, including the Anti-Kickback Act. Other examples could include the failure to comply with our policies and procedures or with federal, state or local government procurementregulations, regulations regarding the use and safeguarding of classified or other protected information, legislation regarding the pricing of labor and othercosts in government contracts, laws and regulations relating to environmental, health or safety matters, bribery of foreign government officials, import-exportcontrol, lobbying or similar activities, and any other applicable laws or regulations. Any data loss or information security lapses resulting in the compromiseof personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory sanctionsagainst us, loss of current and future contracts and serious harm to our reputation. Although we have implemented policies, procedures and controls toprevent and detect these activities, these precautions may not prevent all misconduct, and as a result, we could face unknown risks or losses. Our failure tocomply with applicable laws or regulations or misconduct by any of our employees, subcontractors, agents or business partners could damage our reputationand subject us to fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts and suspension ordebarment from contracting with federal, state or local government agencies, any of which would adversely affect our business, reputation and our futureresults. 33 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may fail to obtain and maintain necessary security clearances, which may adversely affect our ability to perform on certain U.S. government contractsand depress our potential revenues. Many U.S. government programs require contractors to have security clearances. Depending on the level of required clearance, security clearancescan be difficult and time-consuming to obtain. If we or our employees are unable to obtain or retain necessary security clearances, we may not be able to winnew business, and our existing clients could terminate their contracts with us or decide not to renew them. To the extent we are not able to obtain andmaintain facility security clearances or engage employees with the required security clearances for a particular contract, we may not be able to bid on or winnew contracts, or effectively rebid on expiring contracts, as well as lose existing contracts, which may adversely affect our operating results and inhibit theexecution of our growth strategy. Our future revenues and growth prospects could be adversely affected by our dependence on other contractors. If other contractors with whom we have contractual relationships either as a prime contractor or subcontractor eliminate or reduce their work with us,or if the U.S. Government terminates or reduces these other contractors’ programs, does not award them new contracts or refuses to pay under a contract ourfinancial and business condition may be adversely affected. Companies that do not have access to U.S. Government contracts may perform services as oursubcontractor and that exposure could enhance such companies’ prospect of securing a future position as a prime U.S. Government contractor which couldincrease competition for future contracts and impair our ability to perform on contracts. We may have disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor,customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, our hiring of asubcontractor’s personnel or the subcontractor’s failure to comply with applicable law. Current uncertain economic conditions heighten the risk of financialstress of our subcontractors, which could adversely impact their ability to meet their contractual requirements to us. If any of our subcontractors fail to timelymeet their contractual obligations or have regulatory compliance or other problems, our ability to fulfill our obligations as a prime contractor or higher tiersubcontractor may be jeopardized. Significant losses could arise in future periods and subcontractor performance deficiencies could result in our terminationfor default. A termination for default could eliminate a revenue source, expose us to liability and have an adverse effect on our ability to compete for futurecontracts and task orders, especially if the customer is an agency of the U.S. Government. Sysorex Arabia is currently without contracts and is unable to repay its indebtedness, which could have an adverse impact on our financial condition. As of December 31, 2015, Sysorex Arabia had minimal cash and assets being carried at their estimate realized value of approximately $772,000.Sysorex Arabia had an accumulated deficit balance of approximately $1.7 million. Sysorex Arabia is currently without business. Sysorex Arabia also hasaging liabilities due to vendors, employees, social insurance payments, and partners amounting to approximately $2.0 million and owes $900,000 to SysorexGlobal. This is primarily a result of the OCC Data Center project as revenue and cash-flow projections did not materialize because of delays and its ultimatecancellation. Sysorex Arabia is working with local suppliers on payment plans. Sysorex Arabia has a judgment in the amount of $800,000 for non-performance by a Sysorex partner. That amount has been paid by the partner andSysorex Arabia is waiting for the Saudi Courts to remove this judgment and release it from any claims. Sysorex Arabia has taken on several loans to financethe losses to date and to pay some liabilities. In the event that any unsatisfied claims are made against the Company, this could have a material adverse effecton our financial condition if not resolved satisfactorily, as Sysorex Arabia would not be expected to satisfy its liabilities. The assets and liabilities of Sysorex Arabia are shown as held for sale as the Company’s management decided to close Saudi Arabia , the businessactivities of which have been shifted to resellers and strategic partners in the region. 34 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our international business exposes us to geo-political and economic factors, regulatory requirements and other risks associated with doing business inforeign countries. Our foreign operations pose complex management, foreign currency, legal, tax and economic risks, which we may not adequately address. We haveforeign operations in the Middle East and expect to do business in South Asia. These risks differ from and potentially may be greater than those associatedwith our domestic business. Our international business is sensitive to changes in the priorities and budgets of international customers and geo-political uncertainties, which maybe driven by changes in threat environments and potentially volatile worldwide economic conditions, various regional and local economic and politicalfactors, risks and uncertainties, as well as U.S. foreign policy. Our international sales are subject to U.S. laws, regulations and policies, including theInternational Traffic in Arms Regulations (ITAR) and the Foreign Corrupt Practices Act (see below) and other export laws and regulations. Due to the natureof our products, we must first obtain licenses and authorizations from various U.S. Government agencies before we are permitted to sell our products outsideof the U.S. We can give no assurance that we will continue to be successful in obtaining the necessary licenses or authorizations or that certain sales will notbe prevented or delayed. Any significant impairment of our ability to sell products outside of the U.S. could negatively impact our results of operations andfinancial condition. Our international sales are also subject to local government laws, regulations and procurement policies and practices which may differ from U.S.Government regulations, including regulations relating to import-export control, investments, exchange controls and repatriation of earnings, as well as tovarying currency, geo-political and economic risks. Our international contracts may include industrial cooperation agreements requiring specific in-countrypurchases, manufacturing agreements or financial support obligations, known as offset obligations, and provide for penalties if we fail to meet suchrequirements. Our international contracts may also be subject to termination at the customer’s convenience or for default based on performance, and may besubject to funding risks. We also are exposed to risks associated with using foreign representatives and consultants for international sales and operations andteaming with international subcontractors, partners and suppliers in connection with international programs. As a result of these factors, we could experienceaward and funding delays on international programs and could incur losses on such programs, which could negatively impact our results of operations andfinancial condition. We are also subject to a number of other risks including: ●the absence in some jurisdictions of effective laws to protect our intellectual property rights; ●multiple and possibly overlapping and conflicting tax laws; ●restrictions on movement of cash; ●the burdens of complying with a variety of national and local laws; ●political instability; ●currency fluctuations; ●longer payment cycles; ●restrictions on the import and export of certain technologies; ●price controls or restrictions on exchange of foreign currencies; and ●trade barriers. 35 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our international operations are subject to special U.S. government laws and regulations, such as the Foreign Corrupt Practices Act, and regulations andprocurement policies and practices, including regulations to import-export control, which may expose us to liability or impair our ability to compete ininternational markets. Our international operations are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments oroffers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retainingbusiness. We have operations and deal with governmental customers in countries known to experience corruption, including certain countries in the MiddleEast and in the future, the Far East. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees,consultants or contractors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our control. Weare also subject to import-export control regulations restricting the use and dissemination of information classified for national security purposes and theexport of certain products, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work. As a U.S. defense contractor we are vulnerable to security threats and other disruptions that could negatively impact our business. As a U.S. defense contractor, we face certain security threats, including threats to our information technology infrastructure, attempts to gain accessto our proprietary or classified information, and threats to physical security. These types of events could disrupt our operations, require significantmanagement attention and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impacton our financial condition, results of operations and liquidity. We are continuously exposed to cyber-attacks and other security threats, including physicalbreak-ins. Any electronic or physical break-in or other security breach or compromise may jeopardize security of information stored or transmitted throughour information technology systems and networks. This could lead to disruptions in mission-critical systems, unauthorized release of confidential orotherwise protected information and corruption of data. Although we have implemented policies, procedures and controls to protect against, detect andmitigate these threats, we face advanced and persistent attacks on our information systems and attempts by others to gain unauthorized access to ourinformation technology systems are becoming more sophisticated. These attempts include covertly introducing malware to our computers and networks andimpersonating authorized users, among others, and may be perpetrated by well-funded organized crime or state sponsored efforts. We seek to detect andinvestigate all security incidents and to prevent their occurrence or recurrence. We continue to invest in and improve our threat protection, detection andmitigation policies, procedures and controls. In addition, we work with other companies in the industry and government participants on increased awarenessand enhanced protections against cyber security threats. However, because of the evolving nature and sophistication of these security threats, which can bedifficult to detect, there can be no assurance that our policies, procedures and controls have or will detect or prevent any of these threats and we cannotpredict the full impact of any such past or future incident. We may experience similar security threats to the information and technology systems that wedevelop, install or maintain under customer contracts. Although we work cooperatively with our customers and other business partners to seek to minimizethe impacts of cyber and other security threats, we must rely on the safeguards put in place by those entities. Any remedial costs or other liabilities related tocyber or other security threats may not be fully insured or indemnified by other means. Occurrence of any of these security threats could expose us to claims,contract terminations and damages and could adversely affect our reputation, ability to work on sensitive U.S. Government contracts, business operations andfinancial results. Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations, and wedo not expect these conditions to improve in the near future. Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. andelsewhere around the world. Weak economic conditions generally, sustained uncertainty about global economic conditions, concerns about future U.S.government budget impasses or a prolonged or further tightening of credit markets could cause our customers and potential customers to postpone or reducespending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations orcash flows. Concerns over inflation, energy costs, geopolitical issues and the availability of credit, in the U.S. have contributed to increased volatility anddiminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices and wavering business andconsumer confidence, have precipitated an economic slowdown and a global recession. Domestic and international equity markets have been experiencingheightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on our business. In the event of extremeprolonged market events, such as the global economic recovery, we could incur significant losses. 36 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Risks Related to Our Securities We are eligible to be treated as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and we cannot be certain ifthe reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors. We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continueto be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companiesthat are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in our periodic reportsand proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approvalof any golden parachute payments not previously approved. In addition, as an emerging growth company, we are only required to provide two years ofaudited financial statements and two years of selected financial data in this report. We could be an emerging growth company for up to five years, althoughcircumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as ofany June 30 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases we wouldno longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growthcompany, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosurerequirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduceddisclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our commonstock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less activetrading market for our common stock and our stock price may be more volatile. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financialreporting until the later of our second annual report or the first annual report required to be filed with the Commission following the date we are no longer an“emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be material weaknesses or significant deficiencies in ourinternal controls in the future. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standardsapply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore,will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our directors and executive officers beneficially own a significant number of shares of our common stock. Their interests may conflict with our outsidestockholders, who may be unable to influence management and exercise control over our business. As of the date of this filing, our executive officers and directors beneficially own approximately 31% of our shares of common stock on a fullydiluted basis. As a result, our executive officers and directors may be able to: elect or defeat the election of our directors, amend or prevent amendment toour articles of incorporation or bylaws, effect or prevent a merger, sale of assets or other corporate transaction, and control the outcome of any other mattersubmitted to the shareholders for vote. Accordingly, our outside stockholders may be unable to influence management and exercise control over ourbusiness. 37 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We do not intend to pay cash dividends to our stockholders, so it is unlikely that stockholders will receive any return on their investment in our Companyprior to selling stock in the Company. We have never paid any dividends to our common stockholders as a public company. We currently intend to retain any future earnings for fundinggrowth and, therefore, do not expect to pay any cash dividends in the foreseeable future. If we determine that we will pay cash dividends to the holders of ourcommon stock, we cannot assure that such cash dividends will be paid on a timely basis. The success of your investment in the Company will likely dependentirely upon any future appreciation. As a result, you will not receive any return on your investment prior to selling your shares in our Company and, for theother reasons discussed in this “Risk Factors” section, you may not receive any return on your investment even when you sell your shares in our Company. Anti-Takeover, Limited Liability and Indemnification Provisions Some provisions of our articles of incorporation and bylaws may deter takeover attempts, which may inhibit a takeover that stockholders considerfavorable and limit the opportunity of our stockholders to sell their shares at a favorable price. Under our articles of incorporation, our Board of Directors may issue additional shares of common or preferred stock. Our Board of Directors has theability to authorize “blank check” preferred stock without future shareholder approval. This makes it possible for our board of directors to issue preferredstock with voting or other rights or preferences that could impede the success of any attempt to acquire us by means of a merger, tender offer, proxy contest orotherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares and/or any other transaction thatmight otherwise be deemed to be in their best interests, and thereby protects the continuity of our management and limits an investor’s opportunity to profitby their investment in the Company. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeoverproposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that mightprevent or render more difficult or costly the completion of the takeover by: ●diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, ●putting a substantial voting bloc in institutional or other hands that might undertake to support the incumbent Board of Directors, or ●effecting an acquisition that might complicate or preclude the takeover. Nevada Anti-Takeover Law may discourage acquirers and eliminate a potentially beneficial sale for our stockholders. We are subject to the provisions of Section 78.438 of the Nevada Revised Statutes concerning corporate takeovers. This section prevents manyNevada corporations from engaging in a business combination with any interested stockholder, under specified circumstances. For these purposes, a businesscombination includes a merger or sale of more than 5% of our assets, and an interested stockholder includes a stockholder who owns 10% or more of ouroutstanding voting stock, as well as affiliates and associates of these persons. Under these provisions, this type of business combination is prohibited forthree years following the date that the stockholder became an interested stockholder unless: ●the transaction in which the stockholder became an interested stockholder is approved by the Board of Directors prior to the date the interestedstockholder attained that status; 38 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ●on consummation of the transaction that resulted in the stockholder’s becoming an interested stockholder, the interested stockholder owned atleast 90% of the voting stock of the corporation outstanding at the time the transaction was commenced, excluding those shares owned bypersons who are directors and also officers; or ●on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting ofstockholders by the affirmative vote of at least a majority of the outstanding voting stock that is not owned by the interested stockholder. This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us. Our indemnification of our officers and directors may cause us to use corporate resources to the detriment of our stockholders. Our articles of incorporation eliminate the personal liability of our directors for monetary damages arising from a breach of their fiduciary duty asdirectors to the fullest extent permitted by Nevada law. This limitation does not affect the availability of equitable remedies, such as injunctive relief orrescission. Our articles of incorporation require us to indemnify our directors and officers to the fullest extent permitted by Nevada law, including incircumstances in which indemnification is otherwise discretionary under Nevada law. Under Nevada law, we may indemnify our directors or officers or other persons who were, are or are threatened to be made a named defendant orrespondent in a proceeding because the person is or was our director, officer, employee or agent, if we determine that the person: ●conducted himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity as our director or officer,that his or her conduct was in our best interests, and, in all other cases, that his or her conduct was at least not opposed to our best interests; and ●in the case of any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. These persons may be indemnified against expenses, including attorneys’ fees, judgments, fines, including excise taxes, and amounts paid insettlement, actually and reasonably incurred by the person in connection with the proceeding. If the person is found liable to the corporation, noindemnification will be made unless the court in which the action was brought determines that the person is fairly and reasonably entitled to indemnity in anamount that the court will establish. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us under the aboveprovisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is,therefore, unenforceable. The obligations associated with being a public company require significant resources and management attention, which may divert from our businessoperations. Following consummation of our initial public offering, we became subject to the reporting requirements of the Exchange Act, and The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports, proxy statements, and otherinformation. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financialreporting. Our Chief Executive Officer and Chief Financial Officer are required to certify that our disclosure controls and procedures are effective in ensuringthat material information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms. We will need to hire additional financial reporting, internal controls and other financialpersonnel in order to enhance appropriate internal controls and reporting procedures. As a result, we will incur significant legal, accounting and otherexpenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention fromimplementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, andwill continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as apublic company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict orestimate the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially increase ourselling, general and administrative expenses. 39 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financialreporting. In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we mayidentify deficiencies. Additionally, in the event we are no longer a smaller reporting company, as defined under the Exchange Act, and we are unable tocomply with the internal controls requirements of the Sarbanes-Oxley Act of 2002, then we may not be able to obtain the independent registered publicaccountants' certifications required by that act, which may preclude us from keeping our filings with the SEC current, and interfere with the ability ofinvestors to trade our securities and our shares to continue to be listed on the Nasdaq Capital Market. This annual report does not include a report ofmanagement's assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and ExchangeCommission for newly public companies. If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or preventfraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of ourcommon stock. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reportsor prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business andreputation with investors may be harmed. With each prospective acquisition we may make we will conduct whatever due diligence is necessary or prudent toassure us that the acquisition target can comply with the internal controls requirements of the Sarbanes-Oxley Act. Notwithstanding our diligence, certaininternal controls deficiencies may not be detected. As a result, any internal control deficiencies may adversely affect our financial condition, results ofoperations and access to capital. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, andmay in the future discover areas of our internal controls that need improvement. Public company compliance may make it more difficult to attract and retain officers and directors. The Sarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As apublic company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly. As a publiccompany, these rules and regulations may make it more difficult and expensive for us to maintain our director and officer liability insurance and we may berequired to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be moredifficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates,or at all. Our stock price may be volatile. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many ofwhich are beyond our control, including the following: ●our ability to execute our business plan and complete prospective acquisitions; ●changes in our industry; ●competitive pricing pressures; ●our ability to obtain working capital financing; 40 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ●additions or departures of key personnel; ●limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressureon the market price for our common stock; ●sales of our common stock (particularly following effectiveness of this registration statement); ●operating results that fall below expectations; ●regulatory developments; ●economic and other external factors; ●period-to-period fluctuations in our financial results; ●our inability to develop or acquire new or needed technologies; ●the public’s response to press releases or other public announcements by us or third parties, including filings with the SEC; ●changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or failureof those analysts to initiate or maintain coverage of our common stock; ●the development and sustainability of an active trading market for our common stock; and ●any future sales of our common stock by our officers, directors and significant stockholders. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operatingperformance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Our shares of common stock may be thinly traded, and the price may not reflect our value, and there can be no assurance that there will be an activemarket for our shares of common stock either now or in the future. Our shares of common stock are thinly traded, our common stock is available to be traded and is held by a small number of holders, and the pricemay not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of common stock either now or inthe future. The market liquidity will be dependent on the perception of our operating business, among other things. We will take certain steps includingutilizing investor awareness campaigns, investor relations firms, press releases, road shows and conferences to increase awareness of our business. Any stepsthat we might take to bring us to the awareness of investors may require that we compensate consultants with cash and/or stock. There can be no assurancethat there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not beable to liquidate their investment or liquidate it at a price that reflects the value of the business, and trading may be at an inflated price relative to theperformance of the Company due to, among other things, the availability of sellers of our shares. If an active market should develop, the price may be highlyvolatile. Because there is currently a relatively low per-share price for our common stock, many brokerage firms or clearing firms are not willing to effecttransactions in the securities or accept our shares for deposit in an account. Many lending institutions will not permit the use of low priced shares of commonstock as collateral for any loans. 41 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline. If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period underRule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, inanticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and pricethat we deem reasonable or appropriate. In general, a non-affiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our commonstock all of their shares, subject to the Company being current in its periodic reports filed with the SEC. As of March 21, 2016, approximately 16,041,934shares of common stock of the 25,116,035 shares outstanding were free trading. In our case an affiliate of the Company may sell an amount equal to thegreater of 1% of the outstanding shares or the average weekly number of our shares sold in the last four weeks prior to such sale. Such sales may be repeatedonce every three months, and any of the restricted shares may be sold by a non-affiliate without any restriction after they have been held six months. Sales of substantial amounts of our common stock in the public market by the selling stockholders, or the perception that these sales could occur,could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Restricted securitiesmay not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. In addition, as of December 31, 2015, there were 561,262 shares subject to outstanding warrants, 4,753,049 shares subject to outstanding options(including 625,000 outside of our plan), 15,000 shares accrued as compensation for services but not issued, 1,827,000 shares accrued for the LightMineracquisition and an additional 2,002,984 shares (as amended) reserved for future issuance under our Amended and Restated 2011 Employee Stock IncentivePlan that will become, or have already become, eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If we are unable to satisfy the continued listing requirements of The NASDAQ Stock Market, our common stock could be delisted and the price andliquidity of our common stock may be adversely affected. Our common stock may lose value and our common stock could be delisted from NASDAQ due to several factors or a combination of such factors.While our common stock is currently listed on The NASDAQ Stock Market, there can be no assurance that we will be able to maintain such listing. Tomaintain the listing of our common stock on The NASDAQ Stock Market, we are required to meet certain listing requirements, including, among others, arequirement to maintain a minimum closing bid price of $1.00 per share. If our common stock trades below the $1.00 minimum closing bid price requirementfor 30 consecutive business days or if we do not meet other listing requirements, we may be notified by NASDAQ of non-compliance. On November 30, 2015,we received a notice from Nasdaq, indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we nolonger meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Notice”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until May 30, 2016, in which toregain compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1 pershare for a minimum of ten consecutive business days during this 180-day period. In the event that we do not regain compliance within this 180-day period,we may be eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publiclyheld shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provide written notice toNasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to theNasdaq Staff that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide notice to us that our common stock willbe subject to delisting. 42 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Notice does not result in the immediate delisting of the Company’s common stock from the Nasdaq Capital Market. The Company intends tomonitor the closing bid price of the Company’s common stock and consider its available options in the event that the closing bid price of the Company’scommon stock remains below $1 per share. There can be no assurance that the Company will be able to regain compliance with the minimum bid pricerequirement or maintain compliance with the other listing requirements. As of the date of this report we have not regained compliance. There can be noassurance that we would pursue a reverse stock split or be able to obtain the approvals necessary to effect a reverse stock split. In addition, there can be noassurance that, following any reverse stock split, the per share trading price of our common stock would remain above $1.00 per share or that we would beable to continue to meet other listing requirements. If our common stock is delisted, market liquidity for our common stock could be severely affected andour stockholders’ ability to sell their shares of our common stock could be limited. A delisting of our common stock from NASDAQ would negatively affectthe value of our common stock. A delisting of our common stock could also adversely affect our ability to obtain financing for our operations and couldresult in the loss of confidence in our company. ITEM 1B: UNRESOLVED STAFF COMMENTS None. ITEM 2: PROPERTIES The Company’s executive offices are located at 2479 E. Bayshore Road, Suite 195, Palo Alto, CA 94303; Tel (408) 702-2167. The Companyentered into a 64-month lease for the facility commencing in October 2014 at a monthly base rent of $14,000 for approximately 4,377 square feet of officespace, which expires January 31, 2020. Sysorex Government’s office is located at 13800 Coppermine Road, Suite 300, Herndon, VA 20171 under a shared office lease which ends July2016. Monthly rental is $175. Sysorex USA’s executive offices (f/k/a Lilien Systems) are located at: 17 E. Sir Francis Drake Blvd., Suite 110 Larkspur, CA 94939. The monthly rental is $22,000 for approximately 6,632 square feet of officespace under a lease, which expires on July 31, 2016 with three one-year options to extend. 6345 Balboa Boulevard, Suite 247, Encino, CA 91316. The monthly rental is currently $10,780 for approximately 5,986 square feet ofoffice space under a lease, which expires on July 31, 2017 with a five-year option to extend. We pay the landlord a pro rata share of 11.9196% foroperating costs. 8171 Maple Lawn Blvd., Suite 310, Maple Lawn, MD 20759. The monthly rental is currently $14,000 under a lease, which expiresDecember 31, 2018 with a five-year option to extend. We pay the landlord a pro rata share of 6.10% for operating costs. This office space iscurrently being subleased for $10,767 per month through December 31, 2018. Sysorex USA’s sales offices are located at: 841 Bishop Street, Suite 2208, Honolulu, HI 96813. The monthly base rental is currently $2,000 under a lease, which expires on August 31,2016. 11235 SE 6th Street, Suite 155, Bellevue, WA 98804. The monthly base rental is currently $6,000 under a lease, which expires on April 30,2018. 10260 SW Greenburg Road, 4th Floor, Portland, OR 97223. The monthly base rental is currently $379 under a lease, which expires on July31, 2016. 2175 Salk Avenue, Suite 150, Carlsbad, CA 92008. The monthly base rental is $9,000 under a lease, which expires on September 14, 2017. Sysorex Canada Corp. f/k/a AirPatrol Research Corp. has an office located at 2963 Glen Drive, Suite 405, Coquitlam, BC V3P 2B7. The monthlyrental is currently $7,600 CAD under a lease which includes a pro rata share of the operating costs of $3,500 CAD. The lease expires on September 30, 2018with a five-year option to extend. 43 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During 2014 Sysorex Arabia LLC maintained an office at Akaria Center, Building 1, Suite 302-2, Riyadh, Saudi Arabia. The lease called for annualrent of approximately $16,000 and expired in the first quarter 2015. The Company did not renew the lease. We believe that each of our properties is suitable and adequate for the operations conducted therein. ITEM 3: LEGAL PROCEEDINGS From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business.No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve the Company which,in the opinion of the management of the Company, could reasonably be expected to have a material adverse effect on its business or financial condition. There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5%of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company. ITEM 4: MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Our common stock is traded under the symbol “SYRX” on the Nasdaq Capital Market. Prior to our initial public offering on April 8, 2014, ourcommon stock was previously quoted on the OTC Pink market under the symbol “SYRX.” The following table sets forth the high and low sales prices onNasdaq following our listing on the Nasdaq Capital Market, and prior to such time, the historical high and low bid prices for our common stock for theperiods indicated as reported by the OTC Markets. The bid quotations reported by the OTC Markets reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. All prices reflect the 1-for-2 reverse stock split effected on April 8, 2014. Period High Low Year Ended December 31, 2015 October 1, 2015 through December 31, 2015 $1.30 $0.54 July 1, 2015 through September 30, 2015 $2.02 $0.99 April 1, 2015 through June 30, 2015 $3.07 $1.06 January 1, 2015 through March 31, 2015 $2.30 $1.07 Year Ended December 31, 2014 October 1, 2014 through December 31, 2014 $4.09 $0.98 July 1, 2014 through September 30, 2014 $4.45 $2.75 April 1, 2014 through June 30, 2014 $6.21 $3.44 January 1, 2014 through March 31, 2014 $6.50 $2.25 Holders of Record According to our transfer agent, as of March 17, 2016 we had approximately 600 shareholders of record. This number does not include anindeterminate number of shareholders whose shares are held by brokers in street name. Our stock transfer agent is Corporate Stock Transfer Inc., 3200 CherryCreek Drive South, Suite 430, Denver, CO 80209. 44 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Dividends We have not declared nor paid any cash dividends on our common stock, and we currently intend to retain future earnings, if any, to finance theexpansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on ourcommon stock will be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capitalrequirements and other factors that our board of directors considers significant. Securities Authorized for Issuance under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement forthe 2016 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,2015. Recent Issuances of Unregistered Securities On October 1, 2015, the Company issued 10,000 shares of common stock to a consultant under the terms of a consulting services agreement whichwere fully vested upon date of grant. On October 5, 2015, the Company issued 56,500 shares of common stock to consultants under the terms of a consulting services agreements whichwere fully vested upon date of grant. On December 29, 2015, the Company issued 20,715 shares of common stock to a director under the terms of a director services agreement whichwere fully vested upon date of grant. The shares were issued in a transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of theSecurities Act, which exempts transactions by an issuer not involving any public offering. The Company relied on the representations made by thestockholder. No commissions were paid and no underwriter or placement agent was involved in this transactions. Use of Proceeds On September 25, 2015, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC, asrepresentative of the several underwriters named therein (the “Underwriters”), relating to the issuance and sale of 5,250,000 shares of the Company commonstock, par value $0.001 per share. The price to the public in this offering was $1.00 per share. Under the terms of the Underwriting Agreement, the Companyalso granted the Underwriters an option, exercisable for 30 days from the closing date, to purchase up to an additional 787,500 shares at the public offeringprice. The offering was made pursuant to the Company’s registration statement on Form S-3 (Registration Statement No. 333-204159) filed with theSecurities and Exchange Commission and declared effective May 28, 2015 and a related prospectus supplement filed with the Securities and ExchangeCommission. The offering closed September 30, 2015. After deducting underwriting discounts and commissions and offering expenses, the net proceeds from theoffering were approximately $4.7 million. The net proceeds from the offering were used for general corporate purposes, which included businessdevelopment activities, capital expenditures, working capital and general and administrative expenses. ITEM 6: SELECTED FINANCIAL DATA. As a smaller reporting company we are not required to provide this information. 45 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 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 auditedfinancial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion andanalysis here and throughout this Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results maydiffer materially from those anticipated in these forward-looking statements, due to a number of factors, including but not limited to, risks described in thesection entitled “Risk Factors.” Except where indicated, all share and per share data in this section, as well as the consolidated financial statements, reflect the reverse stock spliteffected on April 8, 2014. Overview of Our Business Sysorex Global (“Sysorex” or the “Company”) provides data analytics and indoor-location based solutions and services to commercial andgovernment customers worldwide. We have developed a new kind of discovery platform that blends data from traditional software and network systems withthe growing universe of mobile and Internet of Things (IoT). In doing so we have created a high velocity, secure and scalable platform that we believe allowsour customers to evaluate their most complex business issues, and compete successfully in their respective markets. Our products are designed to helpcustomers derive real time value by combining both the physical and digital worlds. These products and services operate and report among the followingsegments: Mobile, IoT & Big Data Products, Storage and Computing, SaaS Revenues, and Professional Services. Sysorex’s data analytics products integrate with our AirPatrol product line, which focuses on collecting data from any wireless device in closeproximity (Cellular, WiFi, BLE, RFID, etc.). We believe we can provide the right information at the right time based on our integrated solutions allowing usto uniquely blend the real world and the digital world. We believe that our AirPatrol product line is also well positioned in the Cyber Security market asmobile device management and detection technology. We believe that our location accuracy of sub 10-feet and our ability to capture all RF frequencies isunmatched. Detecting rogue devices that could be a security threat to an enterprise or government agency and then providing accurate location of that deviceis an important security application for our customers. Our AirPatrol product line has three patents and ten others pending worldwide. Sysorex also provides supporting products and services including enterprise computing and storage, virtualization, business continuity, datamigration; custom application development, networking and information technology business consulting services. These allow Sysorex to offer turnkeysolutions when requested by customers. Our Storage and Computing segment revenues are typically driven by purchase orders that are received on a monthly basis. Approximately 21% ofthe revenues from these purchase orders are recurring contracts that range from one to five years for warranty and maintenance support. For these contracts thecustomer is invoiced one time and pays Sysorex upfront for the full term of the warranty and maintenance contract. Revenue from these contracts isdeterminable ratably over the contract period with the unearned revenue recorded as deferred revenue and amortized over the contract period. We have a 30-year history and a high repeat customer rate of approximately 50-60% annually. Our revenues are diversified over hundreds of customers and typically noone customer exceeds 15% of revenues however from time to time a large order from a customer could put it temporarily above 15%. We have one customerthat was approximately 25% for the year ending December 31, 2015 but we don’t anticipate that this customer will continue to maintain that percentage asour revenues expand across other customers in 2016. Management believes this diversification provides stability to our revenue streams. Our Software-as-a-Service (SaaS) contracts are typically performed for periods of one or more years and we have a high customer retention rate.Sysorex SaaS product include: eTearsheets, invoicing, CRM, and other products and services to approximately 675 newspapers in the Cloud. Cloud or SaaSbased analytics is a growing market that Sysorex intends to pursue beyond the media vertical that we are in today. 46 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Mobile, IoT and Big Data sales are expected to grow significantly in 2016; however sales cycles proved to be longer than we expected in 2015.The long sales cycles result from customer related issues such as budget and procurement processes but also because of the early stages of indoor-locationingtechnology and the learning curve required for customers to implement such solutions. This is improving with the increased presence and awareness ofbeacon and wi-fi locationing technologies in the market. Our Professional Services group provides consulting services ranging from enterprise architecture design to custom application development to datamodeling. Sysorex offers a full scope of information technology development and implementation services. With expertise in a broad range of IT practicesincluding project design and management, systems integration, outsourcing, independent validation and verification, cyber security and more. Events such as budget impasses and sequestration in the federal government could impact government customer funding for projects that our IT Governmentsegment is pursuing by delaying payment or decisions on contract/task order awards, as the Company has experienced with prior awards. However, ourgovernment contracts are currently approximately 12% of our total revenues. Such government contracts typically have a three to five year term and webelieve that our recent government contract revenues will be indicative of future government contract based revenues. Recent Events Reverse Stock-Split In connection with the Company’s initial public offering described below and in order to satisfy the initial listing requirements for The NasdaqCapital Market, on April 8, 2014 the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Certificate of Amendment”) with theSecretary of State of the State of Nevada to effect a one-for-two reverse split of the Company’s common stock, with no reduction in authorized capital. April 2014 Initial Public Offering On April 9, 2014, in connection with an offering (the “Offering”) by the Company of an aggregate of 3,333,333 shares (the “Shares”) of theCompany’s common stock, at a price to the public of $6.00 per Share, including 166,667 shares sold by a selling stockholder, the Company entered into anunderwriting agreement (the “Underwriting Agreement”) with Wellington Shields & Co. LLC, and Dougherty & Co. LLC. (collectively, the “Underwriters”),with respect to the sale by the Company and the purchase by the Underwriters of the Shares. The Shares were registered for offer and sold pursuant to aneffective Registration Statement on Form S-1 (File No. 333-191648) and a related prospectus. On April 15, 2014, upon the closing of the Offering, the Company received approximately $16.6 million from the sale of 3,166,666 Shares in theOffering, excluding the Shares sold by the selling stockholder, after deducting the underwriting discounts, fees and commissions. The net proceeds of theOffering were used in connection with the acquisition of AirPatrol and will also be used to expand the Company’s sales and marketing efforts, includingexpanding its Washington, D.C. office, for future strategic acquisitions, and for working capital and other general corporate purposes. Nasdaq Listing On April 10, 2014, in connection with the offering of the Shares described above, the Company’s common stock began trading on The NasdaqCapital Market, under the symbol “SYRX.” 47 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. September 2015 Public Offering On September 25, 2015, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC, asrepresentative of the several underwriters named therein (the “Underwriters”), relating to the issuance and sale of 5,250,000 shares of the Company commonstock, par value $0.001 per share. The price to the public in this offering was $1.00 per share. Under the terms of the Underwriting Agreement, the Companyalso granted the Underwriters an option, exercisable for 30 days from the closing date, to purchase up to an additional 787,500 shares at the public offeringprice. The offering was made pursuant to the Company’s registration statement on Form S-3 (Registration Statement No. 333-204159) filed with theSecurities and Exchange Commission and declared effective May 28, 2015 and a related prospectus supplement filed with the Securities and ExchangeCommission. The offering closed September 30, 2015. After deducting underwriting discounts and commissions and offering expenses, the net proceeds from theoffering were approximately $4.7 million. The net proceeds from the offering were used for general corporate purposes, which included businessdevelopment activities, capital expenditures, working capital and general and administrative expenses. JOBS Act Pursuant to Section 107 of the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until such time asthose standards apply to private companies. We have irrevocably elected to opt out of this exemption from new or revised accounting standards and,therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. In connection withthe preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments thataffect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments onhistorical 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 arepresented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results coulddiffer from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 2 of the audited financial statements for the years ended December 31, 2015 and 2014. Webelieve that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and theyrequire our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherentlyuncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not beenmaterial. Revenue Recognition We provide IT solutions and services to customers with revenues currently derived primarily from the sale of third-party hardware and softwareproducts, software, assurance, licenses and other consulting services, including maintenance services. The products and services we sell, and the manner inwhich they are bundled, are technologically complex and the characterization of these products and services require judgment in order to apply revenuerecognition policies. For all of these revenue sources, we determine whether we are the principal or agent in accordance with Accounting StandardsCodification Topic, 605-45 Principal Agent Considerations. We allocate the total arrangement consideration to the deliverables based on an estimated selling price of our products and services and reportrevenues containing multiple deliverable arrangements under ASC 605-25 “Revenue Arrangements with Multiple Deliverables” (“ASC-605-25”). Thesemultiple deliverable arrangements primarily consist of the following deliverables: third-party computer hardware, third-party software, hardware and softwaremaintenance (a.k.a. support), and third-party services. We determine the estimated selling price using cost plus a reasonable margin for each deliverable,which was based on our established policies and procedures for providing customers with quotes, as well as historical gross margins for our products andservices. From time to time our personnel are contracted to perform installation and services for the customer. In situations where we bundle all or a portion ofthe separate elements, Vendor Specific Objective Evidence (“VSOE”) is determined based on prices when sold separately. Our revenue recognition policiesvary based upon these revenue sources and the mischaracterization of these products and services could result in misapplication of revenue recognitionpolices. 48 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We recognize revenue when the following criteria are met (1) persuasive evidence of an arrangement exists; (2) shipment (software or hardware) orfulfillment (maintenance) has occurred and applicable services have been rendered, (3) the sales price is fixed or determinable, and (4) collectability isreasonably assured. Generally, these criteria are met upon shipment to customers with respect to the sales of hardware and software products. With respect toour maintenance and other service agreements, this criteria is met once the service has been provided. Revenue from the sales of our services on time andmaterial contracts is recognized based on a fixed hourly rate as direct labor hours are expended. We recognize revenue for sales of all services on a fixed feeratably over the term of the arrangement as such services are provided. The Company evaluates whether the revenues it receives from the sale of hardware andsoftware products, licenses, and services, including maintenance and professional consulting services, should be recognized on a gross or net basis on atransaction by transaction basis. We maintain primary responsibility for the materials and procedures utilized to service our customers, even in connectionwith the sale of third party-products and maintenance services as we are responsible for the fulfillment and acceptability of the products and servicespurchased by our customers. In addition, the nature of the products sold to our customers are such that they need configuration in order to be utilizedproperly for the purposes intended by the customer and therefore we assume certain responsibility for product staging, configuration, installation,modification, and integration with other client systems, or retain general inventory risk upon customer return or rejection. Our customers rely on us todevelop the appropriate solutions and specifications applicable to their specific systems and then integrate any such required products or services into theirsystems. As described above, we are responsible for the day to day maintenance and warranty services provided in connection with all of our existingcustomer relationships, whether such services are ultimately provided directly by the Company and its employees or by the applicable third party serviceprovider. As of the date of this filing, after an evaluation of all of our existing customer relationships, we have concluded that we are the primary obligor toall of our existing customers and therefore recognize all revenues on a gross basis. Long-lived Assets We account for our long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for the Impairment orDisposal of Long-Lived Assets” (“ASC 360”), which requires that long-lived assets be evaluated whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable or the useful life has changed. Some of the events or changes in circumstances that would trigger an impairmenttest include, but are not limited to: ●significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash flows for twoconsecutive years); ●significant negative industry or economic trends; ●knowledge of transactions involving the sale of similar property at amounts below our carrying value; or ●our expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do not meet the criteria tobe classified as “held for sale.” Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largelyindependent 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 bycomparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventualdisposition 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, wewould be required to record an impairment charge equal to the excess, if any, of net carrying value over fair value. 49 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, we makeassumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of judgment and also bear a significantimpact on the assessment conclusions. Included among these assumptions are estimating undiscounted future cash flows, including the projection ofcomparable sales, operating expenses, capital requirements for maintaining property and equipment and residual value of asset groups. We formulateestimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, andcompetitive conditions. In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge. Basedon our evaluation we did not record a charge for impairment for the years ended December 31, 2015 and, 2014. We evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that arevision 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, legislativeactions, or changes in the regulatory environment. If the estimated remaining useful lives change, the remaining carrying amount of the long-lived assets andidentifiable intangible assets would be amortized prospectively over that revised remaining useful life. We have determined that there were no events orcircumstances during the years ended December 31, 2015 and 2014 which would indicate a revision to the remaining amortization period related to any ofour long lived assets. Accordingly, we believe that the current estimated useful lives of long-lived assets reflect the period over which they are expected tocontribute to future cash flows and are therefore deemed appropriate. Goodwill and Indefinite-lived Assets We have recorded goodwill and other indefinite-lived assets in connection with our acquisitions of Lilien, Shoom, AirPatrol and LightMiner.Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is notamortized. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination. Our goodwill balance and other assetswith indefinite lives are evaluated for potential impairment during the fourth quarter of each year and in certain other circumstances. The evaluation ofimpairment involves comparing the current fair value of the business to the recorded value, including goodwill. To determine the fair value of the business,we utilize both the income approach, which is based on estimates of future net cash flows, and the market approach, which observes transactional evidenceinvolving similar businesses. There was no goodwill impairment for the years ended December 31, 2015 and 2014. Deferred Income Taxes In accordance with ASC 740 “Income Taxes” (“ASC 740”), management routinely evaluates the likelihood of the realization of its income taxbenefits and the recognition of its deferred tax assets. In evaluating the need for any valuation allowance, management will assess whether it is more likelythan not that some portion, or all, of the deferred tax asset may not be realized. Ultimately, the realization of deferred tax assets is dependent upon thegeneration of future taxable income during those periods in which temporary differences become deductible and/or tax credits and tax loss carry-forwards canbe utilized. In performing its analyses, management considers both positive and negative evidence including historical financial performance, previousearnings 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 anticipategenerating 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 offuture income as of and for the year ended December 31, 2015, based upon certain economic conditions and historical losses through December 31, 2015.After consideration of these factors management deemed it appropriate to establish a full valuation allowance. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax filings that do not meet these recognitionand measurement standards. As of December 31, 2015 and 2014, no liability for unrecognized tax benefits was required to be reported. The guidance alsodiscusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain taxpositions as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2015 and 2014. 50 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Allowance for Doubtful Accounts We maintain our reserves for credit losses at a level believed by management to be adequate to absorb potential losses inherent in the respectivebalances. We assign an internal credit quality rating to all new customers and update these ratings regularly, but no less than annually. Management’sdetermination of the adequacy of the reserve for credit losses for our accounts and notes receivable is based on the age of the receivable balance, thecustomer’s credit quality rating, an evaluation of historical credit losses, current economic conditions, and other relevant factors. As of December 31, 2015 and 2014, allowance for credit losses included an allowance for doubtful accounts of approximately $285,000 and $9,000,respectively, due to the aging of the items greater than 120 days outstanding and other potential non-collections. Business Combinations We account for business combinations using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquiredbusiness 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. Anychanges 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 yearfrom the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocationsthat are material to our consolidated financial results will be adjusted. All acquisition costs are expensed as incurred and in-process research and developmentcosts are recorded at fair value as an indefinite-lived intangible asset and assessed for impairment thereafter until completion, at which point the asset isamortized over its expected useful life. Separately recognized transactions associated with business combinations are generally expensed subsequent to theacquisition 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 ourConsolidated Financial Statements from the acquisition date. Stock-Based Compensation We account for equity instruments issued to non-employees in accordance with accounting guidance which requires that such equity instruments arerecorded at their fair value on the measurement date, which is typically the date the services are performed. We account for equity instruments issued to employees in accordance with accounting guidance that requires that awards are recorded at their fairvalue on the date of grant and are amortized over the vesting period of the award. We recognize compensation costs over the requisite service period of theaward, which is generally the vesting term of the equity instrument issued. The Black-Scholes option valuation model is used to estimate the fair value of the options or the equivalent security granted. The model includessubjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of tradedoptions or warrants. The expected volatility is estimated based on the average of historical volatilities for industry peers. The principal assumptions used in applying the Black-Scholes model along with the results from the model were as follows: December 31, 2015 December 31, 2014Risk-free interest rate 1.73% to 2.27% 2.29% to 2.82%Expected life of option grants 7 years 7 yearsExpected volatility of underlying stock 39.4% to 51.45% 38.1% to 39.4%Dividends - - 51 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Operating Segments The Company operates in the following business segments: ●Mobile, IoT & Big Data Products: These products currently include our AirPatrol product line (location-based security and marketing platformfor wireless and cellular devices that can detect, monitor and manage the content and behavior of smartphones, tablets and other mobile devicesbased on their location and user); on-premise big data appliance product (Light Miner Studio “LMS”) and will include future Sysorex ownedproducts. ●Storage and Computing: This segment includes third party hardware, software and related maintenance/warranty products and services thatSysorex resells. It includes but is not limited to products for enterprise computing; storage; virtualization; networking; etc. ●SaaS Revenues: These are Software-as-a-Services (SaaS) or internet based hosted services including the Shoom product line and cloud based bigdata analytics services (based on our LMS product) and other data science services; analytics services for AirPatrol products and other managedservices on a SaaS basis. ●Professional Services: These are general IT services including but not limited to: custom application/software design; architecture anddevelopment; project management; C4I system consulting; strategic outsourcing; staff augmentation; data center design and operationsservices; data migration services and other non-SaaS services. Results of Operations Year Ended December 31, 2015 compared to the Year Ended December 31, 2014 The following table sets forth selected consolidated financial data as a percentage of our revenue and the percentage of period-over-period change: Twelve Months ended December 31, 2015 December 31, 2014 (in thousands, except percentages) Amount % ofRevenues Amount % ofRevenues %Change Product Revenues $51,381 77% $50,044 79% 3%Services Revenues $15,576 23% $12,905 21% 21%Cost of net revenues - Products $40,763 61% $38,906 62% 5%Cost of net revenues - Services $6,865 10% $5,303 8% 29%Gross profit $19,329 29% $18,740 30% 3%Operating expenses $30,770 46% $26,446 42% 16%Loss from operations $(11,441) (17%) $(7,706) (12%) 48%Net loss $(11,728) (18%) $(7,652) (12%) 53%Net loss attributable to common stockholders $(11,718) (18%) $(7,536) (12%) 55% Revenues Revenues for the year ended December 31, 2015 were $67.0 million compared to $62.9 million for the comparable period in the prior year. Theincrease of $4.1 million, or approximately 6.5% is primarily associated with growth in the Storage and Computing and Professional Services segments.Mobile, IoT & Big Data Products revenue for the year ended December 31, 2015 was $1.7 Million compared to $1.9 million for the prior year period. Storageand Computing revenue was $50 million for the year ended December 31, 2015, and $48.3 million for the prior year period. SaaS Revenue was $3.7 millionduring the year ended December 31, 2015 and $4 million during the prior year period. Professional Services Revenue was $11.6 million during the yearended December 31, 2015 and $8.7 million during the prior year period. 52 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cost of Revenues Cost of revenues for the year ended December 31, 2015 was $47.6 million compared to $44.2 million for the comparable period in the prior year.This increase of $3.4 million, or approximately 7.7%, was primarily attributable to higher sales. Sysorex Mobile, IoT & Big Data Products cost of netrevenues was $510,000 for the year ended December 31, 2015 as compared to $406,000 for the prior year period. Storage and Computing cost of net revenueswas $40.3 million for the year ended December 31, 2015, and $38.6 million for the prior year period. SaaS Revenues cost of net revenues was $824,000during the year ended December 31, 2015 and $801,000 during the prior year period. Professional Services cost of net revenues was $6 million during theyear ended December 31, 2015 and $4.4 million during the prior year period. The gross profit margin for the year ended December 31, 2015 was 29% compared to 30% for the year ended December 31, 2014. This slightdifference in margin is based on the sales mix. Sysorex Mobile, IoT & Big Data Products gross margins for the year ended December 31, 2015 and 2014 were69% and 79%, respectively. For the year ended December 31, 2015, Mobile, IoT & Big Data Products margin was lower in part due to the write off of obsoleteinventory in the first quarter of 2015. Gross margins for the Storage and Computing segment for the year ended December 31, 2015 and 2014 were 19% and20%, respectfully. Gross margins for SaaS Revenues for the year ended December 31, 2015 and 2014 were 78% and 80%, respectively. Gross margins forProfessional Services revenues for the year ended December 31, 2015 and 2014 were 48% and 50%, respectively. Operating Expenses Operating expenses for the year ended December 31, 2015 were $30.8 million and $26.4 million for the comparable period ended December 31,2014. This increase of $4.4 million includes a $1.4 Million increase in amortization of intangibles and depreciation and the balance was costs of expandingour engineering, sales and marketing operations. Loss From Operations Loss from operations for the year ended December 31, 2015 was $11.4 million as compared to$7.7 million for the comparable period in the prioryear. This increase of $3.7 million was primarily attributable to an increase in amortization of intangibles, depreciation and costs of expanding ourengineering, sales and marketing operations. Other Income/Expense Other income/expense consisted primarily of interest expense, gain on the settlement of obligations and change in the fair value of shares to beissued. Interest expense for the years ended December 31, 2015 and 2014 were $448,000 and $387,000, respectively. The increase of $61,000 was primarilyattributable to the increase in term loan in 2015 and higher revolving line of credit balance. Loss on the settlement of obligation for the year ended December31, 2015 of $85,000 was from the settlement of a Canadian tax claim. Gain on settlement of obligation for the year ended December 31, 2014 of $394,000represents trade payables that have been cancelled or reduced as a result of settlement or the operation of law. For the year ended December 31, 2015, otherincome/expense included a non-cash gain of $211,000 for a decrease in fair value of shares to be issued for the LightMiner acquisition. Provision for Income Taxes The was no provision for income taxes for the years ended December 31, 2015 and 2014 as we were in a net taxable loss position. Deferred tax assetsresulting from such losses are fully reserved as of December 31, 2015 and 2014 since, at present we have no history of taxable income and it is more likelythan not that such assets will not be realized. 53 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net Loss Attributable To Non-Controlling Interest Net loss attributable to non-controlling interest for the years ended December 31, 2015 and December 31, 2014 were $10,000 and $116,000,respectively. This decrease in loss of $106,000 was attributable to lower loss incurred at Sysorex Arabia due to operations winding down. Net Loss Attributable To Stockholders of Sysorex Global Net loss attributable to stockholders of Sysorex Global for the year ended December 31, 2015 was $11.7 million compared to $7.5 million for thecomparable period in the prior year. This increase in loss of $4.2 million was attributable to the changes described for the various reporting captionsdiscussed above. Non-GAAP Financial information EBITDA EBITDA is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization. AdjustedEBITDA 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 expenseitems, non-recurring items and non-cash stock-based compensation. Adjusted EBITDA for the year ended December 31, 2015 was a loss of $3.4 million compared to a loss of $1.9 for the prior year period. The following table presents a reconciliation of net income/loss attributable to stockholders of Sysorex Global, which is our GAAP operatingperformance measure, to Adjusted EBITDA for the year ended December 31, 2015 and 2014 (in thousands): Years Ended December 31, 2015 2014 Net loss attributable to common stockholders $(11,718) $(7,536)Adjustments: Non-recurring one-time charges: Provision for doubtful accounts 1,205 -- Acquisition transaction/financing costs 355 676 Stock-based compensation – acquisition costs -- 340 Costs associated with public offering 46 45 Other – severance costs 307 -- Change in the fair value of shares to be issued (211) -- Gain on settlement of obligations 85 (394)Stock-based compensation – compensation and related benefits 1,424 1,382 Interest expense 448 387 Depreciation and amortization 4,647 3,205 Adjusted EBITDA $(3,412) $(1,895) 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 Accounting Standards Codification Topic 280, SegmentReporting; ●To compare our current operating results with corresponding periods and with the operating results of other companies in our industry; 54 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ●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. Webelieve 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 AdjustedEBITDA as supplemental disclosure because of the following: ●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, and other non-operating expenses as well as depreciation and amortization which are non-cash expenses; ●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 notto consider this metric in isolation or as a substitute for net income (loss) and the other consolidated statement of operations data prepared in accordance withGAAP. 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 thefuture, 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 acomparative measure. Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth ofour business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results andproviding Adjusted EBITDA only as supplemental information. 55 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Proforma Non-GAAP Net Loss per Share Basic and diluted net loss per share for the twelve months ended December 31, 2015 was ($0.55) compared to ($0.42) for the prior year period. Thisdecrease 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 isdefined as net income (loss) per basic and diluted share adjusted for non-cash items including stock based compensation, amortization of intangibles and onetime 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 twelve months ended December 31, 2015 was ($0.21) compared to a loss of($0.14) per share for the prior year period. The following table presents a reconciliation of net loss per basic and diluted share, which is our GAAP operating performance measure, to proformanon-GAAP net loss per share for the periods reflected (in thousands, except per share data): Years Ended December 31, 2015 2014 Net loss attributable to common stockholders $(11,718) $(7,536)Adjustments: Non-recurring one-time charges: Provision for doubtful accounts 1,205 -- Acquisition transaction/financing costs 355 676 Stock-based compensation – acquisition costs -- 340 Costs associated with public offering 46 45 Other – severance costs 307 -- Change in the fair value of shares to be issued (211) -- Gain on settlement of obligations 85 (394)Stock-based compensation – compensation and related benefits 1,424 1,382 Amortization of intangibles 3,994 2,913 Proforma non-GAAP net loss $(4,513) $(2,574)Proforma non-GAAP net loss per basic and diluted common share $(0.21) $(0.14)Weighted average basic and diluted common shares outstanding 21,181,407 18,111,210 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 Accounting Standards Codification Topic 280, SegmentReporting; ●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 ouroperating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and thereconciliation 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: ●We believe proforma non-GAAP net loss per share is a useful tool for investors to assess the operating performance of our business without theeffect of non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlementof obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costsassociated with the public offering. 56 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ●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, 2015 Our current capital resources and operating results as of and through December 31, 2015, consist of: 1)An overall working capital deficit of $4.2 million; 2)Cash of $4.1 million; 3)The Credit Facility for up to $10 million which we borrow against based on eligible assets with a maturity date of April 29, 2017 of which $8.6million is utilized; 4)A term loan for $2,000,000 with a maturity date of April 29, 2018 which has a $1.6 million balance owed; and 5)Net cash used in operating activities year-to-date of $8.2 million. We believe our total working capital deficit of $4.2 million does not represent a severe impediment to our operations and growth when its principalcomponents are separately identified and analyzed and the growth of our business is taken into account. The breakdown of our overall working capital deficitis as follows (in thousands): Current Current Working capital Assets Liabilities Net Cash $4,060 $-- $4,060 Accounts receivable / accounts payable 12,209 9,320 2,889 Notes and other receivables 1,340 -- 1,340 Prepaid licenses and contracts / deferred revenue 7,509 9,095 (1,586)Short term debt -- 9,417 (9,417)Other 3,494 5,018 (1,524)Net $28,612 $32,850 $(4,238) Accounts receivable exceeds the related accounts payable by $2.9 million. We do not believe there are material collectability issues with respect toour accounts receivable. Deferred revenue exceeds the related prepaid contracts by $1.6 million and other liabilities exceed other assets by $1.5 million.These deficits are expected to be funded by our anticipated cash flow from operations, as described below, over the next twelve months. We do not believethat the Credit Facility, with a balance of $8.6 million at December 31, 2015, and the current portion of the term loan of $667,000 as of December 31, 2015will have a material adverse effect on our liquidity in the next twelve months as the Credit Facility principal balance is not due until April 2017. 57 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net cash used in operating activities during the year ended December 31, 2015 of $8.2 million consists of net loss of $11.7 million less non-cashexpenses of $6.6 million and net cash used of $3.1 million in changes in operating assets and liabilities. We expect net cash from operations to increaseduring 2016 as: 1)Our services are growing and becoming a larger part of our sales mix. These services generate gross margins of 50-80% and will be a largercontribution to our cash flow in the future. 2)Sysorex was awarded two large multiple-award government IDIQ Contracts in 2015 (NASA SEWP and NIH CIO-CS) that enable Sysorex tocapture task orders issued by any government agency under these contract vehicles. The Company has captured task orders under the NASASEWP contract and believes that it will be successful in securing additional task orders under both of these contracts, however there are noassurances that additional task orders under the contracts will ultimately be awarded to the Company. If such task orders are secured, then thesecontracts will provide the opportunity to increase our revenue and cash flows. 3) Sysorex is generating revenue from new versions of its AirPatrol product line that will contribute to operating cash flow. 4)The Company is launching its LightMiner product in the first quarter of 2016 which is expected to have 60-70% gross margins and will startcontributing to cash-flow this year. The Company’s capital resources as of December 31, 2015, increased bank facility effective April 29, 2015, higher margin business line expansionand recent contract awards are expected to be sufficient to fund planned operations during the next twelve months from the date of this filing. The Companyalso has an effective registration statement on Form S-3 which will allow it to raise additional capital from the sale of its securities, subject to certainlimitations for registrants with a market capitalization of less than $75 million. The information in this Form 10-K concerning the Company’s Form S-3registration statement does not constitute an offer of any securities for sale. If these sources do not provide the capital necessary to fund the Company’soperations during the next twelve months, the Company may need to curtail certain aspects of its expansion activities or consider other means of obtainingadditional financing, although there is no guarantee that any such additional financing would be available to the Company. Liquidity and Capital Resources – Western Alliance Financing Agreement (successor in interest to Bridge Bank N.A.) Reference is made to the March 15, 2013 Business Finance Agreement by and among Lilien, Sysorex Government, as co-borrowers and BridgeBank, N.A. (the “Bank”) under which the borrowers obtained a revolving line of credit for up to $5,000,000 with a maturity date of March 15, 2015 (the“Financing Agreement”), which was amended by the first amendment dated August 29, 2013, the second amendment dated May 13, 2014, and the thirdamendment dated December 31, 2014. On May 4, 2015 (effective as of April 29, 2015), the Company and Bridge Bank entered into the fourth amendment to the Financing Agreement toadd the Company, Sysorex Federal, AirPatrol and Shoom as borrowers under the agreement, amend certain financial covenants, increase the credit limit to$10.0 million and provide for a second term loan of $2 million which matures on April 29, 2017 and April 29, 2018, respectively. $167,000 of the term loanwas used to pay off the balance of the initial term loan under a previous amendment. The term loan accrues interest at Bridge Bank's prime rate plus 2%. As ofDecember 31, 2015 the interest rate was 5.50%. The Company will make payments of $56,000 on the term loan on the first day of each month commencingon May 1, 2015 until the loan amount is paid in full. The balance due on the term loan is scheduled to be paid in full during the year ending December 31,2018. On October 7, 2015, the Company, and certain of its wholly-owned subsidiaries as co-borrowers, entered into the fifth amendment (the “FifthAmendment”), effective as of September 30, 2015, to the Financing Agreement, with Western Alliance Bank, as successor in interest to Bridge Bank, N.A.Pursuant to the Fifth Amendment, the original lender, Bridge Bank, N.A., was replaced by Western Alliance Bank, as successor in interest to Bridge Bank,N.A. and the lender under the Financing Agreement. The Fifth Amendment also amended certain financial covenants of the borrowers required by theFinancing Agreement. All other terms remained the same. As of December 31, 2015, the principal amount outstanding under the Financing Agreement was $8.6 million with $1.6 million outstanding under aterm loan. 58 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On March 25, 2016, the Company, and certain of its wholly-owned subsidiaries as borrowers, entered into an amendment and waiver (the“Amendment”) to the Financing Agreement, with Western Alliance Bank. Pursuant to the Amendment, the lender waived any non-compliance by theborrowers with respect to the minimum adjusted EBITDA requirements as of December 31, 2015. In addition, the lender and the borrowers agreed that theadjusted EBITDA for the six months ended March 31, 2016 would not be less than $(2,200,000) and on or before April 30, 2016, the borrowers and the lendermust agree to additional financial covenants for the fiscal quarters ended June 30, 2016, September 30, 2016 and December 31, 2016. Liquidity and Capital Resources as of December 31, 2015 Compared With December 31, 2014 The Company’s net cash flows used in operating, investing and financing activities for the year ended December 31, 2015 and 2014 and certainbalances as of the end of those periods are as follows (in thousands): Years Ended December 31, 2015 2014 Net cash used in operating activities $(8,201) $(4,537)Net cash used in investing activities (1,550) (10,396)Net cash provided by financing activities 10,534 16,074 Effect of foreign exchange rate changes on cash 49 (17)Net increase in cash $832 $1,124 December 31,2015 December 31,2014 Cash and cash equivalents $4,060 $3,228 Working capital (deficit) $(4,238) $(2,813) Operating Activities for the year ended December 31, 2015 Net cash used in operating activities during the years ended December 31, 2015 and 2014 were $8.2 million and $4.5 million, respectively. The netnegative cash flows related to the year ended December 31, 2015 consisted of the following (in thousands): Net loss $(11,728)Non-cash income and expenses 6,586 Net change in operating assets and liabilities (3,059)Net cash used in operating activities $(8,201) The non-cash income and expense of $6.6 million consisted primarily of the following (in thousands): $4,647 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Lilien, Shoom, AirPatrol andLightMiner operations, which were acquired effective March 1, 2013, August 31, 2013, April 16, 2014 and April 24, 2015, respectively. 1,424 Stock-based compensation expense attributable to warrants and options issued as part of Company operations and for the AirPatrolacquisition. 1,205 Provision for doubtful accounts (695) Treasury shares received upon settlement of escrow 5 Other$6,586 Total non-cash expenses 59 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The net use of cash in the change in operating assets and liabilities aggregated $3.1 million and consisted primarily of the following (in thousands): $(5,239) Increase in accounts receivable and other receivables (744) Increase in prepaid licenses and maintenance contracts (586) Increase in inventory and other assets 1,944 Increase in accounts payable 439 Inrease in accrued liabilities and other liabilities 1,127 Increase in deferred revenue$(3,059) Net use of cash in the changes in operating assets and liabilities Operating Activities for the year ended December 31, 2014 Net cash flows related to operating activities during the year ended December 31, 2014 was negative $4.5 million and consisted of the following (inthousands): $(7,652) Net loss 4,596 Non-cash expenses (1,481) Net change in operating assets and liabilities$(4,537) Net cash used in operating activities The non-cash income and expense of $4.6 million consisted primarily of the following (in thousands): $3,206 Depreciation and amortization expenses (including amortization of intangibles) primarily attributable to the Lilien, Shoom and AirPatroloperations, which were acquired effective March 1, 2013, August 31, 2013 and April 16, 2014, respectively. 1,723 Stock-based compensation expense attributable to warrants and options issued as part of Company operations and for the AirPatrolacquisition. (394) Gain on settlement of obligations 61 Other$4,596 Total non-cash expenses The net use of cash in the change in operating assets and liabilities aggregated $1.5 million and consisted primarily of the following (in thousands): $998 Decrease in accounts receivable and other receivables (2,963) Increase in prepaid licenses and maintenance contracts (946) Increase in inventory and other assets (1,204) Decrease in accounts payable (989) Decrease in accrued liabilities and other liabilities 3,623 Increase in deferred revenue$(1,481) Net use of cash in the changes in operating assets and liabilities 60 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cash Flows from Investing Activities as of December 31, 2015 and 2014 Net cash flows used in investing activities during 2015 was $1.6 million compared to net cash flows used in investing activities during 2014 of$10.4 million. Cash flows related to investing activities during the year ended December 31, 2015 include $355,000 for the purchase of property andequipment, $1.2 million investment in capitalized software and $19,000 for the purchase of LightMiner. The Cash flows related to investing activities duringthe year ended December 31, 2014 included $9.6 million in connection with the AirPatrol acquisition, $1 million for the purchase of property andequipment, $950,000 of advances to third parties, $235,000 investment in capitalized software, offset by $1.1 million in loan repayments received and$125,000 for the redemption of marketable securities. Cash Flows from Financing Activities as of December 31, 2015 and 2014 Net cash flows from financing activities during the years ended December 31, 2015 and 2014 were $10.5 million and $16.1 million, respectively.The positive cash flows related to the year ended December 31, 2015 were primarily comprised of $4.7 million advances from the credit line, $2 millionadvance from the term loan and $4.7 million from the September 2015 capital raise offset by a $764,000 repayment of the term loan and $71,000 repaymentof notes payable. The positive cash flows related to the year ended December 31, 2014 were comprised primarily of $16.6 million from capital raised from theinitial public offering and $2.1 million from proceeds from issuance of common stock, offset by $2.2 million in repayments of line of credit and term loan,and $460,000 in repayments of notes payable. 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 activitiesinvolving non-exchange traded contracts. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, please see Note 2 to our financial statements, which are included in this reportbeginning 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. 61 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SYSOREX GLOBALINDEX TO FINANCIAL STATEMENTS Page No.ANNUAL FINANCIAL INFORMATION Report of Independent Registered Public Accounting Firm F-1Consolidated Balance Sheets at December 31, 2015 and 2014 F-2Consolidated Statements of Operations for the years ended December 31, 2015 and 2014 F-3Consolidated Statements of Comprehensive Loss for the years ended December 31, 2015 and 2014 F-4Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015 and 2014 F-5Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014 F-6Notes to Consolidated Financial Statements F-7 62 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Sysorex Global We have audited the accompanying consolidated balance sheets of Sysorex Global and Subsidiaries (the “Company”) as of December 31, 2015 and 2014,and the related statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included considerationof internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sysorex Global andSubsidiaries as of December 31, 2015 and 2014, and the results of its operations, and its cash flows for the years then ended, in conformity with accountingprinciples generally accepted in the United States of America. /s/ Marcum LLPNew York, NYMarch 30, 2015 F-1Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and par value data) December 31, December 31, 2015 2014 (Audited) (Audited) Assets Current Assets Cash and cash equivalents $4,060 $3,228 Accounts receivable, net 12,209 8,223 Note receivable, related party - 90 Notes and other receivables 1,340 1,293 Inventory 755 610 Prepaid licenses and maintenance contracts 7,509 7,151 Assets held for sale 772 15 Prepaid assets and other current assets 1,967 1,451 Total Current Assets 28,612 22,061 Prepaid licenses and maintenance contracts, non-current 6,586 6,200 Property and equipment, net 1,392 1,308 Software development costs, net 1,281 278 Intangible assets, net 17,161 17,676 Goodwill 13,166 13,166 Assets held for sale, non-current - 763 Other assets 517 608 Total Assets $68,715 $62,060 The accompanying notes are an integral part of these financial statements. F-2Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except number of shares and par value data) December 31, December 31, 2015 2014 (Audited) (Audited) Liabilities and Stockholders' Equity Current Liabilities Accounts payable $9,320 $7,290 Accrued liabilities 2,992 2,406 Deferred revenue 9,095 8,453 Short-term debt 9,417 4,696 Liabilities held for sale 2,026 2,029 Total Current Liabilities 32,850 24,874 Long Term Liabilities Deferred revenue, non-current 7,666 7,181 Long-term debt 1,226 100 Other liabilities 542 684 Acquisition liability - LightMiner 3,475 - Total Liabilities 45,759 32,839 Commitments and Contingencies Stockholders' Equity Preferred stock - $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding - - Common stock - $0.001 par value; 50,000,000 shares authorized; 25,309,863 and 19,707,262 issued and 25,071,035and 19,707,262 outstanding at December 31, 2015 and 2014, respectively 25 20 Additional paid-in capital 58,226 52,122 Treasury stock, at cost, 238,828 shares (695) - Due from Sysorex Consulting Inc. (666) (666)Accumulated other comprehensive income 31 (18)Accumulated deficit (excluding $2,442 reclassified to additional paid in capital in quasi-reorganization) (32,359) (20,641) Stockholders' Equity Attributable to Sysorex Global Holdings Corp. 24,562 30,817 Non- controlling Interest (1,606) (1,596) Total Stockholders' Equity 22,956 29,221 Total Liabilities and Stockholders' Equity $68,715 $62,060 The accompanying notes are an integral part of these financial statements. F-3Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Years Ended December 31, 2015 2014 (Audited) Revenues Products $51,381 $50,044 Services 15,576 12,905 Total Revenues 66,957 62,949 Cost of Revenues Products 40,763 38,906 Services 6,865 5,303 Total Cost of Revenues 47,628 44,209 Gross Profit 19,329 18,740 Operating Expenses Research and development 635 616 Sales and marketing 11,531 9,966 General and administrative 14,255 11,935 Acquisition related costs 355 1,016 Amortization of intangibles 3,994 2,913 Total Operating Expenses 30,770 26,446 Loss from Operations (11,441) (7,706) Other Income (Expense) Interest expense (448) (387)Other income 35 47 Gain (Loss) on the settlement of obligation (85) 394 Change in fair value of shares to be issued 211 - Total Other Income (Expense) (287) 54 Loss before Provision for Income Taxes (11,728) (7,652)Provision for Income Taxes - - Net Loss (11,728) (7,652) Net Loss Attributable to Non-controlling Interest (10) (116) Net Loss Attributable to Stockholders of Sysorex Global Holdings Corp. $(11,718) $(7,536) Net Loss Per Share - Basic and Diluted $(0.55) $(0.42) Weighted Average Shares Outstanding Basic and Diluted 21,181,407 18,111,210 The accompanying notes are an integral part of these financial statements. F-4Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) For the Years Ended December 31, 2015 2014 (Audited) Net Loss $(11,728) $(7,652) Unrealized foreign exchange gain/(loss) from cumulative translation adjustments 49 (18)Unrealized holding gains in marketable securities including reclassification adjustment of realized gains included innet income - (3) Comprehensive Loss $(11,679) $(7,673) The accompanying notes are an integral part of these financial statements. F-5Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2015 (Audited) (In thousands, except per share data) Common Stock AdditionalPaid-In Treasury Stock Due fromSysorexConsulting, AccumulatedOtherComprehensive Accumulated Non-Controlling TotalStockholders' Shares Amount Capital Shares Amount Inc. Income (Loss) Deficit Interest Equity Balance - January 1, 2014 14,094,532 $14 $21,531 - $- $(666) $3 $(13,105) $(1,480) $6,297 Common shares issued forservices 206,536 - 680 - - - - - - 680 Common shares issued forcash 400,000 - 2,080 - - - - - - 2,080 Stock options granted toemployees for services - - 1,043 - - - - - - 1,043 Common shares issued fornet cash proceedsreceived from publicoffering 3,166,666 4 16,611 - - - - - - 16,615 Common shares issued forAirPatrol acquisition 1,832,808 2 10,176 - - - - - - 10,178 Acquisition sharesadjustment (5,986) - (12) - - - - - - (12)Common shares issued foroptions exercised 12,539 - 13 - - - - - - 13 Fractional shares issuedfrom reverse stock split 167 - - - - - - - - - Unrealized gain onmarketable securities - - - - - - (3) - - (3)Cumulative translationadjustment - - - - - - (18) - - (18)Net loss - - - - - - - (7,536) (116) (7,652) Balance - December 31, 2014 19,707,262 $20 $52,122 $- $- $(666) $(18) $(20,641) $(1,596) $29,221 Common shares issued forservices 351,240 - 455 - - - - - - 455 Stock options granted toemployees andconsultants for services - - 958 - - - - - - 958 Warrants granted toconsultants for services - - 11 - - - - - - 11 Returned shares fromAirPatrol holdback - - - (238,828) (695) - - - - (695)Options exercised on acashless basis 1,361 - (0) - - - - - - - Common shares issued fornet cash proceeds from apublic offering 5,250,000 5 4,680 - - - - - - 4,685 Cumulative translationadjustment - - - - - - 49 - - 49 Net loss - - - - - - - (11,718) (10) (11,728)Balance - December 31, 2015 25,309,863 $25 $58,226 (238,828) $(695) $(666) $31 $(32,359) $(1,606) $22,956 The accompanying notes are an integral part of these financial statements. F-6Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBAL CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2015 2014 (Audited) Cash Flows from Operating Activities Net loss $(11,728) $(7,652)Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 653 293 Amortization of intangible assets 3,994 2,913 Stock based compensation 1,424 1,723 Acquisition shares adjustment - (12)Loss/(gain) on settlement of obligations 85 (394)Amortization of deferred financing costs 23 91 Change in fair value of shares to be issued (211) - Compensation expense, note receivable related party 90 - Provision for doubtful accounts 1,032 (14)Treasury shares received upon settlement of escrow (695) - Other 18 (4) Changes in operating assets and liabilities: Accounts receivable and other receivables (5,066) 997 Inventory (145) (269)Other current assets (510) (922)Prepaid licenses and maintenance contracts (744) (2,963)Other assets 69 245 Accounts payable 1,944 (1,204)Accrued liabilities 586 (1,498)Deferred revenue 1,127 3,623 Other liabilities (147) 510 Total Adjustments 3,527 3,115 Net Cash Used in Operating Activities (8,201) (4,537) Cash Flows Used in Investing Activities Purchase of property and equipment (355) (1,053)Proceeds from the sale of marketable securities - 125 Investment in capitalized software (1,176) (235)Investment in LightMiner (19) - Advance to employee - (90)Advances to third parties - (950)Repayment of notes receivable from third parties - 180 Cash paid for AirPatrol - (9,514)Cash acquired in AirPatrol acquisition - 71 Repayment of loans to other parties - 1,000 Change in restricted cash - 70 Net Cash Flows Used in Investing Activities (1,550) (10,396) Cash Flows provided by Financing Activities Advances (repayment) of line of credit 4,682 (1,799)Repayment of advance from Duroob Technology - (160)Repayment of term loan (764) (375)Advances from term loan 2,000 - Advances from related party 2 - Net proceeds from issuance of common stock - 2,080 Net proceeds from capital raise 4,685 16,615 Net proceeds from conversion of employee options - 13 Repayment of notes payable (71) (300) Net Cash Provided by Financing Activities 10,534 16,074 Effect of Foreign Exchange Rate on Changes on Cash 49 (17) Net Increase in Cash and Cash Equivalents 832 1,124 Cash and Cash Equivalents - Beginning of year 3,228 2,104 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash and Cash Equivalents - End of year $4,060 $3,228 Supplemental Disclosure of cash flow information: Cash paid for: Interest $426 $311 Income Taxes - - Supplemental disclosures for non-cash operating, investing and financing activities: Acquisition of AirPatrol: Assumption of assets other than cash - $843 Assumption of liabilities - $1,811 Issuance of common stock - $10,178 Asset Acquisition of LightMiner: Assumption of assets other than cash $225 - Assumption of assets - developed technology and export license $3,479 - The accompanying notes are an integral part of these financial statements. F-7Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 1 - Organization and Nature of Business Overview Sysorex Global, f/k/a Sysorex Global Holdings Corp., through its wholly-owned subsidiaries, AirPatrol Corporation (“AirPatrol”), Shoom, Inc. (“Shoom”),Lilien Systems (“Lilien”) (effective January 1, 2016, AirPatrol and Shoom were merged into Lilien, which changed its name to “Sysorex USA”), SysorexGovernment Services, Inc. (“SGS” or “Sysorex Government Services”), Sysorex Canada Corp., f/k/a AirPatrol Research Corp. (“AirPatrol Canada”), .and themajority-owned subsidiary, Sysorex Arabia LLC (“SA” or “Sysorex Arabia”) (collectively the “Company”), provides big data analytics and location basedproducts and related services for the cyber-security and Internet of Things markets. The Company is headquartered in California, and has subsidiary offices inVirginia, Maryland, Oregon, Hawaii, State of Washington, California, Vancouver, Canada and Riyadh, Saudi Arabia. Effective April 16, 2014, and as more fully described in Note 5, the Company acquired AirPatrol, a Maryland based provider of mobile cyber-security andlocation-based service solutions. On April 24, 2015, and as more fully described in Note 4, the Company completed the acquisition of substantially all of the assets of LightMiner Systems,Inc. which is in the business of developing and commercializing in-memory SQL databases. Liquidity As of December 31, 2015 the Company has a working capital deficiency of approximately $4.2 million. For the year ended December 31, 2015 the Companyincurred a net loss of approximately $11.7 million and utilized cash in operations of approximately $8.2 million. On May 4, 2015 but effective as of April 29, 2015, the Company amended its bank line of credit to increase the credit limit to $10 million and provide for asecond term loan of up to $2 million of which $167,000 was used to pay off the balance of the initial term loan. The Company also sold 5,250,000 shares ofits common stock at a price of $1.00 per share on September 25, 2015. After deducting underwriting discounts and commissions and offering expenses, thenet proceeds from the offering were approximately $4.7 million. Additionally, the Company was awarded two large IDIQ (indefinite delivery/indefinitequantity) government vehicles as a prime contractor in April 2015. While the Company believes that it will be successful in securing task orders under thecontracts and will generate revenue, there are no assurances that any task orders under the contracts will ultimately be awarded to the Company. TheCompany is launching its LightMiner product in the first quarter of 2016 which is expected to have 60-70% gross margins and we anticipate will startcontributing to cash-flow this year. Additionally the Company is expecting AirPatrol product sales to increase significantly this year which is expected togenerate higher gross margins and improve cash-flow. The Company’s capital resources as of December 31, 2015, increased bank facility, higher margin business line expansion and recent contract awards areexpected to be sufficient to fund planned operations during the next twelve months from the date of filing this annual report. The Company also has aneffective registration statement on Form S-3 which will allow it to raise additional capital from the sale of its securities, subject to certain limitations forregistrants with a market capitalization of less than $75 million. The information in these consolidated financial statements concerning the Company’s FormS-3 registration statement does not constitute an offer of any securities for sale. If these sources do not provide the capital necessary to fund the Company’soperations during the next twelve months from the date of the filing of the annual report, the Company may need to curtail certain aspects of its expansionactivities or consider other means of obtaining additional financing, although there is no guarantee that any such additional financing would be available tothe Company. F-8Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements have been prepared using the accounting records of Sysorex Global and its wholly-owned subsidiaries in 2015,Sysorex Federal, Inc., Sysorex Government Services, Inc., Lilien Systems, Shoom, Inc., AirPatrol Corporation and AirPatrol Canada as of April 16, 2014 andits majority-owned subsidiary, Sysorex Arabia LLC. All material inter-company balances and transactions have been eliminated. The Company owns 50.2% of Sysorex Arabia. As of December 31, 2015 there is $772,000 reported as assets held for sale and $2,026,000 as liabilities heldfor sale. The Company’s Board of Directors authorized management on October 29, 2015 to close its Saudi Arabia legal entity at an appropriate time andmanner as business activities have been shifted to resellers and strategic partners in the region. During the year ended December 31, 2015 and 2014 SysorexArabia had immaterial operations. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ fromthose estimates. The Company’s significant estimates consist of: ●The valuation of the assets and liabilities acquired from AirPatrol and LightMiner as described in Note 3 and Note 4, respectively; ●The valuation of stock-based compensation; ●The allowance for doubtful accounts; ●The valuation allowance for the deferred tax asset; and ●Impairment of long-lived assets. Business Combinations The Company accounts for business combinations under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805“Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded attheir 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 areexpensed 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 lesswhen purchased. As of December 31, 2015 and 2014 the Company had no cash equivalents. F-9Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Restricted Cash In connection with certain transactions, the Company may be required to deposit assets, including cash or investment shares, in escrow accounts. The assetsheld in escrow are subject to various contingencies that may exist with respect to such transactions. Upon resolution of those contingencies or the expirationof the escrow period, some or all the escrow amounts may be used and the balance released to the Company. As of December 31, 2015 the Company had$350,000 deposited in escrow as restricted cash for the Shoom acquisition, of which any amounts not subject to claims shall be released to the ShoomStockholders, on a pro-rata basis, on each of the next (5) anniversary dates of the Closing Date. $70,000 of that amount is current and included in OtherCurrent Assets and $282,000 is non-current and included in Other Assets on the balance sheet. Additionally, the Company had $90,000 on deposit with theCompany’s clearing organization which is included as restricted cash in Other Current Assets as of December 31, 2015. As of December 31, 2014 theCompany had $420,000 deposited in escrow shown as Restricted Cash of which $70,000 was part of Other Current Assets and Restricted Cash – net of currentportion of $350,000 was part of Other Assets for the Shoom acquisition. Accounts Receivable, net and Allowance for Doubtful Accounts Accounts receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for doubtful accounts to ensureaccounts 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 accountsis recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, ordeterioration in the customers’ operating results or financial position. If circumstances related to customers change, estimates of the recoverability ofreceivables would be further adjusted. The Company has recorded an allowance for doubtful accounts of $285,000 and $9,000 as of December 31, 2015 and2014, respectively. Inventory Inventory is stated at the lower of cost or market utilizing the first-in, first-out method. The Company continually analyzes its slow-moving, excess andobsolete inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company establishes reserves. If the Company doesnot meet its sales expectations, these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. As ofDecember 31, 2015 and 2014, the Company deemed any such allowance nominal. Deferred Financing Costs Cost incurred in conjunction with the debt financing has been capitalized and will be amortized to interest expense using the straight line method, whichapproximates the interest rate method, over the term of the debt and is included as a component of other assets. The Company incurred $144,000 of deferredfinancing costs and amortized $23,000 and $91,000 of those costs during the years ended December 31, 2015 and 2014, respectively. As of December 31,2015 and 2014, accumulated amortization approximated $144,000 and $121,000, respectively. Prepaid Licenses and Maintenance Contracts Prepaid licenses and maintenance contracts represent payments made by the Company directly to the manufacturer. The Company acts as the principal andthe primary obligor in the transaction and amortizes the capitalized costs ratably over the term of the contract to cost of revenues, generally one to five years. F-10Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Property and Equipment, net Property and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment forfinancial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. Leaseholdimprovements are amortized over the lesser of the useful life of the asset, or the initial lease term. Expenditures for maintenance and repairs, which do notextend 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 gainor loss on disposal is recognized. Intangible Assets Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, export license and tradenames/trademarks. They are amortized ratably over a range of one to seven 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 anyimpairment charges for the years ended December 31, 2015 and 2014. Goodwill The Company records goodwill and other indefinite-lived assets in connection with business combinations. Goodwill, which represents the excess ofacquisition cost over the fair value of the net tangible and intangible assets of acquired companies, is not amortized. Indefinite-lived assets are stated at fairvalue as of the date acquired in a business combination. The Company’s goodwill balance and other assets with indefinite lives are evaluated for potentialimpairment annually each year and in certain other circumstances. The evaluation of impairment involves comparing the current fair value of the business tothe recorded value, including goodwill. To determine the fair value of the business, the Company utilizes both the “Income Approach”, which is based onestimates of future net cash flows, and the “Market Approach”, which observes transactional evidence involving similar businesses. There was no impairmentfor the years ended December 31, 2015 and 2014. Software Development Costs The Company develops and utilizes internal software for the processing of data provided by its customers. Costs incurred in this effort are accounted forunder the provisions of FASB ASC 350-40, Internal Use Software and ASC 985-20, Software – Cost of Software to be Sold, Leased or Marketed, wherebydirect costs related to development and enhancement of internal use software is capitalized, and costs related to maintenance are expensed as incurred. TheCompany capitalizes its direct internal costs of labor and associated employee benefits that qualify as development or enhancement. These softwaredevelopment costs are amortized over the estimated useful life which management has determined ranges from one to five years. Research and Development Research and development costs consist primarily of professional fees. All research and development costs are expensed as incurred. F-11Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Impairment of Long-Lived Assets The Company assesses the recoverability of its long-lived assets, including property and equipment and intangible assets, when there are indications that theassets might be impaired. When evaluating assets for potential impairment, the Company compares the carrying value of the asset to its estimatedundiscounted future cash flows. If an asset’s carrying value exceeds such estimated cash flows (undiscounted and with interest charges), the Companyrecords an impairment charge for the difference. Based on its assessments, the Company did not record any impairment charges for the years ended December 31, 2015 and 2014. Income Taxes The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in theperiod that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance isestablished when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, orthat future deductibility is uncertain. Non-Controlling Interest The Company has a 50.2% equity interest in SA as of December 31, 2015 and 2014. The portion of the Company’s deficiency attributable to this third-partynon-controlling interest was approximately $1.6 million as of December 31, 2015 and 2014. Deferred Rent Expense The Company has operating leases which contain predetermined increases and rent holidays in the rentals payable during the term of such leases. For theseleases, the aggregate rental expense over the lease term is recognized on a straight-line basis over the lease term. The difference between the expense chargedto operations in any year and the amount payable under the lease during that year is recorded as deferred rent expense on the Company’s balance sheet,which will reverse to the statement of operations over the lease term. Foreign Currency Translation Assets and liabilities related to the Company’s foreign operations are calculated using the Saudi Riyal and Canadian Dollar and are translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates prevailing during the period. Translation adjustmentsare recorded as a separate component of consolidated stockholders’ equity and were an income of $49,000 and a loss of $18,000 for the years endedDecember 31, 2015 and 2014, respectively. Gains or losses resulting from transactions denominated in foreign currencies are included in other income(expense) in the consolidated statements of operations. The Company engages in foreign currency denominated transactions with customers that operate infunctional currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were not material for the years ended December 31, 2015and 2014, respectively. F-12Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Comprehensive Income (Loss) The Company reports comprehensive income (loss) and its components in its consolidated financial statements. Comprehensive loss consists of net loss,foreign currency translation adjustments and unrealized gains and losses from marketable securities, affecting stockholders’ equity that, under US GAAP, areexcluded from net loss. Revenue Recognition The Company provides IT solutions and services to customers with revenues currently derived primarily from the sale of third-party hardware and softwareproducts, software, assurance, licenses and other consulting services, including maintenance services and recognizes revenue once the following four criteriaare met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed and determinable, (3) shipment (software and hardware) or fulfillment(maintenance) has occurred, and (4) there is reasonable assurance of collection of the sales proceeds (the “Revenue Recognition Criteria”). In addition, theCompany also records revenues in accordance with Accounting Standards Codification (“ASC”) Topic 605-45 “Principal Agent Consideration” (“ASC 605-45”). The Company evaluates the sales of products and services on a case by case basis to determine whether the transaction should be recorded gross or net,including, but not limited to, assessing whether or not the Company: 1) is the primary obligor in the transaction; 2) has inventory risk with respect to theproducts and/or services sold; 3) has latitude in pricing; and 4) changes the product or performs part of the services sold. The Company evaluates whetherrevenues received from the sale of hardware and software products, licenses, and services, including maintenance and professional consulting services, shouldbe recognized on a gross or net basis on a transaction by transaction basis. As of December 31, 2015, the Company has determined that all revenues receivedshould be recognized on a gross basis in accordance with applicable standards. Cooperative reimbursements from vendors, which are earned and available, are recorded during the period the related transaction has occurred. Cooperativereimbursements are recorded as a reduction of cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller) for CertainConsideration Received from a Vendor.” Provisions for returns are estimated based on historical collections and credit memo analysis for the period. TheCompany receives Marketing Development Funds (MDF) from vendors based on quarterly or annual sales performance to promote the marketing of vendorproducts and services. The Company must file claims with vendors for these cooperative reimbursements by providing invoices and receipts for marketingexpenses. Reimbursements are recorded as a reduction of marketing expenses and other applicable selling general and administrative expenses ratably overthe period in which the expenses are expected to occur. The Company receives vendor rebates which are recorded to cost of sales. The Company also enters into sales transactions whereby customer orders contain multiple deliverables, and reports its multiple deliverable arrangementsunder ASC 605-25 “Revenue Arrangements with Multiple Deliverables” (“ASC-605-25”). These multiple deliverable arrangements primarily consist of thefollowing deliverables: the Company’s design, configuration, installation, integration, warranty/maintenance and consulting services; and third-partycomputer hardware, software and warranty maintenance services. In situations where the Company bundles all or a portion of the separate elements, VendorSpecific Objective Evidence (“VSOE”) is determined based on prices when sold separately. For the years ended December 31, 2015 and 2014 revenuesrecognized as a result of customer contracts requiring the delivery of multiple elements was $33.7 million and $41.3 million, respectively. F-13Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) Hardware, Software and Licensing Revenue Recognition Generally, the Revenue Recognition Criteria are met with respect to the sales of hardware and software products when they are shipped to the customer. Thedelivery of products to our customers occurs in a variety of ways, including (i) as a physical product shipped from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect to software licenses. The Company leverages drop-ship arrangements with manyof its vendors and suppliers to deliver products to customers without having to physically hold the inventory at its warehouse. In such arrangements, theCompany negotiates the sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from itscustomers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards and requirements of thecustomer. As a result, the Company recognizes the sale of the product and the cost of such upon receiving notification from the supplier that the product hasshipped. Vendor rebates and price protection are recorded when earned as a reduction to cost of sales or merchandise inventory, as applicable. Vendorproduct price discounts are recorded when earned as a reduction to cost of sales. Maintenance and Professional Services Revenue Recognition With respect to sales of our maintenance, consulting and other service agreements including our digital advertising and electronic services, the RevenueRecognition Criteria is met once the service has been provided. Revenue on time and material contracts is recognized based on a fixed hourly rate as directlabor hours are expended. The fixed rate includes direct labor, indirect expenses, and profits. Materials, or other specified direct costs, are reimbursed asactual costs and may include markup. Anticipated losses are recognized as soon as they become known. For the years ended December 31, 2015 and 2014,the Company did not incur any such losses. These amounts are based on known and estimated factors. Revenues from time and material or firm fixed pricelong-term and short-term contracts are derived principally with various United States Government agencies and commercial customers. The Company recognizes revenue for sales of all services billed as a fixed fee ratably over the term of the arrangement as such services are provided. Billingsfor such services that are made in advance of the related revenue recognized are recorded as deferred revenue and recognized as revenue ratably over thebilling coverage period. Amounts received as prepayments for services to be rendered are recognized as deferred revenue. Revenue from such prepayments isrecognized when the services are provided. The Company’s storage and computing segment maintenance services agreements permit customers to obtain technical support from the Company and/or themanufacturer and to update, at no additional cost, to the latest technology if new software updates are introduced during the period that the maintenanceagreement is in effect. Since the Company assumes certain responsibility for product staging, configuration, installation, modification, and integration withother client systems, or retains general inventory risk upon customer return or rejection and is most familiar with the customer and its required specifications,it generally serves as the initial contact with the customer with respect to any storage and computing maintenance services required and therefore willperform all or part of the required service. Typically, the Company sells maintenance contracts for a separate fee with initial contractual periods ranging from one to three years with renewal foradditional periods thereafter. The Company generally bills maintenance fees in advance and records the amounts received as deferred revenue with respect toany portion of the fee for which services have not yet been provided. The Company recognizes the related revenue ratably over the term of the maintenanceagreement as services are provided. In situations where the Company bundles all or a portion of the maintenance fee with products, VSOE for maintenance isdetermined based on prices when sold separately. F-14Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) Customers that have purchased maintenance/warranty services have a right to cancel and receive a refund of the amounts paid for unused services at any timeduring the service period upon advance written notice to the Company. Cancellation and refund privileges with respect to maintenance/warranty serviceslapse as to any period during the term of the agreement for which such services have already been provided. Customers do not have the right to a refund ofpaid fees for maintenance/warranty services that the Company has earned and recognized as revenue. Invoices issued for maintenance/warranty services notyet rendered are recorded as deferred revenue and then recognized as revenue ratably over the service period. As a result (1) the warranty and maintenanceservice fees payable by each customer are separately accounted for in each customer purchase order as a separate line item, and (2) upon the Company’sreceipt and acceptance of a request for refund of maintenance/warranty services not yet provided, the Company’s obligation to perform any additionalmaintenance/warranty services will end. Sales are recorded net of discounts and returns. Shipping and Handling Costs Shipping and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be nominal during each of the reportingperiods. Advertising Costs Advertising costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were deemed to benominal during each of the reporting periods. Stock-Based Compensation The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments basedupon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which therecipient is required to provide services in exchange for that award. Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted to fair value atthe end of each reporting period until such options and warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vestingperiod. The Company incurred stock-based compensation charges, net of estimated forfeitures of $1.4 million and $1.7 million for the years ended December 31,2015 and 2014, respectively. The following table summarizes the nature of such charges for the years then ended (in thousands): Years EndedDecember 31, 2015 2014 Compensation and related benefits $956 $1,043 Professional fees 468 340 Acquisition transaction costs -- 340 Totals $1,424 $1,723 F-15Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Net Loss Per Share The Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding during theperiod. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options andwarrants in the calculation of diluted net loss per common shares would have been anti-dilutive. The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per commonshare for the years ended December 31, 2015 and 2014: Years EndedDecember 31, 2015 2014 Options 4,753,049 2,792,658 Warrants 561,262 511,262 Shares accrued but not issued 1,842,000 35,715 Totals 7,156,311 3,339,635 Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued expenses, deferred revenue, andshort term debt. The Company determines the estimated fair value of such financial instruments presented in these financial statements using availablemarket information and appropriate methodologies. These financial instruments except for short term debt are stated at their respective historical carryingamounts, which approximate fair value due to their short term nature. Short-term debt approximates market value based on similar terms available to thecompany in the market place. Segment Reporting In accordance with ASC 280 “Segment Reporting”, operating segments are identified as components of an enterprise about which separate discrete financialinformation is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources andassess performance. Our chief decision maker, as defined under the FASB’s guidance, is the Chief Executive Officer. It is determined that the Companyoperates in four business segments and three geographic segments, Saudi Arabia, Canada and the United States. Reclassification Certain accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’sfinancial statements. These reclassifications have no effect on previously reported earnings. Recent Accounting Pronouncements In April, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Reporting DiscontinuedOperations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). This new standard raises the threshold for disposals to qualify asdiscontinued operations, allows companies to have significant continuing involvement and continuing cash flows and provides for new and additionaldisclosures of discontinued operations and individually material disposal transactions. The adoption of this pronouncement did not have a material effect onthe consolidated financial statements. In May, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements inAccounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires thatan entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which thecompany expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2018 and should be applied retrospectively toeach prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application.Early application is only permitted as of January 1, 2017. The Company is currently evaluating the effect of the ASU on its financial position, results ofoperations and cash flows. F-16Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) In June, 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Termsof an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target thataffects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should notbe reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period inwhich it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which therequisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periodsbeginning after December 15, 2015. Earlier adoption is permitted. The adoption of this pronouncement did not have a material effect on the consolidatedfinancial statements. In August, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of UncertaintiesAbout an Entities Ability to Continue as a Going Concern. The standard is intended to define management’s responsibility to decide whether there issubstantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The standard requiresmanagement to decide whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within oneyear after the date that the financial statements are issued. The standard provides guidance to an organization’s management, with principles and definitionsthat are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations in the footnotes. The standardbecomes effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the effect ofthe ASU on its financial position, results of operations and cash flows. In April 2015, the FASB issued ASU No. 2015-03 (“ASU 2015-03”), “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of DebtIssuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deductionfrom the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as an asset. ASU 2015-03 is effective for theCompany on January 1, 2016. Once adopted, entities are required to apply the new guidance retrospectively to all prior periods presented. The retrospectiveapplication represents a change in accounting principle. Early adoption is permitted for financial statements that have not been previously issued. TheCompany is currently evaluating the effect that ASU 2015-03 will have on its consolidated financial statements and related disclosures. In May 2015, the FASB issued ASU No. 2015-07 (“2015-07”), “Fair Value Measurement.” ASU 2015-07 removes the requirement to categorize within thefair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove therequirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practicalexpedient. ASU 2015-07 is effective for the Company on January 1, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU2015–07 to have a significant impact on its consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16 (“ASU 2015-16”), “Business Combinations (Topic 805), Simplifying the Accounting forMeasurement-Period Adjustments”. The update requires that the acquirer in a business combination recognize adjustments to provisional amounts that areidentified during the measurement period in the reporting period in which the adjustment amounts are determined (not retrospectively as with priorguidance). Additionally, the acquirer must record in the same period’s financial statements the effect on earnings of changes in depreciation, amortization orother income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the time of acquisition. Theacquiring entity is required to disclose, on the face of the financial statements or in the footnotes to the financial statements, the portion of the amountrecorded in current period earnings, by financial statement line item, that would have been recorded in previous reporting periods if the adjustment to theprovisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for the Company on January 1, 2016. The adoption of thisstandard is not expected to have a material impact on its consolidated financial statements. F-17Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 2 - Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), whichsimplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classifiedstatement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interimperiods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities orretrospectively to all periods presented. The adoption of this standard is not expected to have a material impact on its consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”), “Financial Instruments – Overall (Subtopic 825-10)”. ASU 2016-01 updates certainaspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for us on January 1, 2018. TheCompany does not expect the adoption of ASU 2016–01 to have a significant impact on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02), “Leases (Topic 842).” ASU 2016-02 requires a lessee to recognize a lease liability for theobligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASU 2016-02 is effective for theCompany on January 1, 2019. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-02 will have on its consolidatedfinancial statements. The FASB and the SEC have issued certain other accounting standards updates and regulations that will become effective in subsequent periods; however,management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures ordisclosures had they been in effect during 2015 or 2014, and does not believe that any of those pronouncements will have a significant impact on theCompany’s consolidated financial statements at the time they become effective. Reverse Stock Split The board of directors was authorized by the Company's stockholders to effect a 1-for-2 reverse stock split of its common stock which was effective April 8,2014. The financial statements and accompanying notes give effect to the 1-for-2 reverse stock split as if it occurred as of the beginning of the first periodpresented. Subsequent Events The Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the consolidated financial statements todetermine if any of those events and/or transactions requires adjustment to or disclosure in the consolidated financial statements. Note 3 - Acquisition of AirPatrol Corporation On December 20, 2013, the Company entered into an Agreement of Plan and Merger (the “AirPatrol Agreement”) to acquire 100% of the capital stock ofAirPatrol, a provider of mobile cyber-security and location-based services solutions, for a purchase price equal to (a) $10.0 million in cash, subject to certainadjustments, allocated to and among certain creditors, payees and holders of AirPatrol’s issued and outstanding capital stock and (b) 2 million shares (aftergiving effect to a reverse stock split) of the Company common stock, of which it was agreed that 800,000 shares would be held in escrow for one year, assecurity to satisfy any indemnity claims that may be owed by the former AirPatrol stockholders to the Company (the “AirPatrol Merger Consideration”). TheAirPatrol Merger Consideration also included an earn-out, half of the value of which was to be in stock and the other half in cash (unless otherwise agreed orrequired pursuant to the AirPatrol Merger Agreement) payable to the former stockholders of AirPatrol in 2015 in accordance with the following formula: if forthe five quarter period ending March 31, 2015, AirPatrol Net Income meets or exceeds $3.5 million, the Company agreed to pay to the former AirPatrolstockholders an earn-out payment equal to two times AirPatrol Net Income, provided that the total earn-out payment shall not exceed $10.0 million. On April 18, 2014, the parties to the AirPatrol Agreement entered into an Amendment No. 2, pursuant which the Company agreed to (i) modify the workingcapital adjustment provision of the AirPatrol Agreement, (ii) modify the distribution of the earn-out, (iii) enter into a non-competition agreement with theformer chairman of the board and significant stockholder of AirPatrol in exchange for allocation of consideration to the former chairman and (iv) modify theAirPatrol retention plan to reduce cash consideration and increase stock consideration paid to an employee of AirPatrol, in addition to other modifications asset forth in the full text of Amendment No. 2. None of these modifications resulted in any increase to the AirPatrol Merger Consideration. The working capital adjustment provision, which otherwise would have resulted in a deduction entirely from cash merger consideration of approximately$1.3 million, was adjusted so that instead approximately $486,000 was deducted from cash merger consideration, and the balance of approximately $786,000was deducted from stock merger consideration (resulting in 157,192 fewer shares of Sysorex common stock issued as stock merger consideration at theclosing). F-18Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 3 - Acquisition of AirPatrol Corporation (continued) The merger was consummated on April 18, 2014 with an effective date of acquisition of April 16, 2014, and as a result the Company became the holder of100% of the outstanding capital stock of AirPatrol. At the closing, the Company (i) paid or initiated actions to pay a total of $8.5 million to various formerstockholders, former note holders, former directors, professional service firms and continuing officers, (ii) issued a total of 1,042,809 shares of its commonstock to former stockholders, directors, and continuing officers of AirPatrol, and to the investment banking firm of AGC Partners, LLC, and (iii) issued800,000 shares of its common stock into a holdback escrow. A working capital adjustment applied at closing reduced cash consideration by approximately$486,000 and reduced stock merger consideration by 157,192 shares. Additionally, a total of approximately $1.1 million was deducted from cash mergerconsideration in conjunction with repayment of AirPatrol’s indebtedness to the Company as described below. Pursuant to a loan agreement dated as of August 30, 2013, the Company loaned AirPatrol $1.0 million evidenced by a secured promissory note due April 29,2014, as amended on February 28, 2014. Upon the closing of the merger on April 18, 2014, the note became due and payable. On the closing date, AirPatrolrepaid the principal and interest of the note totaling $1.05 million as a deduction from merger consideration, consisting of $1.0 million in principal and$48,000 in interest. In connection with this transaction, on May 9, 2014, the Company issued options to purchase 400,000 shares of the Company's common stock to certainemployees of AirPatrol at an exercise price of $4.81 per share. These options are exercisable for ten years and vest over four years. The total recorded purchase price for the transaction was $19.7 million which consisted of $9.5 million cash paid and $10.2 million for the value of stock.The Company evaluated the fair value of the contingent earn out liability and determined nothing was owed. During 2015 an agreement was reached with theshareholder representative of AirPatrol regarding the 800,000 shares that were deposited in the holdback escrow whereby the sum of 561,172 shares wereauthorized to be released to the AirPatrol security holders and 238,828 shares were released to the Company for cancellation. The purchase price is allocated as follows (in thousands): Assets Acquired: Cash $71 Restricted cash 90 Receivables 21 Inventory 266 Other assets (A) 151 Property and equipment 244 Trade name/trademarks (B) 660 Customer relationships (B) 1,350 Developed technology (B) 10,850 Non-compete agreements (C) 400 Goodwill (F) 7,400 21,503 Liabilities Assumed: Accounts payable and accrued liabilities 630 Other current liabilities (D) 949 Other long term liabilities (E) 232 1,811 Purchase Price $19,692 F-19Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 3 - Acquisition of AirPatrol Corporation (continued) (A)Other current assets consist primarily of approximately $32,000 of prepaid expenses and $119,000 of security deposits. (B)The trade name/trademarks, customer relationships and developed technology are identifiable intangible assets that are being amortized over theiruseful life of seven years. (C)The non-compete agreements are an identifiable intangible asset that is being amortized over their useful life of one and three years. (D)Other current liabilities consist primarily of approximately $214,000 of payroll liabilities, $564,000 of an advance from Sysorox Global that wassettled immediately after closing, $42,000 of deferred rent and $129,000 of unearned revenue. (E)Other long term liabilities consist primarily of approximately $132,000 for a furniture lease and a $100,000 note payable. (F)Goodwill is not tax deductible. Note 4 - LightMiner Systems, Inc. Asset Acquisition On April 24, 2015, in accordance with the terms and conditions of an Asset Purchase Agreement (the “APA”), the Company completed the acquisition ofsubstantially all of the assets of LightMiner Systems, Inc. (“LightMiner”), which is in the business of developing and commercializing in-memory SQLdatabases for manipulation (the “Acquisition”). At closing, the Company paid $19,000 in cash to the owner (the “Owner”) of approximately 19% ofLightMiner’s outstanding securities prior to closing and agreed to issue to LightMiner or its designees upon the one year anniversary of the closing (the“First Anniversary”), shares of the Company’s common stock in an amount equal to the quotient of (A) $3,200,000 (the “Purchase Price”) divided by (B) theSysorex Weighted Average Price (as defined below) as of the fifth trading day prior to the First Anniversary (the “Seller Stock Consideration”), less a holdback of Seller Stock Consideration having an aggregate value of $567,150, as determined by the Sysorex Weighted Average Price, for the purpose ofsatisfying indemnification obligations of LightMiner. The Sysorex Weighted Average Price means the volume-weighted daily average of the price of theCompany’s Common Stock for the twenty (20) trading days immediately prior to the date of determination; however, the price may not be less than $2.00 pershare. The Company also agreed to issue to the Owner an aggregate of 127,000 restricted shares of Common Stock (the “Owner Stock Consideration”) with a fairvalue of $286,000 at the date of closing on the First Anniversary and issue to the Owner an option to purchase up to 100,000 shares of Company’s CommonStock in accordance with the terms and conditions of the Company’s 2011 Employee Stock Incentive Plan, as amended, pursuant to an at-will employmentoffer letter. In addition, the Company agreed to issue to another pre-acquisition principal of LightMiner additional shares of the Company’s common stockequal to $200,000 divided by the Sysorex Weighted Average Price, however the price may not be less than $2.00 per share for which the company hassufficient authorized and unissued shares of common stock. The Company evaluated the common stock to be issued in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the common stock to beissued is recorded as a liability at fair value as of each reporting date and marked to market through earnings. The number of shares to be issued under thisarrangement was limited to a price of not less than $2.00 per share for which the Company has sufficient authorized and unissued shares of common stock tosettle the obligation. The total recorded purchase price for the transaction was $3,705,000 which consisted of the cash paid of $19,000 and $3,686,000 representing the value ofthe stock to be issued upon the one year anniversary of the closing. F-20Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 4 - LightMiner Systems, Inc. Asset Acquisition (continued) Assets Acquired (in thousands): Fixed Assets $225 Export License 14 Developed Technology 3,466 Total Purchase Price $3,705 Note 5 - IronSky Investment In October 2013, the Company loaned $130,000 to IronSky Corporation, a company in the field of cyber security solutions, to support its operations inaccordance with the terms of a Secured Promissory Note (“IronSky Note”). During 2014, the Company also had $190,000 of accounts receivable fromIronSky. As of December 31, 2014, the Company determined that it would accept the collateral securing the IronSky Note in lieu of a cash payment of theIronSky Note and the accounts receivable owed and has deemed the amounts owed as an investment in the business of IronSky. On January 22, 2015, IronSkyand the Company entered into an Agreement and Consent to Surrender of Collateral whereby IronSky irrevocably assigned and transferred all rights, title,ownership and interests in and to the collateral in full satisfaction of the Secured Indebtedness. Note 6 – Proforma Financial Information The following unaudited proforma financial information presents the consolidated results of operations of the Company and AirPatrol for the year endedDecember 31, 2014, as if the acquisition of AirPatrol had occurred on January 1, 2014. The proforma information does not necessarily reflect the results ofoperations that would have occurred had the entities been a single company during those periods. For the YearEnded (in thousands, except share amounts ) December 31,2014 Revenues $63,224 Net Loss Attributable to Common Shareholder $(8,726)Weighted Average Number of Common Shares Outstanding, basic and diluted 19,498,727 Loss Per Common Share - Basic and Diluted $(0.45) Note 7 - Due from Related Parties Non-interest bearing amounts due on demand from a related party was $666,000 as of December 31, 2015 and 2014, and consists primarily of amounts duefrom Sysorex Consulting, Inc. As Sysorex Consulting, Inc. is a direct shareholder of and an investor in the Company, the amounts due from SysorexConsulting, Inc. as of December 31, 2015 and 2014 have been classified in and as a reduction of stockholders' deficiency. F-21Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 8 – Notes and Other Receivables Notes and other receivables at December 31, 2015 and 2014 consisted of the following (in thousands): As of December 31, 2015 2014 Notes receivable $900 $900 Other receivables 440 393 Total Notes and Notes Receivables $1,340 $1,293 Notes Receivable On July 17, 2014, the Company loaned $900,000 to a third party pursuant to the terms of a promissory note. The note is collateralized by the assets of thethird party debtor. The promissory note’s extended due date is March 31, 2016, and accrues interest at a rate of 8% per annum. The interest accrued on thenote as of December 31, 2015 was $105,000. Other Receivables Other receivables primarily consist of receivables for cooperative reimbursements from vendors; marketing development funds from vendors; unbilledrevenue earned under contracts in advance of billings; and interest receivable from the notes receivable. Note 9 - Inventory Inventory at December 31, 2015 and 2014 consisted of the following (in thousands): As of December 31, 2015 2014 Raw materials $153 $96 Work in process 64 113 Finished goods 538 401 Total Inventory $755 $610 Note 10 - Property and Equipment, net Property and equipment at December 31, 2015 and 2014 consisted of the following (in thousands): As of December 31, 2015 2014 Computer and office equipment (1) $1,528 $1,311 Furniture and fixtures (1) 274 309 Leasehold improvements 68 204 Software 253 180 Vehicles -- 207 Total 2,123 2,211 Less: accumulated depreciation and amortization (1) (731) (903) Total Property and Equipment, Net $1,392 $1,308 (1) Includes assets under capital lease arrangements (see Note 17). Depreciation and amortization expense was $480,000 and $279,000 for the years ended December 31, 2015 and 2014, respectively. F-22Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 11 – Software Development Costs Capitalized software development costs as of December 31, 2015 and 2014 consisted of the following (in thousands): As of December 31, 2015 2014 Capitalized software development costs $1,468 $292 Accumulated amortization (187) (14)Software development costs, net $1,281 $278 The weighted average remaining amortization period for the Company’s software development costs is 3.81 years. Amortization expense for internally-developed computer software was $173,000 and $14,000 for the years ended December 31, 2015 and 2014, respectively. Future amortization expense on the computer software is anticipated to be as follows (in thousands): Years Ending December 31, Amount 2016 $607 2017 392 2018 254 2019 28 Total $1,281 Note 12 - Intangible Assets Intangible assets at December 31, 2015 and 2014 consisted of the following (in thousands): Amortized Intangible Assets Gross Carrying Amount Accumulated Amortization December 31, December 31, 2015 2014 2015 2014 Lilien $5,380 $5,380 $(2,178) $(1,409)Shoom 2,770 2,770 (1,268) (725)AirPatrol 13,260 13,260 (3,818) (1,600)LightMiner 3,479 -- (464) -- Totals $24,889 $21,410 $(7,728) $(3,734) Lilien Acquisition Balances of the intangible assets that relate to the Lilien acquisition are as follows as of December 31, 2015 and 2014 (in thousands): Amortized Intangible Assets Gross Carrying Amount Accumulated Amortization December 31, December 31, 2015 2014 2015 2014 Trade name/trademarks $3,250 $3,250 $(1,316) $(851)Customer relationships 2,130 2,130 (862) (558)Totals $5,380 $5,380 $(2,178) $(1,409) F-23Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 12 - Intangible Assets (continued) The weighted average remaining amortization period for the Company’s trade names/trademarks and customer relationships is 2.52 and 1.65 years,respectively. Shoom Acquisition Balances of the intangible assets that relate to the Shoom acquisition are as follows as of December 31, 2015 and 2014 (in thousands): Amortized Intangible Assets Gross Carrying Amount Accumulated Amortization December 31, December 31, 2015 2014 2015 2014 Trade name/trademarks $120 $120 $(40) $(23)Customer relationships 1,270 1,270 (423) (242)Developed technology 1,380 1,380 (805) (460)Totals $2,770 $2,770 $(1,268) $(725) The weighted average remaining amortization period for the Company’s trade names/trademarks, customer relationships and developed technology is 0.25,2.63 and 0.64 years, respectively. AirPatrol Acquisition Balances of the intangible assets that relate to the AirPatrol acquisition are as follows as of December 31, 2015 and 2014 (in thousands): Amortized Intangible Assets Gross Carrying Amount Accumulated Amortization December 31, December 31, 2015 2014 2015 2014 Trade name/trademarks $660 $660 $(161) $(67)Customer relationships 1,350 1,350 (769) (318)Developed technology 10,850 10,850 (2,648) (1,097)Non-competing agreements 400 400 (240) (118)Totals $13,260 $13,260 $(3,818) $(1,600) The weighted average remaining amortization period for the Company’s trade names/trademarks, customer relationships, developed technology and non-compete agreements is 0.28, 0.08, 4.63 and 0.02 years, respectively. LightMiner Acquisition Balances of the intangible assets that relate to the LightMiner acquisition are as follows as of December 31, 2015 and 2014 (in thousands): Amortized Intangible Assets Gross Carrying Amount Accumulated Amortization December 31, December 31, 2015 2014 2015 2014 Developed technology $3,465 $-- $(462) $-- Export license 14 -- (2) -- Totals $3,479 $-- $(464) $-- F-24Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 12 - Intangible Assets (continued) The weighted average remaining amortization period for the Company’s developed technology and export license is 4.32 and 0.02 years, respectively. Aggregate Amortization Expense: Aggregate amortization expense for the years ended December 31, 2015 and 2014 were $3,994,000 and $2,913,000, respectively. Future amortization expense on intangibles assets is anticipated to be as follows (in thousands): Years Ending December 31, Amount 2016 $4,226 2017 3,705 2018 3,307 2019 3,307 2020 2,137 Thereafter 479 Total $17,161 Note 13 – Goodwill The changes to the carrying value of goodwill for the year ended December 31, 2015 and 2014 are as follows (in thousands): As of December 31, 2015 2014 Beginning Balance $13,166 $5,708 Measurement period adjustment -- 59 AirPatrol acquisition -- 7,399 Ending Balance $13,166 $13,166 The measurement period adjustment of $59,000 during the year ended December 31, 2014 relates to an adjustment of the tax attributes associated with theassets acquired in the Shoom, Inc. acquisition. F-25Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 14 – Discontinued Operations As of December 31, 2015, the Company’s management decided to close its Saudi Arabia legal entity as business activities have been shifted to resellers andstrategic partners in the region. In accordance with ASC topic 360 “Property, Plant and Equipment”, the Company has elected to classify the assets and liabilities as discontinued assets andliabilities in the accompanying consolidated financial statements. The major categories of discontinued assets and liabilities in the consolidated balance sheets at December 31, 2015 and 2014 are as follows (in thousands): December 31,2015 December 31,2014 Assets Accounts receivable, net 1 1 Notes and other receivables 8 12 Other assets 763 2 Total Current Assets 772 15 Other assets -- 763 Total Assets $772 $778 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $178 $178 Accrued liabilities 888 893 Deferred revenue 236 236 Due to related party 2 -- Short-term debt 722 722 Total Current Liabilities 2,026 2,029 Long Term Liabilities -- -- Total Liabilities $2,026 $2,029 The Company has entered into surety bonds with a financial institution in Saudi Arabia which guaranteed performance on certain contracts. Deposits forsurety bonds amounted to $749,000 as of December 31, 2015 and 2014. These bonds will be released once the related contract is closed out which isexpected to occur during the year ended December 31, 2016. Deposits are included on the Consolidated Balance Sheets in Assets held for dissolution. End of Service Indemnity Provision In accordance with local labor laws, Sysorex Arabia LLC is required to accrue benefits payable to the employees of the Company at the end of their serviceswith the Company. As of December 31, 2015 and 2014, the Company has accrued approximately $0 and $146,000, respectively which has been included as acomponent of General and Administrative Costs. F-26Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 15 – Deferred Revenue Deferred revenue as of December 31, 2015 and 2014 consisted of the following: As of December 31, 2015 2014 Deferred Revenue, Current Maintenance agreements $9,025 $8,321 Services 70 132 Total Deferred Revenue, Current 9,095 8,453 Deferred Revenue, Non-Current Maintenance agreements 7,666 7,181 Total Deferred Revenue $16,761 $15,634 The fair value of the deferred revenue approximates the services to be rendered. Note 16 – Debt Debt as of December 31, 2015 and 2014 consisted of the following (in thousands): As of December 31, 2015 2014 Short-Term Debt Notes payable $170 $423 Revolving line of credit 8,580 3,898 Term loan 667 375 Total Short-Term Debt $9,417 $4,696 Long-Term Debt Notes payable $282 $100 Term loan 944 -- Total Long-Term Debt $1,226 $100 Revolving Line of Credit On May 13, 2014 the Company and Bridge Bank entered into Amendment 2 to the Business Finance Agreement (the “BFA”) dated March 15, 2013 inconnection with the Company’s acquisition of AirPatrol. The provisions of the amendment are effective as of April 16, 2014. Amendment 2 amended certainsections of the BFA; extended the revolving advances maturity date to April 16, 2016; defined the Term advance maturity date as August 27, 2015; approvedthe acquisition of AirPatrol Corporation and waived any defaults by the Company of the Performance to Plan covenant since August 29, 2013 through thedate of the amendment. On December 31, 2014 the Company and Bridge Bank entered into Amendment 3 to the BFA dated March 15, 2013 to amend certain sections and for BridgeBank to waive existing defaults by the Company. The Amendment 3 waived the Performance to Plan ratio for July 2014 through November 2014. BridgeBank assessed a waiver fee of $51,000 of which $10,000 was to be paid upon execution of the amendment and $41,000 was to be paid upon the earliest of thesubmission of the March 31, 2015 compliance documents, April 30, 2015, or the occurrence of a default, however, the Bank shall waive the secondinstallment of the fee if no event of default has occurred through the quarter ending March 31, 2015. The Performance to Plan covenant was replaced with anadjusted EBITDA measurement whereby the adjusted EBITDA for each fiscal quarter must not be at any time less than (i) $125,000 for the fiscal quarterended December 31, 2014 and (ii) $200,000 for the fiscal quarter ending March 31, 2015 and each fiscal quarter ending thereafter. On May 4, 2015 (effective as of April 29, 2015), the Company and Bridge Bank entered into Amendment 4 to the BFA dated March 15, 2013 to add theCompany, Sysorex Federal, AirPatrol and Shoom as borrowers under the agreement, amend certain financial covenants, increase the credit limit to $10.0million and provide for a second term loan as described below. On October 7, 2015, the Company, and certain of its wholly-owned subsidiaries (collectively, the “Borrowers”), entered into Amendment 5 (the“Amendment”), effective as of September 30, 2015, to the BFA, with Western Alliance Bank, as successor in interest to Bridge Bank, N.A. Pursuant toAmendment 5, the original lender, Bridge Bank, N.A., was replaced by Western Alliance Bank, as successor in interest to Bridge Bank, N.A. and the lenderunder the agreement. The Amendment also amended certain financial covenants of the Borrowers required by the agreement. All other terms remained thesame.F-27Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 16 – Debt (continued) Revolving Line of Credit (continued) On March 25, 2016, the Company, and certain of its wholly-owned subsidiaries (collectively, the “Borrowers”), entered into an amendment and waiver (the“Amendment”) to that certain business financing agreement dated March 15, 2013, as amended (the “Agreement”), with Western Alliance Bank, as successorin interest to Bridge Bank, N.A. (the “Lender”). Pursuant to the Amendment, the Lender waived any non-compliance by the Borrowers with respect to theminimum adjusted EBITDA requirements as of December 31, 2015. In addition, the Lender and the Borrowers agreed that the adjusted EBITDA for the sixmonths ended March 31, 2016 would not be less than $(2,200,000) and on or before April 30, 2016, the Borrowers and Lender must agree to additionalfinancial covenants for the fiscal quarters ended June 30, 2016, September 30, 2016 and December 31, 2016. Term Loan On May 4, 2015 (effective as of April 29, 2015), the Company and Bridge Bank entered into Amendment 4 to the BFA dated March 15, 2013 which providedfor a second term loan of $2 million which matures on April 29, 2018 of which $167,000 was used to pay off the balance of the initial term loan. The termloan accrues interest at Bridge Bank's prime rate plus 2%. At December 31, 2015 the interest rate was 5.5%. The Company will make payments of $56,000 onthe term loan on the first day of each month commencing on May 1, 2015 until the loan amount is paid in full. The balance due on the term loan is scheduledto be paid in full during the year ending December 31, 2018. Note 17 - Capital Lease Obligations During the year ended December 31, 2014, the Company entered into a lease arrangement for furniture with Madison Funding. The lease term is from March2014 through February 2019. Monthly minimum lease payments are $3,000. Additionally, the lease required a security deposit of $14,000. During the year ended December 31, 2014, the Company entered into a second lease arrangement for equipment with Cambridge TelCom Services, Inc. Thelease term is from November 2014 through April 2019. Monthly minimum lease payments are $13,000. The following is an analysis of the property under capital leases included in property and equipment (see Note 10) (in thousands): As of December 31, 2015 2014 Furniture and fixtures $127 $127 Accumulated depreciation (45) (19)Net Furniture and fixtures $82 $108 Computer and office equipment $649 $649 Accumulated depreciation (151) (22)Net Computer and office equipment $498 $627 Depreciation expense for leased property and equipment for the years ended December 31, 2015 and 2014 were $156,000 and $41,000, respectively. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 2015 (inthousands): Years Ending December 31, Furniture Equipment Total 2016 $31 $161 $192 2017 31 161 192 2018 31 161 192 2019 4 54 58 Total Minimum Lease Payments 97 537 634 Less: Imputed interest (8) (64) (72)Capital Lease Obligations (A) $89 $473 $562 (A)Capital lease obligations are included on the Consolidated Balance Sheets in Accrued liabilities for the current portion due and Other liabilities for thenon-current portion due as of December 31, 2015. F-28Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 18 - Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges andrestrictions as to be determined by the Company’s Board of Directors. There were no shares of preferred stock issued and outstanding as of December 31,2015 and 2014. Note 19 - Equity Raise On April 9, 2014, the Company entered into an underwriting agreement (the “2014 Underwriting Agreement”) with Wellington Shields & Co. LLC andDougherty & Co. LLC (collectively, the “2014 Underwriters”), with respect to the sale by the Company and the purchase by the 2014 Underwriters of anaggregate of 3,333,333 shares of the Company’s common stock, par value $0.001 per share, at a price to the public of $6.00 per Share, including 166,667shares sold by a selling stockholder who is an executive officer and director of the Company. The net proceeds to the Company from the sale of 3,166,666 shares in the offering, excluding the shares sold by the selling stockholder, are approximately$16.6 million, after deducting the underwriting discounts, fees and commissions. On April 15, 2014 the 2014 Underwriters received warrants to purchase 100,000 shares of common stock exercisable at $7.50 per share in connection with the2014 Underwriting Agreement. The warrants are exercisable commencing one year after the effective date of the registration statement related to the offeringand will be exercisable for four years thereafter. On September 25, 2015, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC, as representative ofthe several underwriters named therein (the “Underwriters”), relating to the issuance and sale of 5,250,000 shares of the Company common stock, par value$0.001 per share. The price to the public in this offering was $1.00 per share. Under the terms of the Underwriting Agreement, the Company also granted theUnderwriters an option, exercisable for 30 days from the closing date, to purchase up to an additional 787,500 shares at the public offering price. The offeringwas made pursuant to the Company’s registration statement on Form S-3 (Registration Statement No. 333-204159) filed with the Securities and ExchangeCommission and declared effective May 28, 2015 and a related prospectus supplement filed with the Securities and Exchange Commission. The offering closed September 30, 2015. After deducting underwriting discounts and commissions and offering expenses, the net proceeds from the offeringwere approximately $4.7 million. Note 20 - Common Stock On February 26, 2014, the Company issued 400,000 shares of common stock at $5.20 per share for net proceeds of $2.1 million in equity financing from astrategic investor. On April 9, 2014, and as more fully described in Note 19, the Company issued 3,166,666 shares of common stock at $6.00 per share for proceeds ofapproximately $16.6 million, after deducting the underwriting discounts, fees and commissions. On April 18, 2014, and as more fully described in Note 3, the Company issued 1,832,808 shares of restricted common stock to former security holders,directors, officers and consultants of AirPatrol Corporation pursuant to the AirPatrol Agreement. Out of these shares, 800,000 shares were issued to an escrowholder for the benefit of former stockholders and warrant holders of AirPatrol Corporation. On May 15, 2014, the Company issued 12,539 shares of common stock to employees who had exercised employee stock options for cash proceeds of$13,000. F-29Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 20 - Common Stock (continued) During the year ended December 31, 2014, the Company issued 69,000 shares of common stock under the terms of a consulting services agreement inconnection with acquisitions which were fully vested upon the dates of the grants. The Company recorded an expense of $340,000 during the year endedDecember 31, 2014 which has been included as a component of acquisition transaction costs in the consolidated statements of operations. During the year ended December 31, 2014, the Company issued 137,536 shares of common stock under the terms of consulting services agreements whichwere fully vested upon the dates of the grants. The Company recorded expenses of $340,000 for the value of those shares on the grant dates. On July 1, 2015, the Company issued 1,361 shares of common stock to employees who had exercised employee stock options in a cashless exercise. On September 30, 2015, and as more fully described in Note 19, the Company issued 5,250,000 of common stock at $1.00 per share for proceeds ofapproximately $4.7 million, after deducting the underwriting discounts, fees and commissions. During the year ended December 31, 2015, the Company issued 351,240 shares of common stock for services which were fully vested upon the date of grant.The Company recorded an expense of $455,000 for the fair value of those shares. Note 21 - Options During the three months ended March 31, 2014, the Company granted options for the purchase of 10,000 shares of common stock to an employee. Theseoptions have a four year vesting schedule, have a life of ten years and an exercise price of $4.74 per share. The Company valued the stock options using theBlack-Scholes option valuation model and the fair value of the award was $17,000. The fair value of the common stock as of the grant date was $4.06 share. On May 9, 2014 the Company granted options for the purchase of 400,000 shares of common stock to employees in connection with the AirPatrolAcquisition. These options vest over four years and have an exercise period of ten years and an exercise price of $4.81 per share. The Company valued thestock options using the Black-Scholes option valuation model and the fair value of the award was $884,000. The fair value of the common stock as of thegrant date was $4.85 per share. During the three months ended June 30, 2014, the Company granted options for the purchase of 135,000 shares of common stock to employees of theCompany. These options are one hundred percent vested or vest pro-rata over 48 months and have a life of ten years and an exercise price that ranged from$4.85 to $5.20 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was$316,000. The fair value of the common stock as of the grant date was determined to range from $4.85 to $5.20 per share. During the three months ended September 30, 2014, the Company granted options for the purchase of 75,000 shares of common stock to an employee. Theseoptions vest pro-rata over 48 months and have a life of ten years and an exercise price of $3.79 per share. The Company valued the stock options using theBlack-Scholes option valuation model and the fair value of the award was $128,000. The fair value of the common stock as of the grant date was $3.79 pershare. During the three months ended December 31, 2014, the Company granted options for the purchase of 347,500 shares of common stock to employees,consultants and independent directors of the Company. These options vest pro-rata over 48 months, have a life of ten years and an exercise price of $2.97 pershare. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was $449,000. The fair valueof the common stock as of the grant date was $2.97 per share. F-30Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 21 – Options (continued) During the three months ended March 31, 2015, the Company granted options for the purchase of 236,500 shares of common stock to employees of theCompany. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of $1.56 per share. The Company valued the stockoptions using the Black-Scholes option valuation model and the fair value of the award was $162,000. The fair value of the common stock as of the grantdate was determined to be $1.56 per share. During the three months ended June 30, 2015, the Company granted options for the purchase of 650,500 shares of common stock to employees of theCompany. These options vest pro-rata over 48 months and have a life of ten years and an exercise price that ranged from $2.14 to $2.32 per share. TheCompany valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was $654,000. The fair value of thecommon stock as of the grant date was determined to range from $2.14 to $2.32 per share. During the three months ended September 30, 2015, the Company granted options for the purchase of 1,357,938 shares of common stock to employees of theCompany. These options vest pro-rata over 48 months and have a life of ten years and an exercise price that ranged from $1.58 to $1.75 per share. TheCompany valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was $1,243,000. The fair value of thecommon stock as of the grant date was determined to range from $1.58 to $1.75 per share. During the three months ended December 31, 2015, the Company granted options for the purchase of 421,500 shares of common stock to employees of theCompany. These options are one hundred percent vested or vest pro-rata over 48 months, have a life of ten years and an exercise price that ranged from $0.67to $0.99 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was $199,000.The fair value of the common stock as of the grant date was determined to range from $0.67 to $0.99 per share. As of December 31, 2015, the fair value of non-vested options totaled $3.5 million which will be amortized to expense over the weighted average remainingterm of 1.67 years. The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key weighted-averageassumptions used to apply this pricing model during the years ended December 31, 2015 and 2014 were as follows: 2015 2014 Risk-free interest rate 1.73% to 2.27% 2.29% to 2.82% Expected life of option grants 7 years 7 years Expected volatility of underlying stock 39.4% to 51.45% 38.1% to 39.4% Dividends Assumption 0 0 The expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry peers and used an average ofthose volatilities. The Company attributes the value of stock-based compensation to operations on the straight-line single option method. Risk free interestrates were obtained from U.S. Treasury rates for the applicable periods. The Company takes into account the forfeiture rate on a monthly basis over thevesting period. F-31Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 21 – Options (continued) The following table summarizes the changes in options outstanding during the years ended December 31, 2015 and 2014: Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Outstanding at January 1, 2014 2,056,328 $1.84 $1,150 Granted 967,500 4.11 - Exercised (15,918) - - Expired (160,663) - - Forfeitures (87,714) - - Outstanding at December 31, 2014 2,759,533 $2.62 $988 Granted 2,666,438 1.71 - Exercised (2,813) - - Expired (130,405) - - Forfeitures (539,704) - - Outstanding at December 31, 2015 4,753,049 $2.00 $121 Exercisable at December 31, 2015 1,628,036 $1.88 $121 Exercisable at December 31, 2014 965,037 $2.33 $930 Note 22 - Warrants On April 15, 2014, the Company granted 100,000 warrants to the Underwriters of the April 9, 2014 equity raise in connection with the UnderwritingAgreement, as more fully described in Note 19. The warrants are exercisable commencing one year after the effective date of the registration statement relatedto the offering and will be exercisable for four years thereafter. The warrants have an exercise price of $7.50 per share. These warrants were part of the IPOcapital raise and therefore a stock-based compensation charge was not required. On November 17, 2015, the Company granted warrants for the purchase of 50,000 of common stock to a consultant. The warrants were vested upon grant,have a three year life and an exercise price of $1.00 per share. The Company valued the warrants using the Black-Scholes option valuation model and the fairvalue of the award was $11,400. F-32Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 22 – Warrants (continued) The following table summarizes the changes in warrants outstanding during the years ended December 31, 2015 and 2014: Number of Options WeightedAverageExercise Price Aggregate IntrinsicValue(in thousands) Outstanding at January 1, 2014 411,262 $0.72 - Granted 100,000 7.50 - Exercised - - - Outstanding at December 31, 2014 511,262 $2.04 $- Granted 50,000 1.00 - Exercised - - - Outstanding at December 31, 2015 561,262 $1.95 $- Exercisable at December 31, 2015 561,262 - - Exercisable at December 31, 2014 411,262 - - Note 23 - Income Taxes The domestic and foreign components of income (loss) before income taxes from continuing operations for the years ended December 31, 2015 and 2014 areas follows (in thousands): 2015 2014 Domestic $(13,691) $(6,431)Foreign 1,963 (1,221) Income from Continuing Operations before Provision for Income Taxes $(11,728) $(7,652) The income tax provision (benefit) for the years ended December 31, 2015 and 2014 consists of the following (in thousands): 2015 2014 Foreign Current $- $- Deferred 1,786 (303)U.S. federal Current - - Deferred (5,706) (1,395)State and Local Current 0 -- Deferred (1,073) (278) (4,993) (1,976)Change in valuation allowance 4,993 1,976 Income Tax Provision $0 $- F-33Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 23 - Income Taxes (continued) The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2015 and 2014 is asfollows: 2015 2014 U.S. federal statutory rate 34.0% 34.0%State income taxes, net of federal benefit 6.3 2.4 Transaction costs (4.5)Incentive stock options (2.3) (3.3)State rate change and other (0.2) (1.4)US-Foreign income tax rate difference 1.3 (1.5)Other permanent items 3.5 0.1 Change in valuation allowance (42.6) (25.8)Effective Rate (0.0)% 0.0% As of December 31, 2015 and 2014, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following: (in 000s) 2015 2014 Deferred Tax Asset Net operating loss carryovers $13,149 $11,088 Deferred revenue 2,732 1,526 Stock based compensation 606 692 Fixed asset depreciation 164 Research credits 159 159 Accrued compensation 130 28 Other 228 18 Total Deferred Tax Asset 17,004 13,675 Less: valuation allowance (11,085) (6,091) Deferred Tax Asset, Net of Valuation Allowance $5,919 $7,584 Deferred Tax Liabilities 2015 2014 Intangible assets $(4,917) $(6,756)Fixed assets (209) Other (80) Prepaid maintenance (145) (554)Capitalized research (568) (274)Total deferred tax liabilities (5,619) (7,584) Net Deferred Tax Asset (Liability) $-- $-- As of December 31, 2015 and 2014, the Company had approximately $32.3 million and $22.1 million, respectively, of U.S. federal and state net operatingloss (“NOL”) carryovers available to offset future taxable income. These NOLs, if not utilized, begin expiring in the year 2023. F-34Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 23 - Income Taxes (continued) In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carryover may be subject to an annuallimitation in the event of a change of control, as defined by the regulations. On April 18, 2014, the Company acquired 100% of the outstanding capital stockof AirPatrol Corporation. As of April 18, 2014, AirPatrol had approximately $13.4 million of U.S. federal and state NOL carryovers available to offset futuretaxable income. In accordance with Section 382, these NOL carryovers are subject to an annual limitation of approximately $978,000. The Company alsoperformed a preliminary evaluation as to whether a change of control has taken place and concluded that Softlead, Inc. experienced a change of ownershipupon the completion of the reverse merger transaction in July 2011. It is estimated that Softlead’s NOLs are subject to an annual limitation of $331,000 forNOLs generated up through the date of the reverse merger in July 2011. As of December 31, 2015 and 2014, the Company had approximately $1,199,000 and $1,180,000 respectively of Saudi Arabian NOL carryovers available tooffset future taxable income. Although the carryover period is unlimited, only 25% of taxable income in any given year may be offset by the Company’sNOL carryovers. As of December 31, 2015 and 2014, AirPatrol Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement, hadapproximately $2,445,000 and $4,428,000 respectively, of Canadian NOL carryovers available to offset future taxable income. These NOLs, if not utilized,begin expiring in the year 2026. As of December 31, 2015 the Company’s management decided to close its Saudi Arabia legal entity. This may impact ourcarry forward of the NOL upon the completion of our plans. No provision was made for U.S. or foreign taxes on the undistributed earnings of Sysorex Arabia and AirPatrol Canada, as such earnings are considered to bepermanently reinvested. Such earnings have been, and will continue to be, reinvested, but could become subject to additional tax, if they were remitted asdividends, loaned to the Company, or if the Company should sell its stock in Sysorex Arabia or AirPatrol Canada. It is not practicable to determine theamount of additional tax, if any, that might be payable on the undistributed foreign earnings. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likelythan not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets willnot be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities,projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertaintyexists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2015 and 2014.As of December 31, 2015 and December 31, 2014, the change in valuation allowance was $4,993,000 and $1,976,000, respectively. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognitionthreshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Forthose benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also providesguidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to fileincome tax returns in the United States (federal), Canada, Saudi Arabia and in various state jurisdictions in the United States. Based on the Company’sevaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s financial statements for the yearsended December 31, 2015 and 2014. The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interestexpense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for interest or penalties for theyears ended December 31, 2015 and 2014. Management does not expect any material changes in its unrecognized tax benefits in the next year. F-35Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 23 - Income Taxes (continued) The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxingauthorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authoritiesbeginning with the year ended December 31, 2012. In general, the Canadian Revenue Authority may reassess taxes four years from the date the originalnotice of assessment was issued. The tax years that remain open and subject to Canadian reassessment are 2011- 2015. The Company is also subject toexamination in Saudi Arabia for five years following the filing of the income tax return. Note 24 - Credit Risk and Concentrations Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Companyperforms certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that creditrisk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of itscustomers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond suchallowances is limited. The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash is also maintained at aforeign financial institution for its majority-owned subsidiary. Cash in foreign financial institutions as of December 31, 2015 and December 31, 2014 wasimmaterial. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash. The following table sets forth the percentages of revenue derived by the Company from those customers which accounted for at least 10% of revenues duringthe years ended December 31, 2015 and 2014 (in thousands): As of December 31, 2015 2014 $ % $ % Customer A 16,705 25% 8,334 13% Customer B 7,492 11% 6,395 10% As of December 31, 2015, Customer A represented approximately 12%, Customer C represented approximately 12%, Customer D represented approximately12%, and Customer E represented approximately 11% of total accounts receivable. As of December 31, 2014, Customer C represented approximately 12% oftotal accounts receivable. As of December 31, 2015, two vendors represented approximately 40% and 22% of total gross accounts payable. Purchases from these vendors during theyear ended December 31, 2015 were $24.6 million, and $2.8 million, respectively. As of December 31, 2014, two vendors represented approximately 39%and 13% of total gross accounts payable. Purchases from these vendors during the year ended December 31, 2014 were $23.4 million, and $7.2 million,respectively. For the year ended December 31, 2015, two vendors represented approximately 56% and 11% of total purchases. For the year ended December 31, 2014,three vendors represented approximately 52%, 16% and 10% of total purchases. F-36Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 25 – Segment Reporting and Foreign Operations The Company operates in the following business segments: ●Mobile, IoT & Big Data Products: These products currently include our AirPatrol product line (location-based security and marketing platform forwireless and cellular devices that can detect, monitor and manage the content and behavior of smartphones, tablets and other mobile devices basedon their location and user); on-premise big data appliance product (Light Miner Studio “LMS”) and will include future Sysorex owned products. ●Storage and Computing: This segment includes third party hardware, software and related maintenance/warranty products and services that Sysorexresells. It includes but is not limited to products for enterprise computing; storage; virtualization; networking; etc. ●SaaS Revenues: These are Software-as-a-Services (SaaS) or internet based hosted services including the Shoom product line and cloud based bigdata analytics services (based on our LMS product) and other data science services; analytics services for AirPatrol products and other managedservices on a SaaS basis. ●Professional Services: These are general IT services including but not limited to: custom application/software design; architecture and development;project management; C4I system consulting; strategic outsourcing; staff augmentation; data center design and operations services; data migrationservices and other non-SaaS services. The financial data by business segment are as follows (in thousands): Mobile, IoT &Big DataProducts Storage andComputing SaaS Revenues ProfessionalServices Consolidated Twelve Months Ended December 31, 2015: Net revenues $1,651 $49,978 $3,692 $11,636 $66,957 Cost of net revenues $(510) $(40,295) $(824) $(5,999) $(47,628)Gross profit $1,141 $9,683 $2,868 $5,637 $19,329 Gross margin % 69% 19% 78% 48% 29%Depreciation and amortization $164 $122 $111 $2 $399 Amortization of intangibles $2,681 $769 $544 $-- $3,994 Twelve Months Ended December 31, 2014: Net revenues $1,892 $48,312 $3,958 $8,787 $62,949 Cost of net revenues $(406) $(38,598) $(801) $(4,404) $(44,209)Gross profit $1,486 $9,714 $3,157 $4,383 $18,740 Gross margin % 79% 20% 80% 50% 30%Depreciation and amortization $94 $128 $31 $13 $266 Amortization of intangibles $1,600 $769 $544 $-- $2,913 F-37Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 25 – Segment Reporting and Foreign Operations (continued) Reconciliation of reportable segments’ combined income from operations to the consolidated loss before income taxes is as follows (in thousands): For the Twelve Months EndedDecember 31, 2015 2014 Income from operations of reportable segments $19,329 $18,740 Unallocated operating expenses (30,770) (26,446)Interest expense (448) (387)Other income (expense) 161 441 Consolidated loss before income taxes $(11,728) $(7,652) The Company’s operations are located primarily in the United States, Canada and Saudi Arabia. Revenues by geographic area are attributed by country ofdomicile of our subsidiaries. The financial data by geographic area are as follows (in thousands): United Saudi States Canada Arabia Eliminations Total Twelve Months Ended December 31, 2015: Revenues by geographic area $66,916 $41 $-- $-- $66,957 Operating loss by geographic area $(10,412) $(1,000) $(29) $-- $(11,441)Net income (loss) by geographic area $(13,691) $1,983 $(20) $-- $(11,728) Twelve Months Ended December 31, 2014: Revenues by geographic area $62,938 $11 $-- $-- $62,949 Operating loss by geographic area $(6,487) $(987) $(232) $-- $(7,706)Net loss by geographic area $(6,432) $(988) $(232) $-- $(7,652) As of December 31, 2015: Identifiable assets by geographic area $67,538 $405 $772 $-- $68,715 Long lived assets by geographic area $32,759 $241 $-- $-- $33,000 As of December 31, 2014: Identifiable assets by geographic area $61,149 $133 $778 $-- $62,060 Long lived assets by geographic area $32,398 $30 $-- $-- $32,428 F-38Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 26 - Commitments and Contingencies Credit Risk The Company grants credit to customers. In general, the Company does not require collateral for customer purchases and generally grants 30-45 day invoiceterms to its customers. The Company records a provision for estimated sales returns and allowances on product sales in the same period as the related revenueis recorded. These provisions are based on known and estimated assumptions and historically customer returns have been immaterial. The Company maintains checking accounts in a financial institution. Accounts at each bank are insured by the Federal Deposit Insurance Corporation(“FDIC”). At times, cash and cash equivalents may be uninsured or in deposit accounts that exceed the FDIC insurance limit. Periodically, the Companyevaluates the credit worthiness of the financial institutions and has not experienced any losses in such accounts. Operating Leases The Company leases facilities located in California, Washington State, Oregon, Virginia, Maryland, Hawaii, and Canada for its office space under non-cancelable operating leases that expire at various times through 2020. The total amount of rent expense under the leases is recognized on a straight-line basisover the term of the leases. As of December 31, 2015 and 2014, deferred rent payable was $135,000 and $127,000, respectively. Rent expense under theoperating leases for the years ended December 31, 2015 and 2014 was $1.4 million and $1.1 million, respectively. The Company receives rental income fromsubleasing the Maryland office space. The rental income is recorded as a contra account to rent expense. Future minimum lease payments under the above operating lease commitments at December 31, 2015 are as follows (in thousands): For the Years Ending December 31, OperatingLease Amounts SubleaseIncome MinimumPayments 2016 $885 $(129) $756 2017 647 (129) 518 2018 436 (129) 307 2019 194 - 194 2020 16 - 16 Total $2,178 $(387) $1,791 Litigation Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only beresolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves anexercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may resultin such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amountof relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then theestimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material losscontingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate ofthe range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. Therecan be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cashflows. During the year ended December 31, 2011, a judgment in the amount of $936,000 was levied against Sysorex Arabia LLC in favor of Creative Edge, Inc. inconnection with amounts advanced for operations. Of that amount, $214,000 has been repaid, $515,000 will be paid through a surety bond, and theremaining $207,000 has been accrued as advances payable on the consolidated balance sheet by Sysorex Arabia as of December 31, 2015 and 2014,respectively. There was no effect upon the statement of operations in connection with this transaction. F-39Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 26 - Commitments and Contingencies (continued) Employee Benefit Plans On January 1, 2015 all of the defined contribution retirement plans were merged into one plan under Sysorex Global (“The Sysorex 401k Plan”). The Sysorex401k Plan covered all of its eligible employees after their completion of six months of service and upon attaining the age of 21. The Sysorex 401k Planprovides that employees can contribute a percentage of their compensation limited to amounts prescribed by the Internal Revenue Service, adjustedannually. Matching contributions are made at the discretion of management. No employer-matching contributions were made to the Sysorex 401k Plan forthe year ended December 31, 2015. Defined Contribution Pension Plan – Sysorex Government Services During 2014 the Company sponsored a 401(k) defined contribution retirement plan (“The SGS 401k Plan”) covering all of its eligible employees after theircompletion of six months of service and upon attaining the age of 21. The SGS 401k Plan provided that employees could contribute a percentage of theircompensation limited to amounts prescribed by the Internal Revenue Service, adjusted annually. Matching contributions were to be made at the discretionof management. No employer-matching contributions were made to the Sysorex 401k Plan for the year ended December 31, 2014. Defined Contribution Pension Plan-Lilien During 2014 the Company sponsored a 401(k) defined contribution retirement plan (“The Lilien 401k Plan”) covering all of its eligible employees after theircompletion of three months of service and upon attaining the age of 21. The Lilien 401k Plan provides that employees could contribute a percentage of theircompensation limited to amounts prescribed by the Internal Revenue Service, adjusted annually. Matching contributions were to be made at the discretionof management. No employer-matching contributions were made to the Lilien 401k Plan for the year ended December 31, 2014. Employee Benefit Plan - Shoom During 2014 the Company had a defined contribution benefit plan that covered substantially all domestic employees who elected to participate. The planprovided for discretionary Company contributions based on employee participation. Employees must be 21 years or older to participate, have beenemployed by the Company for three months and worked a minimum of 501 hours. The Company’s matching contribution equals 100% on the first 3% ofeach participant’s compensation which is deferred as an elective deferral. Employees are 100% vested in the plan after meeting all eligibility requirements (asdefined). Company contributions under the plan amounted to $45,000 for the year ended December 31, 2014. During 2014 the Company had a profit sharing plan that was approved by the Company’s Board of Directors annually. All Shoom employees who had beenwith the Company for at least one year were eligible. Company contributions under the profit sharing plan amounted to $226,000 for the year endedDecember 31, 2014. Employee Benefit Plan-AirPatrol During 2014 the Company maintained a contributory 401(k) plan and a profit sharing plan. These plans were for the benefit of all eligible employees, whomay have up to 90% of their salary withheld, not to exceed annual statutory limits. The Company can, in its sole discretion, contribute and allocate to eacheligible participant a percentage of the participant’s elective deferral. The Company did not make any 401(k) plan or profit sharing contributions for the yearended December 31, 2014. F-40Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 26 - Commitments and Contingencies (continued) Contingent Consideration Under the terms of the Lilien Asset Purchase Agreement, the Company was liable for the payment of additional cash consideration to the extent that therecipients of the 3,000,000 shares of the Company's common stock receive less than $6.0 million from the sale of those shares, less customary commissions,on or before March 20, 2015. This obligation expired on March 31, 2015 with no payment from the Company required. Under the terms of the AirPatrol Agreement and Plan of Merger (the “AirPatrol Agreement”), the AirPatrol Merger Consideration also includes an earn-out,half of the value of which shall be in stock and the other half in cash (unless otherwise agreed or required pursuant to the AirPatrol Agreement) payable to theformer stockholders of AirPatrol in 2015 in accordance with the following formula: if for the five quarter period ending March 31, 2015, AirPatrol Net Incomemeets or exceeds $3.5 million, the Company shall pay to the former AirPatrol stockholders an earn-out payment equal to two times AirPatrol Net Income,provided that the total earn-out payment shall not exceed $10,000,000. AirPatrol did not meet or exceed the required threshold and nothing is owed for theearn-out. Quasi-Reorganization On June 30, 2009, Sysorex Government Services, Inc., in connection with the Company’s expansion into the government services industry, performed adeficit reclassification quasi-reorganization whereby $2,441,960 of the Company’s accumulated deficit was reduced by a transfer from the Company’sadditional paid in capital. Therefore, the Sysorex Government Services’ portion of Retained Earnings on the balance sheet are those Retained Earningsaccumulated since July 1, 2009. Consulting Agreement-Related Party Effective April 1, 2013, the Company entered into a Consulting Services Ordering Agreement with its Chairman of the Board, Mr. Abdus Salam Qureishi.Under the agreement, Mr. Qureishi, as the former CEO of the Company, would consult on various operations of the Company and be compensated at anhourly rate of $375 per hour. The original term was for one year, expiring March 31, 2014, which was extended to March 31, 2016 by two amendments to theagreement. On March 25, 2016, the Company entered into an Amendment No. 3 (the “Amended Agreement”) with Mr. Qureishi, effective March 16, 2016,pursuant to which the Company agreed to pay Mr. Qureishi a fee of $20,000 per month for all consulting services performed during the term of theagreement. In addition, the Amended Agreement provided for an extension of the term for an additional nine months from March 31, 2016 to December 31,2016. Mr. Qureishi received $360,000 and $360,000 during 2015 and 2014, respectively. F-41Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SYSOREX GLOBALNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Note 27 - Subsequent Events Common Stock Subsequent to December 31, 2015, the Company issued 45,000 shares of common stock under the terms of a consulting services agreement which were fullyvested upon the date of grant. The Company recorded an expense of $25,950 for the value of those shares. Options On February 25, 2016 the Company granted options for the purchase of 102,500 shares of common stock to employees of the Company. These options vestpro-rata over 48 months and have a life of ten years and an exercise price of $0.52 per share. The Company valued the stock options using the Black-Scholesoption valuation model and the fair value of the award was $27,000. The fair value of the common stock as of the grant date was $0.52 per share. F-42Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A: CONTROLS AND PROCEDURES Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosedby an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) is accumulated and communicated to theissuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. Report on Controls and Procedures We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (ourprincipal executive officer) and our chief financial officer (our principal financial and accounting officer), of the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the period covered by this report. The evaluation was undertaken in consultation with our accountingpersonnel. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures areeffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized andreported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Report on Internal Control over Financial Reporting Our chief executive officer and our chief financial officer are responsible for establishing and maintaining internal control over financial reporting.Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Act as a process designed by, or under thesupervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles and includes those policies and procedures that: ●pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; ●provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations ofmanagement and our directors; and ●provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on the financial statements. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate. Our chief executive officer and our chief financial officer assessed the effectiveness of our internal control over financial reporting as of December31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission(COSO) in Internal Control—Integrated Framework issued in 2013. 63Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Based on our assessment, our chief executive officer and our chief financial officer determined that, as of December 31, 2015, our internal controlover financial reporting is effective. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Act)during the fourth quarter of the last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting. ITEM 9B: OTHER INFORMATION Consulting Services Ordering Agreement Amendment On March 25, 2016, the Company entered into an Amendment No. 3 to its Consulting Services Ordering Agreement with Mr. A Salam Qureishi,Chairman of the Board and a Director of the Company (the “Consultant”), effective March 16, 2016 (the “Amended Agreement”), pursuant to which theCompany agreed to pay the Consultant a fee of $20,000 per month for all consulting services performed during the term of the agreement. In addition, theAmended Agreement provided for an extension of the original term for an additional nine months from March 31, 2016 to December 31, 2016. The description of the Amended Agreement herein is not complete and is qualified in its entirety by the full text of such Amended Agreement whichis attached hereto as Exhibit 10.36 and incorporated by reference herein. Western Alliance Amendment On March 25, 2016, the Company, and certain of its wholly-owned subsidiaries (collectively, the “Borrowers”), entered into an amendment andwaiver (the “Amendment”) to that certain business financing agreement dated March 15, 2013, as amended (the “Agreement”), with Western Alliance Bank,as successor in interest to Bridge Bank, N.A. (the “Lender”). Pursuant to the Amendment, the Lender waived any non-compliance by the Borrowers withrespect to the minimum adjusted EBITDA requirements as of December 31, 2015. In addition, the Lender and the Borrowers agreed that the adjusted EBITDAfor the six months ended March 31, 2016 would not be less than $(2,200,000) and on or before April 30, 2016, the Borrowers and Lender must agree toadditional financial covenants for the fiscal quarters ended June 30, 2016, September 30, 2016 and December 31, 2016. The description of the Amendment herein is not complete and is qualified by the full text of such Amendment, which is attached hereto as Exhibit10.37 and incorporated by reference herein. 64Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART III ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information concerning the Company’s Code of Business Conduct and Ethics is set forth below in this Item 10. All other information requiredby this item is incorporated by reference to the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed with the Securities andExchange Commission (“SEC”) within 120 days of the fiscal year ended December 31, 2015. Code of Business Conduct and Ethics The Board of Directors has adopted a code of business conduct and ethics (the “Code”) designed, in part, to deter wrongdoing and to promote honestand ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair,accurate, timely and understandable disclosure in reports and documents that the Company files with or submits to the Securities and Exchange Commissionand in the Company’s other public communications, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting ofCode violations to an appropriate person or persons, as identified in the Code and accountability for adherence to the Code. The Code applies to all directors,executive officers and employees of the Company. The Code is periodically reviewed by the Board of Directors. In the event we determine to amend or waivecertain provisions of the Code, we intend to disclose such amendments or waivers on our website at http://www.sysorex.com under the heading “Investors”within four business days following such amendment or waiver or as otherwise required by the Nasdaq Listing Rules. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholdersto be filed with the SEC within 120 days of the fiscal year ended December 31, 2015. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholdersto be filed with the SEC within 120 days of the fiscal year ended December 31, 2015. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholdersto be filed with the SEC within 120 days of the fiscal year ended December 31, 2015. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholdersto be filed with the SEC within 120 days of the fiscal year ended December 31, 2015. 65Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 15(a)(1) Financial Statements The financial statements filed as part of this report are listed and indexed in the table of contents. Financial statement schedules have been omittedbecause they are not applicable or the required information has been included elsewhere in this report. 15(a)(2) Financial Statement Schedules Not applicable. 15(a)(3) Exhibits The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the exhibits. The Company hasidentified in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item15(a)(3) of Form 10-K. ExhibitNo. Description of Document (a) Exhibit No. Description2.1 Asset Purchase and Merger Agreement, effective March 1, 2013, by and among Sysorex Global Holdings Corp., Lilien, LLC and LilienSystems. (1)2.2 Agreement of Merger dated March 20, 2013 by and between Lilien Systems and Sysorex Acquisition Corporation. (2)2.3 List of Schedules and Exhibits to Asset Purchase and Merger Agreement, effective March 1, 2013, by and among Sysorex Global HoldingsCorp., Lilien, LLC and Lilien Systems. (2)2.4 Agreement and Plan of Merger dated August 31, 2013 by and between Sysorex Global Holdings Corp. and Shoom, Inc.(2)2.5 Acquisition and Share Exchange Agreement dated as of June 27, 2011 by and between Sysorex Consulting, Inc. and Softlead, Inc. (2)2.6 Agreement and Plan of Merger dated as of December 20, 2013, by and among Sysorex Global Holdings Corp., AirPatrol Corporation,AirPatrol Acquisition Corp. I, AirPatrol Acquisition Corp. II, and Shareholders Representative Services LLC. (5)2.7 Amendment No. 1 to Agreement and Plan of Merger dated February 28, 2014 with AirPatrol Corporation. (6)2.8 Amendment No. 2 to Agreement and Plan of Merger dated April 18, 2014 with AirPatrol Corporation. (8)2.9 Waiver and Amendment No. 3 to Agreement and Plan of Merger dated April 18, 2014 with AirPatrol Corporation. (10)2.10† Asset Purchase Agreement, dated as of April 24, 2015, between Sysorex Global Holdings Corp., LightMiner Systems, Inc. and Chris Baskett.(15)2.11 Agreement and Plan of Merger, dated as of December 14, 2015, between Sysorex Global Holdings Corp. and Sysorex Global. (19)3.1 Restated Articles of Incorporation. (1)3.2 Amendment No. 1 to Amended and Restated Bylaws of Softlead, Inc. (renamed Sysorex Global Holdings Corp.) (1)3.3 Articles of Merger (renamed Sysorex Global). (19)4.1 Specimen Stock Certificate of the Corporation. (1)4.2 Business Financing Agreement dated March 15, 2013 by and among the Sysorex Government Services, Inc., Lilien Systems and BridgeBank, N.A. (1)4.3 Warrant to purchase common stock dated March 20, 2013 held by Bridge Bank N.A. (1)4.4 Warrant to purchase common stock dated July 31, 2012 held by Hanover Holdings I, LLC. (1)4.5 Warrant to purchase common stock dated August 29, 2013 held by Bridge Bank N.A. (2)4.6 Amendment to Business Financing Agreement, Waiver of Default and Consent dated as of August 29, 2013 between the Sysorex GlobalHoldings Corp. and Bridge Bank, N.A. (2)4.7 Form of Underwriter’s Warrant. (4)10.1 Guaranty of Corporation to Bridge Bank, N.A. dated March 15, 2013. (1)10.2 Guarantor Security Agreement dated March 15, 2013 to Bridge Bank, N.A. (1)10.3 Registration Rights Agreement dated March 20, 2013 by and between the Corporation and Bridge Bank, N.A. (1)10.4 Form of Guaranty Agreement dated March 2013 between the Corporation and each of the former members of Lilien, LLC. (1)10.5+ Form of Employment Agreement effective March 2013 between the Corporation and each of Geoffrey Lilien, Dhruv Gulati and Bret Osborn.(1)10.6 Registration Rights Agreement dated August 29, 2013 by and between the Corporation and Bridge Bank, N.A. (2) 66Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.7+ Employment Agreement dated July 1, 2010, by and between the Corporation and Nadir Ali, as amended. (2)10.8 Equity Exchange Agreement dated as of March 31, 2013 by and between the Corporation and Duroob Technology. (2)10.9 Loan Agreement dated as of August 30, 2013 by and between AirPatrol Corporation and Sysorex Global Holdings Corp. (4)10.10 Secured Promissory Note dated August 30, 2013 from AirPatrol Corporation to Sysorex Global Holdings Corp. (4)10.11 Security Agreement dated as of August 30, 2013 by and between AirPatrol Corporation and Sysorex Global Holdings Corp. (4)10.12 Subordination Agreement dated as of August 30, 2013 by and between Sysorex Global Holdings Corp. and Note Holders. (4)10.13+ Employment Agreement dated as of December 20, 2013 by and between AirPatrol Corporation and Cleve Adams. (5)10.14 Amendment No. 1 to Secured Promissory Note dated February 28, 2014 from AirPatrol Corporation to Sysorex Global Holdings Corp. (6)10.15 Securities Purchase Agreement dated February 24, 2014 between Sysorex Global Holdings Corp. and Geneseo Communications, Inc. (6)10.16+ Consulting Services Ordering Agreement dated as of April 1, 2013 by and between the Company and A. Salam Qureishi. (6)10.17 Amendment Number Two to Business Financing Agreement, Waiver and Consent dated May 13, 2014 among Bridge Bank NationalAssociation, Lilien Systems and Sysorex Government Services, Inc. (9)10.18 Amendment Number Three to Business Financing Agreement, Waiver and Consent dated December 31, 2014 among Bridge Bank NationalAssociation, Lilien Systems and Sysorex Government Services, Inc. (14)10.19+ Director Services Agreement with Leonard A. Oppenheim dated October 21, 2014. (11)10.20+ Director Services Agreement with Thomas L. Steding dated October 21, 2014. (11)10.21+ Director Services Agreement with Kareem M. Irfan dated October 21, 2014. (11)10.22+ Director Services Agreement with Tanveer A. Khader dated October 21, 2014. (11)10.23+ Form of Non-Qualified Stock Option Agreement. (11)10.24+ Form of Restricted Stock Award Agreement. (11)10.25+ Employment Agreement, effective as of October 1, 2014, between William Frederick and the Company. (10)10.26+ Employment Agreement, effective as of October 1, 2014, between Wendy Loundermon and the Company. (11)10.27+ Form of Incentive Stock Option Agreement. (11)10.28+ Release Agreement, dated January 30, 2015, between William Frederick and the Company. (12)10.29+ Amended and Restated 2011 Employee Stock Incentive Plan. (13)10.30† Amendment Number Four To Business Financing Agreement dated April 29, 2015 among Bridge Bank, N.A., Lilien Systems, SysorexGovernment Services, Inc., Sysorex Federal, Inc., Sysorex Global Holdings Corp., Shoom, Inc. and AirPatrol Corporation. (16)10.31† Amendment Number Five To Business Financing Agreement dated October 7, 2015 among Western Alliance Bank, Lilien Systems, SysorexGovernment Services, Inc., Sysorex Federal, Inc., Sysorex Global Holdings Corp., Shoom, Inc. and AirPatrol Corporation. (17)10.32+ Employment Agreement dated as of October 6, 2015 by and between Sysorex Global Holdings Corp. and Kevin R. Harris. (17)10.33+ Consulting Agreement dated as of November 1, 2015 by and between Sysorex Global Holdings Corp. and Thomas L. Steding. (18)10.34 Stock Assignment Agreement dated as of December 14, 2015 by and between Sysorex Federal, Inc. and Sysorex Global Holdings Corp. (19)10.35 Stock Assignment Agreement dated as of December 14, 2015 by and between AirPatrol Corporation and Sysorex Global Holdings Corp.(19)*10.36 Consulting Services Ordering Agreement Amendment No. 3 dated March 25, 2016 by and between the Company and A. Salam Qureishi.*10.37 Amendment Number Five To Business Financing Agreement dated March 25, 2016 among Western Alliance Bank, Sysorex USA, SysorexGovernment Services, Inc. and Sysorex Global.*21 List of Subsidiaries of the Corporation.*23.1 Consent of Marcum LLP.*24.1 Power of Attorney.*31.1 Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to theregistrant’s Annual Report on Form 10-K for the year ended December 31, 2015.*31.2 Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to theregistrant’s Annual Report on Form 10-K for the year ended December 31, 2015.*32.1 Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1 Master Services Agreement dated February 24, 2014 by and between Geneseo Communications, Inc. and the Corporation. (7)*101.INS XBRL Instant Document*101.SCH XBRL Taxonomy Extension Schema Document*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*101.DEF XBRL Taxonomy Extension Definition Linkbase Document*101.LAB XBRL Taxonomy Extension Label Linkbase Document*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith.† Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and the registrant undertakes to furnish supplemental copies ofany of the omitted exhibits and schedules upon request by the Commission.+ Indicates a management contract or compensatory plan. 67Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (1) Incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 333-190574) filed on August 12, 2013. (2) Filed on October 9, 2013 with the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated herein by reference. (3) Filed on November 12, 2013 with Amendment No. 1 to the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated hereinby reference. (4) Filed on December 9, 2013 with Amendment No. 2 to the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated hereinby reference. (5) Filed on January 21, 2014 with Amendment No. 3 to the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated herein byreference. (6) Filed on March 13, 2014 with Amendment No. 4 to the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated herein byreference. (7) Filed on March 21, 2014 with Amendment No. 5 to the Company’s Registration Statement on Form S-1 (No. 333-191648) and incorporated herein byreference. (8) Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 24, 2014. (9) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed on May 15, 2014. (10)Incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 333-198502) filed on August 29, 2014. (11)Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 27, 2014. (12)Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 5, 2015. (13)Incorporated by reference to the Company’s Registration Statement on Form S-8 (No. 333-195655) filed on May 2, 2014. (14)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 27, 2015. (15)Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 30, 2015. (16)Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 7, 2015. (17)Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 13, 2015. (18) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 filed on November 13, 2015. (19) Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 18, 2015. 68Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. SYSOREX GLOBAL Date: March 30, 2016By:/s/ Nadir Ali Nadir Ali Chief Executive OfficerPrincipal Executive Officer Date: March 30, 2016By:/s/ Kevin R. Harris Kevin R. Harris Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /s/ Nadir Ali CEO (Principal Executive March 30, 2016Nadir Ali Officer) and Director /s/ Kevin R. Harris Chief Financial Officer (Principal March 30, 2016Kevin R. Harris Financial and Accounting Officer) * Chairman of the Board March 30, 2016Salam Qureishi and Director * Director March 30, 2016Len Oppenheim * Director March 30, 2016Geoffrey Lilien * Director March 30, 2016Tom Steding * Director March 30, 2016Kareem Irfan * Director March 30, 2016Tanveer Khader * Nadir Ali, by signing his name hereto, does hereby sign this report on behalf of the directors of the Registrant above whose typed names appear, pursuant topowers of the attorney executed by such directors and filed with the Securities and Exchange Commission. By:Nadir Ali Nadir Ali, Attorney-in-Fact 69 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.36 CONSULTING SERVICES ORDERING AGREEMENTAmendment No. 03Effective: 16 March 2016 Sysorex Global (f/k/a Sysorex Global Holdings Corp.)A. Salam Qureishi2479 East Bayshore RoadSuite 195Palo Alto, California 943032479 East Bayshore RoadSuite 195Palo Alto, California 94303 Purpose of Amendment The purpose of this amendment is to extend ordering period in the Consulting Services Ordering Agreement for an additional nine (9) months, modify theordering period, compensation and company business name. Accordingly, this amendment changes the Specific Terms and Conditions and business addresses as follows: 1.Ordering period shall be amended by deleting and replacing “2. Ordering” section in its entirety and replaced with the following: 2. Ordering. Consulting Services to be furnished pursuant to this Consulting Services Ordering Agreement shall be provided April 1, 2013through December 31, 2016 (the “Termination Date”) unless this Agreement terminates earlier according to its terms. 2.Compensation shall be amended by deleting and replacing “4. Compensation and Expenses” section in its entirety and replaced with the following: 4. Compensation and Expenses.Consultant shall perform Consulting Services for Company as specified and Company agrees to pay Consultant $20,000 per month. Uponreceipt of an invoice Company shall pay Consultant 30 days from the receipt date of such invoice. Travel expenses, if pre-approved, will bereimbursed according to the JTR (Joint Travel Regulations).3.Company name is changed from “Sysorex Global Holdings Corp” to “Sysorex Global”. 4.All other Terms and Conditions of Consulting Services Ordering dated April 1, 2013 and any attachments thereto in effect on the date of thisamendment, which are not specifically changed by this amendment, remain the same and in full force and effect. Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the undersigned duly authorized representatives have executed this amendment. Sysorex Global Consultant By/s/ Nadir Ali By/s/ A. Salam QureishiNameNadir Ali NameA. Salam QureishiTitleCEO DateMarch 25, 2016DateMarch 25, 2016 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.37 March 25, 2016 SYSOREX USA2479 E Bayshore Road, Suite 195Palo Alto, CA 94303SYSOREX GOVERNMENT SERVICES, INC.2479 E Bayshore Road, Suite 195Palo Alto, CA 94303 SYSOREX GLOBAL2479 E Bayshore Road, Suite 195Palo Alto, CA 94303Re:Amendment and Waiver of Non-Compliance Under Business Financing Agreement Dear Nadir and Wendy: WESTERN ALLIANCE BANK, an Arizona corporation, as successor in interest to BRIDGE BANK, NATIONAL ASSOCIATION (“Lender”), on theone hand, and SYSOREX USA formerly known as Lilien Systems, a California corporation (“Lilien”), SYSOREX GOVERNMENT SERVICES, INC., aVirginia corporation (“SGSI”), SYSOREX FEDERAL, INC., a Delaware corporation (“SFI”), SYSOREX GLOBAL formerly known as Sysorex GlobalHoldings Corp., a Nevada corporation (“Parent”), SHOOM, INC., a California corporation (“Shoom”), and AIRPATROL CORPORATION, a Nevadacorporation (“Air Patrol”) (Lilien, SGSI, SFI, Parent, Shoom, and Air Patrol are sometimes collectively referred to herein as “Borrowers” and eachindividually as a “Borrower”), previously entered into that certain Business Financing Agreement, dated as of March 15, 2013, as amended by that certainAmendment Number One to Business Financing Agreement, Waiver of Defaults and Consent, dated as of August 29, 2013, that certain Amendment NumberTwo to Business Financing Agreement, Waiver and Consent, dated as of May 13, 2014 to be effective as of April 16, 2014, that certain Amendment NumberThree to Business Financing Agreement and Waiver of Defaults, dated as of December 31, 2014, that certain Amendment Number Four to Business FinancingAgreement dated as of April 29, 2015, and that certain Amendment Number Five to Business Financing Agreement dated as of October 7, 2015 (as soamended, the “Agreement”). All capitalized terms used but not defined in this letter have the meanings given to such terms in the Agreement. Airpatrol and Shoom have each merged with and into Sysorex USA (fka Lilien Systems) and Sysorex USA is the surviving corporation. SFI hasdissolved. Subject to the terms and conditions set forth herein, Lender hereby waives any non-compliance by the Borrowers with the provisions of theAgreement as described on Schedule A as an Event of Default effective as of the date of such non-compliance. In addition, Lender and Borrowers agree asfollows, which agreement shall be evidenced by Borrowers’ signatures below: 1.Section 4.12(b) of the Agreement is hereby amended in its entirety as follows: (b)Adjusted EBITDA for the six fiscal month period ending March 31, 2016 shall not be less than <$2,200,000> Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Sysorex USA, et al.March 25, 2016Page 2 2.on or before April 30, 2016 Borrowers and Lender must agree upon new financial covenants for Section 4.12(b) of the Agreement for thefiscal quarters ending June 30, 2016, September 30, 2016, and December 31, 2016. Lender’s waiver of non-compliance as an Event of Default is subject to the terms of this letter shall be effective only in this specific instance and forthe specific purpose for which it is given, and this waiver shall not entitle Borrowers to any other or further agreement, consent or waiver in any similar orother circumstances. Each Borrower hereby absolutely and unconditionally releases and forever discharges Lender, and any and all participants, parent corporations,subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors,officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whetherarising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Borrower has had, now has or has made claim tohave against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including thedate of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. Each Borrower certifies that ithas read the following provisions of California Civil Code Section 1542: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at thetime of executing the release, which if known by him or her must have materially affected his or her settlement with thedebtor. Each Borrower understands and acknowledges that the significance and consequence of this waiver of California Civil Code Section 1542 is thateven if it should eventually suffer additional damages arising out of the facts referred to above, it will not be able to make any claim for those damages.Furthermore, each Borrower acknowledges that it intends these consequences even as to claims for damages that may exist as of the date of this release butwhich it does not know exist, and which, if known, would materially affect its decision to execute this Agreement, regardless of whether its lack of knowledgeis the result of ignorance, oversight, error, negligence, or any other cause. The Agreement remains in full force and effect in accordance with its original terms as amended from time to time. Except as specifically describedherein, nothing in this letter, any other correspondence, any oral communications between Lender and Borrowers, or the making of any Advances or issuanceof any Letters of Credit should be construed to be a waiver, modification or release of any breach, Default or Event of Default, whether now existing orhereafter arising, or any of Lender’s rights and remedies under the Agreement, any other agreement, instrument or document between Lender and Borrowers,or by Borrowers in favor of Lender, or under applicable law. Lender’s agreement does not constitute a course of dealing or a course of conduct. [remainder of this page intentionally left blank] Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Please indicate your consent to the foregoing by executing and returning a counterpart of this letter to the undersigned. WESTERN ALLIANCE BANK By/s/ David Feiock Name: David Feiock Title: Vice President ACCEPTED AND AGREED BY BORROWERS: SYSOREX USA formerly known as Lilien Systems, a California corporation By:/s/ Nadir Ali Name:Nadir Ali Title:Chairman SYSOREX GOVERNMENT SERVICES, INC., a Virginia corporation By:/s/ Wendy Loundermon Name:Wendy Loundermon Title:President and Chief Financial Officer SYSOREX GLOBAL formerly known as Sysorex Global Holdings Corp., a Nevada corporation By:/s/ Nadir Ali Name:Nadir Ali Title:President Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Schedule A1 Section / Covenant Required Actual Section 4.12(b) – Minimum Adjusted EBITDA <$1,000,000> for the six fiscal month periodended December 31, 2015 <$1,561,305> for the six fiscal month periodended December 31, 2015 1 Numbers appearing between “<>” are negative. Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21 SUBSIDIARIES As of January 1, 2016 NAME JURISDICTION OFINCORPORATION NAME UNDER WHICH THE SUBSIDIARYOPERATES (IF DIFFERENT FORM LEGALNAME) Sysorex USA California NoneSysorex Government Services, Inc. Virginia NoneSysorex Canada Corp. Canada NoneSysorex Arabia LLC Saudi Arabia None During the year ended December 31, 2015 NAME JURISDICTION OFINCORPORATION NAME UNDER WHICH THE SUBSIDIARYOPERATES (IF DIFFERENT FORM LEGALNAME) Lilien Systems California NoneSysorex Federal, Inc. Delaware NoneSysorex Government Services, Inc. Virginia NoneAirPatrol Corporation Nevada NoneAirPatrol Research Corp. Canada NoneSysorex Arabia LLC Saudi Arabia None Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT We consent to the incorporation by reference in the Registration Statement of Sysorex Global on Form S-8 [File No. 333-195655] and Form S-3 [File No. 333-204159] of our report dated March 30, 2016, with respect to our audits of the consolidated financial statements of Sysorex Global as of December 31, 2015and 2014 and for the years ended December 31, 2015 and 2014, which report is included in this Annual Report on Form 10-K of Sysorex Global for the yearended December 31, 2015. /s/ Marcum LLP Marcum LLPNew York, New YorkMarch 30, 2016 Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 24.1 THE SYSOREX GLOBALANNUAL REPORT ON FORM 10-KPOWER OF ATTORNEY Each undersigned officer and/or director of Sysorex Global, a Nevada corporation (the “Company”), does hereby make, constitute and appoint Nadir Ali,Chief Executive Officer of the Company, and Kevin Harris, Chief Financial Officer of the Company, and any other person holding the position of ChiefExecutive Officer or Chief Financial Officer of the Company from time to time, or any one of them and each acting alone, as attorney-in-fact and agent of theundersigned, each with full power of substitution and resubstitution, with the full power to execute, on behalf of the undersigned and to file with theSecurities and Exchange Commission in accordance with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulationspromulgated thereunder: (i)the Annual Report on Form 10-K (the “Form 10-K”) with respect to the fiscal year ended December 31, 2015; (ii)any and all amendments and exhibits to the Form 10-K, including this power of attorney; and (iii)any and all other documents to be filed with the Securities and Exchange Commission or any state securities commission or other regulatoryauthority, including any applicable securities exchange or securities self-regulatory body, with respect to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever necessary, appropriate or desirable to be done in the premises, or inthe name, place and stead of the said director and/or officer, hereby ratifying and approving the acts of said attorney. [Signature page follows] Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, the undersigned have subscribed to the above as of March 30, 2016. Signature Title /s/ Nadir Ali CEO (Principal Executive Officer)Nadir Ali and Director /s/ Kevin R. Harris Chief Financial OfficerKevin R. Harris (Principal Financial and Accounting Officer) /s/ A. Salam Qureishi Chairman of the Board and DirectorA. Salam Qureishi /s/ Len Oppenheim DirectorLen Oppenheim /s/ Geoffrey Lilien DirectorGeoffrey Lilien /s/ Tom Steding DirectorTom Steding /s/ Kareem Irfan DirectorKareem Irfan /s/ Tanveer Khader DirectorTanveer Khader Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1 CERTIFICATION I, Nadir Ali, certify that: 1.I have reviewed this Annual Report on Form 10-K of Sysorex Global; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; and b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; and c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 30, 2016/s/ Nadir Ali Nadir Ali Chief Executive Officer(Principal Executive Officer) Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2 CERTIFICATION I, Kevin R. Harris, certify that: 1.I have reviewed this Annual Report on Form 10-K of Sysorex Global; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; and b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; and c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 30, 2016/s/ Kevin R. Harris Kevin R. Harris Chief Financial Officer (Principal Financial and Accounting Officer) Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1 CERTIFICATION In connection with the Annual Report of Sysorex Global (the “Company”) on Form 10-K for the year ended December 31, 2015 as filed with theSecurities and Exchange Commission (the “Report”), we, Nadir Ali, Chief Executive Officer (Principal Executive Officer) and Kevin R. Harris, ChiefFinancial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter63, Section 1350 of the United States Code, that to the best of our knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany at the dates and for the periods indicated. Date: March 30, 2016/s/ Nadir Ali Nadir Ali Chief Executive Officer (Principal Executive Officer) /s/ Kevin R. Harris Kevin R. Harris Chief Financial Officer (Principal Financial andAccounting Officer) Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: INPIXON, 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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