See accompanying
notes.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
1 - Organization and Nature of Business and Going Concern
Inpixon, and its wholly-owned subsidiaries,
Inpixon Canada, Inc. (“Inpixon Canada”) and Jibestream, Inc. (“Jibestream”), which was amalgamated into
Inpixon Canada on January 1, 2020, and its majority-owned subsidiary Inpixon India Limited (“Inpixon India”) (unless
otherwise stated or the context otherwise requires, the terms “Inpixon” “we,” “us,” “our”
and the “Company” refer collectively to Inpixon and the aforementioned subsidiaries), provide Big Data analytics and
location based products and related services. The Company is headquartered in Palo Alto, California, and has subsidiary offices
in Coquitlam, Canada, New Westminster, Canada, Toronto, Canada and Hyderabad, India.
On
August 31, 2018, the Company completed the spin-off of its enterprise infrastructure business from its indoor positioning
analytics business by way of a distribution of all the shares of common stock of its wholly-owned subsidiary, Sysorex, Inc. (“Sysorex”),
to its stockholders of record as of August 21, 2018 and certain warrant holders.
On May 21, 2019, the Company acquired Locality
Systems Inc. (“Locality”), a technology company based near Vancouver, Canada, specializing in wireless device positioning
and radio frequency augmentation of video surveillance systems (See Note 3). On June 27, 2019, the Company acquired certain global
positioning system (“GPS”) products, software, technologies, and intellectual property from GTX Corp (“GTX”),
a U.S. based company specializing in GPS technologies (See Note 4). These transactions expanded our patent portfolio and included
certain granted or licensed patents and GPS and radio frequency (“RF”) technologies. Additionally, on August 15, 2019,
the Company acquired Jibestream, a provider of indoor mapping and location technology based in Toronto, Canada (See Note 5).
Going
Concern and Management’s Plans
As of December 31, 2019, the Company has
a working capital deficiency of approximately $7.0 million. For the year ended December 31, 2019, the Company incurred a net loss
of approximately $34.0 million. The aforementioned factors raise substantial doubt about the Company’s ability to continue
as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities
that might be necessary should the Company be unable to continue as a going concern within one year after the date the financial
statements are issued.
On January 15, 2019, the Company completed
a rights offering whereby it sold 12,000 units at a price to the public of $1,000 per unit for aggregate net proceeds of approximately
$10.77 million after commissions and expenses. On August 12, 2019, the Company completed a capital raise whereby the Company
sold an aggregate of (i) 144,387 shares of our common stock, (ii) 2,997 shares of its Series 6 Convertible Preferred Stock, and
(iii) Series A warrants to purchase up to an aggregate of 384,387 shares of common stock at an exercise price per share of $12.4875,
resulting in net proceeds of approximately $4 million after deducting the underwriting discounts and offering expenses. The Company
also raised approximately $3 million, $1.5 million, $1.5 million, $750,000 and $750,000 in net proceeds from the sale of promissory
notes on May 3, 2019, June 26, 2019, August 8, 2019, September 17, 2019 and November 22, 2019, respectively. From October 16,
2019 through December 20, 2019 under an at-the-market (“ATM”) program, the Company sold an aggregate of 1,470,900,
shares of common stock, at a weighted average price of approximately $4.42 per share resulting in net proceeds of approximately
$5.9 million to the Company after deduction of sales commissions and other offering expenses.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
1 - Organization and Nature of Business and Going Concern (continued)
Going
Concern and Management’s Plans (continued)
The
Company does not expect its capital resources as of December 31, 2019, availability on the Payplant facility to finance purchase
orders and invoices in an amount equal to 80% of the face value of purchase orders received (as described in Note 14), and
funds from revenue to be sufficient to fund planned operations for the next twelve months from the date the financial statements
are issued. In addition, the Company is pursuing possible strategic transactions and may raise such additional capital as
needed, through the issuance of equity, equity-linked or debt securities.
The
Company’s consolidated financial statements as of December 31, 2019 have been prepared under the assumption that the Company
will continue as a going concern for the next twelve months from the date the financial statements are issued. Management’s
plans and assessment of the probability that such plans will mitigate and alleviate any substantial doubt about the Company’s
ability to continue as a going concern is dependent upon the ability to attain further operating efficiency, reduce expenditures,
and, ultimately, to generate sufficient levels of revenue. The Company’s consolidated financial statements as of December
31, 2019 do not include any adjustments that might result from the outcome of this uncertainty.
Note
2 - Summary of Significant Accounting Policies
Consolidations
The consolidated financial statements have
been prepared using the accounting records of Inpixon, Inpixon Canada, Jibestream and Inpixon India. All material inter-company
balances and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant
estimates consist of:
|
●
|
the valuation of stock-based compensation;
|
|
|
|
|
●
|
the valuation of the assets and liabilities acquired of Locality, GTX and Jibestream as described in Notes 3, 4 and 5, respectively, as well as the valuation of the Company’s common shares issued in the transaction;
|
|
|
|
|
●
|
the allowance for doubtful accounts;
|
|
|
|
|
●
|
The valuation of loans receivable;
|
|
|
|
|
●
|
the valuation allowance for deferred tax assets; and
|
|
|
|
|
●
|
impairment of long-lived assets and goodwill.
|
Business
Combinations
The
Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly,
the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of
the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon
acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash, checking accounts, money market accounts and temporary investments with maturities of three
months or less when purchased. As of December 31, 2019 and 2018, the Company had no cash equivalents.
Restricted
Cash
In
connection with certain transactions, the Company may be required to deposit assets, including cash or investment shares, in escrow
accounts. The assets held in escrow are subject to various contingencies that may exist with respect to such transactions. Upon
resolution of those contingencies or the expiration of the escrow period, some or all the escrow amounts may be used and the balance
released to the Company. As of December 31, 2019 and 2018, the Company had $72,000 and $140,000, respectively, deposited in escrow
as restricted cash for the Shoom acquisition, of which any amounts not subject to claims shall be released to the pre-acquisition
stockholders of Shoom pro-rata on the next anniversary dates of the closing date of the Shoom acquisition. As of December 31,
2019 and 2018, $72,000 and $70,000, respectively, was current and included in Prepaid Assets and Other Current Assets on the consolidated
balance sheets. As of December 31, 2019 and 2018, $0 and $70,000 was non-current and included in Other Assets on the consolidated
balance sheet.
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the balance sheets that sum
to the total of the same amounts show in the statement of cash flows.
|
|
For the
Years Ended
December 31,
|
|
(in
thousands)
|
|
2019
|
|
|
2018
|
|
Cash
and cash equivalents
|
|
$
|
4,777
|
|
|
$
|
1,008
|
|
Restricted
cash
|
|
|
72
|
|
|
|
70
|
|
Restricted
cash included in other assets, noncurrent
|
|
|
--
|
|
|
|
70
|
|
Total
cash, cash equivalents, and restricted cash in the balance sheet
|
|
$
|
4,849
|
|
|
$
|
1,148
|
|
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 ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers
based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability
to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customer’s operating
results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would
be further adjusted. The Company has recorded an allowance for doubtful accounts of approximately $646,000 and $464,000 as of
December 31, 2019 and 2018, respectively.
Inventory
Inventory
is stated at the lower of cost or net realizable value utilizing the first-in, first-out method. The Company continually analyzes
its slow-moving, excess and obsolete inventories. Based on historical and projected sales volumes and anticipated selling prices,
the Company establishes reserves. If the Company does not meet its sales expectations, these reserves are increased. Products
that are determined to be obsolete are written down to net realizable value. As of December 31, 2019 and 2018, the Company deemed
any such allowance nominal.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
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
for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from
3 to 7 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term.
Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations
as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed
of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal
is recognized.
Intangible
Assets
Intangible
assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, export licenses and trade
names/trademarks. They are amortized ratably over a range of 1 to 15 years, which approximates customer attrition rate and technology
obsolescence. The Company assesses the carrying value of its intangible assets for impairment each year. Based on its assessments,
the Company did not incur any impairment charges for the years ended December 31, 2019 and 2018.
Goodwill
The Company tests goodwill for potential
impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able
to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the reporting unit
is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for
impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood
of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the
qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit
is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a
reporting unit with its carrying amount.
The Company calculates the estimated fair
value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally
developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses,
and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units;
and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables.
The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro
and macro general economic condition projections, and its expectations.
The
Company performed the annual impairment test and recorded an impairment charge for goodwill of $0 and $636,000 during the years
ended December 31, 2019 and 2018, respectively.
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 for under the provisions of ASC 350-40, Internal Use Software and ASC 985-20, Software – Cost of Software
to be Sold, Leased or Marketed, whereby direct costs related to development and enhancement of internal use software is capitalized,
and costs related to maintenance are expensed as incurred. The Company capitalizes its direct internal costs of labor and associated
employee benefits that qualify as development or enhancement. These software development costs are amortized over the estimated
useful life which management has determined ranges from 1 to 5 years.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Research
and Development
Research
and development costs consist primarily of professional fees and compensation expense. All research and development costs are
expensed as incurred.
Loans and Notes Receivable
The Company evaluates loans and notes receivable
that don’t qualify as securities pursuant to ASC 310 – Receivables, wherein such loans would first be classified as
either “held for investment” or ‘held for sale”. Loans would be classified as “held for investment”,
if the Company has the intent and ability to hold the loan for the foreseeable future, or to maturity or pay-off. Loans would be
classified as “held for sale”, if the Company intends to sell the loan. Loan receivables classified as “held
for investment” are carried on the balance sheet at their amortized cost and are periodically evaluated for impairment. Loan
receivables classified as “held for sale” are carried on the balance sheet at the lower of their amortized cost or
fair value, with a valuation allowance being recorded (with a corresponding income statement charge) if the amortized cost exceeds
the fair value. For loans carried on the balance sheet at fair value, changes to the fair value amount that relate solely to the
passage of time will be recorded as interest income.
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 tax consequences 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 differences are 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 the period that the change
is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance
is established 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, or that future deductibility is uncertain.
Non-Controlling
Interest
The Company has an 82.5% equity interest in Inpixon India as
of December 31, 2019. The portion of the Company’s equity attributable to this third party non-controlling interest
was approximately $26,000 and $18,000 as of December 31, 2019 and 2018, respectively.
Foreign
Currency Translation
Assets
and liabilities related to the Company’s foreign operations are calculated using the Indian Rupee 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 adjustments are recorded as a separate component of consolidated stockholders’
equity, totaling a gain of $68,000 and a loss of $5,000 for the years ended December 31, 2019 and 2018, 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 in functional
currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were not material for the years ended
December 31, 2019 and 2018.
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’
(deficit) equity that, under GAAP, are excluded from net loss.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Revenue
Recognition
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations”, in April 2016, the FASB
issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing”
and in May 9, 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606)”, or ASU 2016-12.
This update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers
(Topic 606), (“ASU 2014-09”). These new standards provide for a single, principles-based model for revenue recognition
that replaces the existing revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014-09 until
annual and interim periods beginning on or after December 15, 2017 and has replaced most existing revenue recognition guidance
under GAAP. ASU 2016-12 may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as
of the date of adoption. The Company has adopted ASU 2016-12 using a modified retrospective approach and will be applied prospectively
in the Company’s financial statements from January 1, 2018 forward. Revenues under ASU 2016-12 are required to be recognized
either at a “point in time” or “over time”, depending on the facts and circumstances of the arrangement,
and will be evaluated using a five-step model. The adoption of Topic 606 did not have a material impact on the Company’s
consolidated financial statements, neither at initial implementation nor will it have a material impact on an ongoing basis.
Software
As A Service Revenue Recognition
With
respect to sales of the Company’s maintenance, consulting and other service agreements including the Company’s digital
advertising and electronic services, customers pay fixed monthly fees in exchange for the Company’s service. The Company’s
performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout
the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company
is providing continuous access to its service.
Mapping
Services Revenue Recognition
Mapping services revenue is accounted
for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue
is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract. Contract costs
are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to
contract activity, and are specifically chargeable to the customer under the terms of the contract.
Professional
Services Revenue Recognition
The
Company’s professional services include fixed fee and time and materials contracts. Fixed fees are paid monthly, in phases,
or upon acceptance of deliverables. The Company’s time and materials contracts are paid weekly or monthly based on hours
worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended.
Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the
practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds
directly with the value to the customer of the performance completed to date. For fixed fee contracts including maintenance service
provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because
the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less,
the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance
obligations. Anticipated losses are recognized as soon as they become known. For the years ended December 31, 2019 and 2018, the
Company did not incur any such losses. These amounts are based on known and estimated factors.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Contract
Balances
The timing of the
Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when
revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes
the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The
Company had deferred revenue of approximately $912,000 and $234,000 as of December 31, 2019 and 2018, respectively, related to
cash received in advance for product maintenance services and professional services provided by the Company’s technical
staff. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services,
and recognize the deferred revenue and related contract costs over the next twelve months.
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 reporting periods.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were deemed
to be nominal 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 based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized
as an expense over the period during which the recipient is required to provide services in exchange for that award.
Options
and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted
to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments,
as adjusted, is expensed over the related vesting period.
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
The fair value of the award is measured on the grant date and recognized over the period services are required to be provided
in exchange for the award, usually the vesting period. Forfeitures of unvested stock options are recorded when they occur.
The Company incurred stock-based compensation
charges of $3.5 million and $1.5 million for each of the years ended December 31, 2019 and 2018, respectively, which are included
in general and administrative expenses. The following table summarizes the nature of such charges for the periods then ended (in
thousands):
|
|
For
the Years Ended
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Compensation and related benefits
|
|
$
|
3,247
|
|
|
$
|
949
|
|
Professional and legal fees
|
|
|
242
|
|
|
|
545
|
|
Totals
|
|
$
|
3,489
|
|
|
$
|
1,494
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
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 the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant
to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.
The
following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net
loss per common share for the years ended December 31, 2019 and 2018:
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Options
|
|
|
121,796
|
|
|
|
1,624
|
|
Warrants
|
|
|
93,252
|
|
|
|
52,632
|
|
Convertible preferred stock
|
|
|
846
|
|
|
|
5
|
|
Convertible note
|
|
|
--
|
|
|
|
3,811
|
|
Reserved for service providers
|
|
|
--
|
|
|
|
25
|
|
Totals
|
|
|
215,894
|
|
|
|
58,097
|
|
Preferred
Stock
The
Company applies the accounting standards for distinguishing liabilities from equity under GAAP when determining the classification
and measurement of its convertible preferred stock. Preferred shares subject to mandatory redemption are classified as liability
instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified
as permanent equity.
Fair
Value of Financial Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and short-term debt.
The Company determines the estimated fair value of such financial instruments presented in these financial statements using available
market information and appropriate methodologies. These financial instruments, except for short-term debt, are stated at their
respective historical carrying amounts, which approximate fair value due to their short-term nature. Short-term debt approximates
market value based on similar terms available to the Company in the market place.
Reclassification
Certain
accounts in the prior year’s consolidated financial statements have been reclassified for comparative purposes to conform
to the presentation in the current year’s consolidated financial statements. These reclassifications have no effect on previously
reported earnings.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Carrying
Value, Recoverability and Impairment of Long-Lived Assets
The
Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC
Paragraph 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group)
is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).
That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability.
An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its
fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived
asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over
the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant
to ASC Paragraph 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events
or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be
some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the
market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived
asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;
(d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of
a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset
group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed
of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential
impairment indicators at least annually and more frequently upon the occurrence of such events.
Pursuant
to ASC Paragraphs 360-10-35-29 through 35-36, estimates of future cash flows used to test the recoverability of a long-lived asset
(asset group) shall include only the future cash flows (cash inflows less associated cash outflows) that are directly associated
with and that are expected to arise as a direct result of the use and eventual disposition of the asset (asset group). Estimates
of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s
own assumptions about its use of the asset (asset group) and shall consider all available evidence. The assumptions used in developing
those estimates shall be reasonable in relation to the assumptions used in developing other information used by the entity for
comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information
communicated to others. However, if alternative courses of action to recover the carrying amount of a long-lived asset (asset
group) are under consideration or if a range is estimated for the amount of possible future cash flows associated with the likely
course of action, the likelihood of those possible outcomes shall be considered. A probability-weighted approach may be useful
in considering the likelihood of those possible outcomes. Estimates of future cash flows used to test the recoverability
of a long-lived asset (asset group) shall be made for the remaining useful life of the asset (asset group) to the entity. For
long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often
be the appropriate technique with which to estimate fair value.
Pursuant
to ASC Paragraphs 360-10-45-4 and 360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and
used shall be included in income from continuing operations before income taxes in the income statement of a business entity.
If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized
on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing
operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented,
it shall include the amounts of those gains or losses.
Based
on its assessments, the Company did not record any impairment charges for the years ended December 31, 2019 and 2018.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Recently
Issued and Adopted Accounting Standards
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets
and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative
and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and
uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018.
As a result of the new standard, all of the Company’s leases greater than one year in duration are recognized in its
balance sheets as both operating lease liabilities and right-of-use assets upon adoption of the standard. The Company adopted
the standard using the modified-retrospective method effective January 1, 2019. This adoption primarily affected the
Company’s consolidated balance sheet based on the recording of right-of-use assets and the lease liability, current and
noncurrent, for its operating leases. The adoption of ASU 2016-02 did not change the Company’s historical
classification of these leases or the straight-line recognition of related expenses. Upon adoption, the Company recorded
approximately $0.6 million in right-of-use assets and $0.7 million in operating lease liabilities on the Company’s
balance sheet.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting,” (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based
payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services
to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). ASU 2018-07 is effective
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company has adopted
this standard and the adoption of this standard did not have a material impact on its financial statements or disclosures.
In August 2018, the FASB issued ASU No.
2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement,” (“ASU 2018-13”). ASU 2018-13 requires application of the prospective method of transition (for
only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements
for (1) changes in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used
to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 also requires prospective application
to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement
uncertainty. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that
fiscal year. The Company has evaluated this standard and adoption does not have a material impact on its financials or disclosures.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
2 - Summary of Significant Accounting Policies (continued)
Recently
Issued and Adopted Accounting Standards (continued)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a
new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including
trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information,
current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users
of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses.
For public business entities that meet the definition of a Securities and Exchange Commission filer and smaller reporting company,
ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be
applied using the modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning
after December 15, 2018. The Company has evaluated this standard and adoption does not have a material impact on its financials
or disclosures.
In
April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic
815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued
Accounting Standards Update No. 2019-05, Financial Instruments--Credit Losses (Topic 326) (“ASU 2019-05”). The Company
is currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its consolidated financial
statements and related disclosures.
In December 2019, the FASB issued ASU
2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various
aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740
and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning
in fiscal 2021. The Company is currently assessing the impact that this pronouncement will have on its consolidated financial
statements.
Reverse
Stock Split
On February 6, 2018, the Company effected
a 1-for-30 reverse stock split of its outstanding common stock, on November 2, 2018, the Company effected a 1-for-40 reverse stock
split of its outstanding common stock and on January 7, 2020, the Company effected a 1-for-45 reverse stock split of its outstanding
common stock. The consolidated financial statements and accompanying notes give effect to each of these reverse stock splits as
if they occurred at the beginning of the first period presented.
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 to determine if any of those events and/or transactions requires adjustment to or disclosure in the consolidated
financial statements.
Note
3 - Locality Acquisition
On May 21, 2019, the Company, through
its wholly owned subsidiary, Inpixon Canada as purchaser, completed its acquisition of Locality in which Locality’s stockholders
sold all of their shares to the purchaser in exchange for consideration of (i) $1,500,000 (the “Aggregate Cash Consideration”)
minus a working capital adjustment equal to $39,501 calculated in accordance with the terms of the purchase agreement), and (ii)
14,445 shares of common stock of Inpixon with a fair market value of $514,000. Locality is a technology company specializing in
wireless device positioning and radio frequency augmentation of video surveillance systems. The Locality acquisition allows us
to accept wireless device positioning from third-party Wi-Fi access points as well as surveillance systems and combine that information
with our own location data into our analytics platform providing our customers with additional data and ability to see video and
radio frequency data concurrently.
The
Aggregate Cash Consideration, less the working capital adjustment applied against the Aggregate Cash Consideration of $85,923,
is payable in installments as follows: (i) the initial installment representing $250,000 minus $46,422 of the working capital
adjustment was paid on the closing date; (ii) $210,499 was paid on November 21, 2019, which was comprised of a $250,000 installment
less $39,501 of the working capital adjustment; (iii) two additional installments, each equal to $250,000, will be paid twelve
months and eighteen months after the closing date; and (iv) one final installment representing $500,000 will be paid on the second
anniversary of the closing date, in each case minus the cash fees payable to the advisor in connection with the acquisition. Inpixon
Canada will have the right to offset any loss, as defined in the purchase agreement, first, against any installment of the installment
cash consideration that has not been paid and second, against the sellers and the advisor on a several basis, in accordance with
the indemnification provisions of the purchase agreement.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
3 - Locality Acquisition (continued)
The
total recorded purchase price for the transaction was approximately $1,928,000, which consisted of cash at closing of $204,000,
approximately $1,210,000 of cash that will be paid in installments as discussed above and $514,000 representing the value of the
stock issued upon closing.
The preliminary purchase price was
allocated and modified for measurement period adjustments due to the receipt of the valuation report and updated tax
provision estimates as follows (in thousands):
|
|
Preliminary Allocation
|
|
|
Valuation Measurement Period Adjustments
|
|
|
Tax Provision Measurement Period Adjustments
|
|
|
Adjusted Allocation
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
70
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
70
|
|
Accounts receivable
|
|
|
7
|
|
|
|
--
|
|
|
|
--
|
|
|
|
7
|
|
Other current assets
|
|
|
4
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4
|
|
Inventory
|
|
|
2
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2
|
|
Fixed assets
|
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1
|
|
Developed technology
|
|
|
1,523
|
|
|
|
(78
|
)
|
|
|
--
|
|
|
|
1,445
|
|
Customer relationships
|
|
|
216
|
|
|
|
(31
|
)
|
|
|
--
|
|
|
|
185
|
|
Non-compete agreements
|
|
|
49
|
|
|
|
--
|
|
|
|
--
|
|
|
|
49
|
|
Goodwill
|
|
|
619
|
|
|
|
80
|
|
|
|
(46
|
)
|
|
|
653
|
|
|
|
$
|
2,491
|
|
|
$
|
(29
|
)
|
|
$
|
(46
|
)
|
|
$
|
2,416
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
13
|
|
Accrued liabilities
|
|
|
48
|
|
|
|
--
|
|
|
|
--
|
|
|
|
48
|
|
Deferred revenue
|
|
|
28
|
|
|
|
--
|
|
|
|
--
|
|
|
|
28
|
|
Deferred tax liability
|
|
|
474
|
|
|
|
(29
|
)
|
|
|
(46
|
)
|
|
|
399
|
|
|
|
|
563
|
|
|
|
(29
|
)
|
|
|
(46
|
)
|
|
|
488
|
|
Total Purchase Price
|
|
$
|
1,928
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,928
|
|
The value of the intangibles and goodwill
were calculated by a third party valuation firm based on projections and financial data provided by management of the Company.
The deferred revenue included in the financial statements is the expected liability to service the projects. The goodwill represents the excess fair value after the allocation
to the intangibles. The calculated goodwill
is not deductible for tax purposes. The financial data of Locality is included in the Company’s financial statements starting
on the acquisition date through the year ended December 31, 2019. Proforma information has not been presented as it has been deemed
to be immaterial.
A final valuation of the assets and purchase
price allocation of Locality has not been completed as of the end of this reporting period as the third party valuation has not
been finalized. Consequently, the purchase price was preliminarily allocated based upon our best estimates at the time of this
filing. These amounts are subject to revision upon the completion of formal studies and valuations, as needed, which the Company
expects to occur during the first quarter of 2020.
Note
4 - GTX Acquisition
On June 27, 2019, the Company completed
its acquisition of certain assets of GTX, consisting of a portfolio of GPS technologies and intellectual property (the “Assets”).
GTX allows us to seamlessly locate devices/assets/people from the indoors to the outdoors. Prior to this asset acquisition the
Company was only providing indoor location.
The Assets were acquired for aggregate consideration
consisting of (i) $250,000 in cash delivered at the closing and (ii) 22,223 shares of Inpixon’s restricted common stock.
The
total recorded purchase price for the transaction was $900,000, which consisted of the cash paid of $250,000 and $650,000 representing
the value of the stock issued upon closing.
Assets acquired (in thousands):
|
|
|
|
|
|
|
|
Developed technology
|
|
$
|
850
|
|
Non-compete agreements
|
|
|
50
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
900
|
|
A final valuation of the assets and purchase
price allocation of GTX has not been completed as of the end of this reporting period as the third party valuation has not been
finalized. Consequently, the purchase price was preliminarily allocated based upon our best estimates at the time of this filing.
These amounts are subject to revision upon the completion of formal studies and valuations, as needed, which the Company expects
to occur during the first quarter of 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
4 - GTX Acquisition (continued)
On
September 16, 2019, the Company loaned GTX $50,000 in accordance with the terms of the asset purchase agreement. The note accrues
interest at a rate of 5% per annum and has a maturity date of April 13, 2020. Interest accrues beginning on the date that is the
earlier of (i) 180 days from the issue date of the note and (ii) the registration effective date as defined in the acquisition
agreement. This note is included as part of other receivables in the Company’s consolidated financial statements. As of
December 31, 2019, the balance of the note including interest was $50,425.
Note
5 - Jibestream Acquisition
On August 15, 2019, the Company, through
its wholly owned subsidiary, Inpixon Canada as purchaser (the “Purchaser”), completed its acquisition of Jibestream,
a provider of indoor mapping and location technology, for consideration consisting of: (i) CAD $5,000,000, plus an amount equal
to all cash and cash equivalents held by Jibestream at the closing, minus, if a negative number, the absolute value of the Estimated
Working Capital Adjustment (as defined in the acquisition agreement), minus any amounts loaned by the Purchaser to Jibestream to
settle any Indebtedness (as defined in the Purchase Agreement) or other fees, minus any cash payments to the holders of outstanding
options to settle any in-the-money options, minus the deferred revenue costs of CAD $150,000, and minus the costs associated with
the audit and review of the financial statements of Jibestream required by the Purchase Agreement (collectively, the “Estimated
Cash Closing Amount”); plus (ii) 176,289 shares of the Company’s common stock which was equal to CAD $3,000,000, converted
to U.S. dollars based on the exchange rate at the time of the closing, divided by $12.4875 which was the price per share at which
shares of the Company’s common stock are issued in of the Company’s common stock the Offering on August 12, 2019 (“Inpixon
Shares”).
Jibestream, provides a dynamic interactive
map that allows customers to put their digitized map into their mobile app or provide the map on a kiosk or other interface. Using
the Jibestream map allows Inpixon to offer a more intuitive interface to see its locationing data and analytics.
The
Nasdaq listing rules required the Company to obtain the approval of the Company’s stockholders for the issuance of 63,645
of the Inpixon Shares (the “Excess Shares”), which was obtained on October 31, 2019 and the shares were issued on
November 5, 2019. A number of Inpixon Shares representing fifteen percent (15%) of the value of the Purchase Price (the “Holdback
Amount”) were subject to stop transfer restrictions and forfeiture to secure the indemnification and other obligations
of the Vendors in favor of the Company arising out of or pursuant to Article VIII of the Purchase Agreement and, at the option
of the Company, to secure the obligation of the Vendors’ to pay any adjustment to the Purchase Price pursuant to Section
2.5 of the Purchase Agreement.
The total recorded purchase price for the
transaction was approximately $5,062,000, which consisted of cash at closing of approximately $3,714,000 and $1,348,000 representing
the value of the stock issued upon closing determined based on the closing price of the Company’s common stock as of the
closing date on August 15, 2019. Subsequently, the Company agreed not to enforce any right of setoff resulting from a Working
Capital Adjustment.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
5 - Jibestream Acquisition (continued)
The preliminary purchase price was
allocated and modified for measurement period adjustments due to updated tax provision estimates as follows (in
thousands):
|
|
Preliminary Allocation
|
|
|
Tax Provision Measurement Period Adjustments
|
|
|
Adjusted Allocation
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5
|
|
|
$
|
--
|
|
|
$
|
5
|
|
Accounts receivable
|
|
|
309
|
|
|
|
--
|
|
|
|
309
|
|
Other current assets
|
|
|
137
|
|
|
|
--
|
|
|
|
137
|
|
Fixed assets
|
|
|
10
|
|
|
|
--
|
|
|
|
10
|
|
Other assets
|
|
|
430
|
|
|
|
--
|
|
|
|
430
|
|
Developed technology
|
|
|
3,193
|
|
|
|
--
|
|
|
|
3,193
|
|
Customer relationships
|
|
|
1,253
|
|
|
|
--
|
|
|
|
1,253
|
|
Non-compete agreements
|
|
|
420
|
|
|
|
--
|
|
|
|
420
|
|
Goodwill
|
|
|
2,407
|
|
|
|
(919
|
)
|
|
|
1,488
|
|
|
|
$
|
8,165
|
|
|
$
|
(919
|
)
|
|
$
|
7,245
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
51
|
|
|
|
--
|
|
|
|
51
|
|
Accrued liabilities
|
|
|
94
|
|
|
|
--
|
|
|
|
94
|
|
Deferred revenue
|
|
|
1,156
|
|
|
|
--
|
|
|
|
1,156
|
|
Other liabilities
|
|
|
513
|
|
|
|
--
|
|
|
|
513
|
|
Deferred tax liability
|
|
|
1,289
|
|
|
|
(919
|
)
|
|
|
370
|
|
|
|
|
3,103
|
|
|
|
(919
|
)
|
|
|
2,183
|
|
Total Purchase Price
|
|
$
|
5,062
|
|
|
$
|
--
|
|
|
$
|
5,062
|
|
The value of the intangibles and
goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of
the Company. The deferred revenue included in the financial statements is the expected liability to service the projects. The
goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not deductible
for tax purposes. As part of the acquisition, the Company acquired a lease obligation with an operating lease right of use
asset of approximately $371,000 and an operating lease obligation of approximately $371,000 which are included in other
assets and other liabilities, respectively, in the purchase price allocation. The financial data of Jibestream is included in
the Company’s financial statements starting on the acquisition date through the year ended December 31, 2019.
A final valuation of the assets and purchase
price allocation of Jibestream has not been completed as of the end of this reporting period as the third party valuation has not
been finalized. Consequently, the purchase price was preliminarily allocated based upon our best estimates at the time of this
filing. These amounts are subject to revision upon the completion of formal studies and valuations, as needed, which the Company
expects to occur during the first quarter of 2020.
Note
6 - Proforma Financial Information
The
following unaudited proforma financial information presents the consolidated results of operations of the Company and Jibestream
for the years ended December 31, 2019 and 2018, as if the acquisition had occurred as of the beginning of the first period presented
instead of on August 15, 2019. The proforma information does not necessarily reflect the results of operations that would have
occurred had the entities been a single company during those periods.
(in thousands, except per share data)
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
7,558
|
|
|
|
6,088
|
|
Net loss attributable to common stockholders
|
|
$
|
(36,513
|
)
|
|
|
(47,038
|
)
|
Net loss per basic and diluted common share
|
|
$
|
(36.59
|
)
|
|
|
(171.55
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
997,856
|
|
|
|
274,189
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
7 - Inventory
Inventory
as of December 31, 2019 and December 31, 2018 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
13
|
|
|
$
|
143
|
|
Finished goods
|
|
|
387
|
|
|
|
425
|
|
Total Inventory
|
|
$
|
400
|
|
|
$
|
568
|
|
Note
8 - Property and Equipment, net
Property
and equipment as of December 31, 2019 and 2018 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Computer and office equipment
|
|
$
|
774
|
|
|
$
|
1,133
|
|
Furniture and fixtures
|
|
|
228
|
|
|
|
199
|
|
Leasehold improvements
|
|
|
25
|
|
|
|
16
|
|
Software
|
|
|
39
|
|
|
|
109
|
|
Total
|
|
|
1,066
|
|
|
|
1,457
|
|
Less: accumulated depreciation and amortization
|
|
|
(921
|
)
|
|
|
(1,255
|
)
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Net
|
|
$
|
145
|
|
|
$
|
202
|
|
Depreciation and amortization expense
were $98,000 and $355,000 for the years ended December 31, 2019 and 2018, respectively.
Note
9 - Software Development Costs
Capitalized
software development costs as of December 31, 2019 and 2018 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Capitalized software development costs
|
|
$
|
6,029
|
|
|
$
|
5,102
|
|
Accumulated amortization
|
|
|
(4,485
|
)
|
|
|
(3,412
|
)
|
Software development costs, net
|
|
$
|
1,544
|
|
|
$
|
1,690
|
|
The
weighted average remaining amortization period for the Company’s software development costs is 1.61 years.
Amortization expense for capitalized software
development costs was $1.025 million and $1.2 million for each of the years ended December 31, 2019 and 2018.
Future
amortization expense on the computer software is anticipated to be as follows (in thousands):
For the Years Ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
994
|
|
2021
|
|
|
487
|
|
2022
|
|
|
59
|
|
2023
|
|
|
4
|
|
Total
|
|
$
|
1,544
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
10 - Intangible Assets
Intangible
assets at December 31, 2019 and 2018 consisted of the following (in thousands):
Amortized Intangible Assets
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Trade Name/Trademarks
|
|
$
|
780
|
|
|
$
|
780
|
|
|
$
|
(724
|
)
|
|
$
|
(574
|
)
|
Customer Relationships
|
|
|
4,070
|
|
|
|
2,620
|
|
|
|
(2,574
|
)
|
|
|
(2,318
|
)
|
Developed Technology
|
|
|
21,422
|
|
|
|
15,871
|
|
|
|
(14,996
|
)
|
|
|
(11,873
|
)
|
Non-compete Agreements
|
|
|
923
|
|
|
|
400
|
|
|
|
(501
|
)
|
|
|
(400
|
)
|
Export License
|
|
|
13
|
|
|
|
13
|
|
|
|
(13
|
)
|
|
|
(10
|
)
|
Totals
|
|
$
|
27,208
|
|
|
$
|
19,684
|
|
|
$
|
(18,808
|
)
|
|
$
|
(15,175
|
)
|
Aggregate
Amortization Expense:
Aggregate
amortization expense for the years ended December 31, 2019 and 2018 were $3.6 million and $3.2 million, respectively.
Future
amortization expense on intangibles assets is anticipated to be as follows (in thousands):
For the Years Ending December 31,
|
|
Amount
|
|
2020
|
|
|
2,041
|
|
2021
|
|
|
808
|
|
2022
|
|
|
667
|
|
2023
|
|
|
643
|
|
2024 and thereafter
|
|
|
4,241
|
|
Total
|
|
$
|
8,400
|
|
The
weighted average remaining amortization periods for the Company’s trade names/trademarks, customer relationships, developed
technology, non-compete agreements, and export license are 0, 1.41, 8.43, 0.9, and 0 years, respectively.
Note
11 - Goodwill
The
Company has recorded goodwill and other indefinite-lived assets in connection with its acquisition of Shoom, Locality and Jibestream.
Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of the
acquired company, is not amortized. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business
combination. The Company’s goodwill balance and other assets with indefinite lives were evaluated for potential impairment
during the years ended December 31, 2019 and 2018, as certain indications on a qualitative and quantitative basis were identified
that an impairment exists as of the reporting date.
During
the years ended December 31, 2019 and 2018, the Company recognized $0 and $636,000 of impairment charges, respectively. The impairment
charge was primarily precipitated by the continued decline in Company’s stock price during those years, accumulated losses
and the lack of required working capital to fund our continuing operations. The Company used a market approach to determine if
the carrying amounts of the Company’s reporting units exceeded the fair value of the Company.
During the year ended December 31, 2019,
the corporate income tax returns were filed for the periods ending as of the acquisition dates of Locality and Jibestream. After
reviewing those tax returns, it was determined that there were additional tax benefits the Company would receive primarily related
to net operating losses and research tax credits. As a result, the deferred tax asset of Jibestream was increased by approximately
$1,023,000 and the deferred tax asset of Locality was increased by $48,000 with a corresponding decrease to goodwill. Additionally,
during the year ended December 31, 2019, upon receipt of the Locality valuation report, the values of the intangibles were updated
with a corresponding $80,000 increase to goodwill.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
11 - Goodwill (continued)
The
following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2019 (in thousands):
|
|
Shoom
|
|
|
Locality
|
|
|
Jibestream
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2018
|
|
$
|
636
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
636
|
|
Goodwill impairment (level 3 fair value adjustment)
|
|
|
(636
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(636
|
)
|
Balance as of December 31, 2018
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Goodwill additions through acquisitions
|
|
|
--
|
|
|
|
619
|
|
|
|
2,407
|
|
|
|
3,026
|
|
Valuation Measurement Period Adjustments
|
|
|
--
|
|
|
|
80
|
|
|
|
--
|
|
|
|
80
|
|
Tax Provision Measurement Period Adjustments
|
|
|
--
|
|
|
|
(46
|
)
|
|
|
(919
|
)
|
|
|
(965
|
)
|
Adjusted Allocation
|
|
|
--
|
|
|
|
653
|
|
|
|
1,488
|
|
|
|
2,141
|
|
Exchange rate fluctuation at December 31, 2019
|
|
|
--
|
|
|
|
19
|
|
|
|
(90
|
)
|
|
|
(71
|
)
|
Balance as of December 31, 2019
|
|
$
|
--
|
|
|
$
|
672
|
|
|
$
|
1,398
|
|
|
$
|
2,070
|
|
Note
12 - Discontinued Operations
Sale
of Sysorex Arabia
As
of December 31, 2015, the Company’s management decided to close its Saudi Arabia legal entity as business activities and
operations have been strategically shifted according to the business plan of the Company. On January 18, 2018, the Company sold
its 50.2% interest in Sysorex Arabia to SCI in consideration for SCI’s assumption of 50.2% of the assets and liabilities
of Sysorex Arabia, totaling approximately $11,500 and $1 million, respectively.
The Company did not recognize any depreciation
or amortization expense related to discontinued operations during the years ended December 31, 2019 and 2018. There were no significant
capital expenditures or non-cash operating or investing activities of discontinued operations during the periods presented. The
operations of Sysorex Arabia were insignificant for the January 1 – 18, 2018 period. On January 18, 2018, the Company sold
its 50.2% interest in Sysorex Arabia to SCI (Abdus Salam Qureishi, the former Chairman of the Board, is the majority stockholder
of SCI and is the father in law of Nadir Ali the Company’s CEO) in consideration for SCI’s assumption of 50.2% of the
assets and liabilities of Sysorex Arabia.
Spin-Off
of Sysorex, Inc. and its wholly owned subsidiary, Sysorex Government Services, Inc.
On
August 31, 2018, the Company completed the spin-off (the “Spin-off”) of its enterprise infrastructure
business from its indoor positioning analytics business by way of a distribution of all the shares of common stock of the Company’s
wholly-owned subsidiary, Sysorex, Inc. (“Sysorex”), to the Company’s stockholders of record as of August 21,
2018 (the “Record Date”) and certain warrant holders. The distribution occurred by way of a pro rata stock distribution
to such common stock, preferred stock and warrant holders, each of whom received one share of Sysorex’s common stock
for every 3 shares of the Company’s common stock held on the Record Date (without taking into effect the 1-for-40 reverse
stock split) or such number of shares of common stock issuable upon complete conversion of the preferred stock or exercise of
the warrants.
As
a result of the Spin-off, the Company’s common stock continues trading on the Nasdaq Stock Market (“Nasdaq”),
and Sysorex is an independent public company with common stock that is quoted on the OTC Markets.
In
accordance with ASC 205-20, “Discontinued Operations,” the results of Sysorex, including Inpixon’s
former subsidiary, Sysorex Government Services, Inc., formerly Inpixon Federal, Inc. (“SGS”), are reflected in Inpixon’s
consolidated financial statements as discontinued operations and, therefore, are presented as loss from discontinued operations
on the consolidated statements of operations.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
12 - Discontinued Operations (continued)
Gain
on Earnout
Under
the terms of the asset purchase agreement between Integrio Technologies, LLC and Emtec Federal, LLC (its wholly owned subsidiary)
(collectively, the “Seller”) and the Company and SGS, the Seller was eligible for an earnout that was included as
part of the purchase consideration. During the year ended December 31, 2018, the Company determined that the Seller was ineligible
for a portion of the earnout as the Seller did not meet the terms of the earnout provisions under the agreement and therefore
recorded a gain on earnout of $934,000, which is included in the net loss from discontinued operations section of the consolidated
statements of operations.
The
assets and liabilities that were divested as part of the Spin-off completed on August 31, 2018 were as follows:
Sysorex/SGS
Assets/Liabilities (In thousands)
Assets:
|
|
|
|
Accounts receivable, net
|
|
$
|
651
|
|
Notes and other receivables
|
|
|
473
|
|
Prepaid licenses and maintenance contracts
|
|
|
5
|
|
Other current assets
|
|
|
146
|
|
Property and equipment, net
|
|
|
41
|
|
Intangible assets, net
|
|
|
3,728
|
|
Other assets
|
|
|
34
|
|
Total Assets
|
|
$
|
5,078
|
|
Liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
(15,952
|
)
|
Accrued liabilities
|
|
|
(792
|
)
|
Deferred revenue
|
|
|
(70
|
)
|
Other liabilities
|
|
|
(40
|
)
|
Acquisition liability - Integrio
|
|
|
(62
|
)
|
Total Liabilities
|
|
$
|
(16,916
|
)
|
Total Net Liabilities Deconsolidated as Result of Spin-off
|
|
$
|
(11,838
|
)
|
Note
13 - Deferred Revenue
Deferred
revenue as of December 31, 2019 and 2018 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred Revenue, Current
|
|
|
|
|
|
|
Maintenance agreements
|
|
$
|
633
|
|
|
$
|
2
|
|
Service agreements
|
|
|
279
|
|
|
|
232
|
|
Total Deferred Revenue, Current
|
|
|
912
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Revenue
|
|
$
|
912
|
|
|
$
|
234
|
|
The
fair value of the deferred revenue approximates the services to be rendered.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
14 - Debt
Debt
as of December 31, 2019 and 2018 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable, less debt discount of $628 and $752, respectively (A)
|
|
$
|
7,080
|
|
|
$
|
4,035
|
|
Revolving line of credit (B)
|
|
|
150
|
|
|
|
23
|
|
Other short term debt (C)
|
|
|
74
|
|
|
|
69
|
|
Total Short-Term Debt
|
|
$
|
7,304
|
|
|
$
|
4,127
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
--
|
|
|
$
|
74
|
|
Total Long-Term Debt
|
|
$
|
--
|
|
|
$
|
74
|
|
November
2017 Note Purchase Agreement and Promissory Note
On October 5, 2018, in connection with
the issuance of exchange shares, the exercise price of the warrants issued in the Company’s public offering on April 24,
2018 (as described in Note 15) was adjusted to $486.00 per share and increased the number of shares of common stock issuable upon
exercise of such warrants to 30,315 shares of common stock. The Company has presented a deemed dividend of $8,817,000 on the consolidated
statements of operations for this price reset.
On January 29, 2019, the Company and Chicago
Venture Partners, L.P., the holder of that certain outstanding convertible promissory note (“Chicago Venture” or the
“Note Holder”), issued on November 17, 2017 (as amended, supplemented or otherwise modified, the “Original Note”),
with an outstanding balance of $383,768 (the “Remaining Balance”), entered into an exchange agreement (the “Exchange
Agreement”), pursuant to which the Company and the Note Holder agreed to (i) partition a new convertible promissory note
in the form of the Original Note (the “Partitioned Note”) in the original principal amount equal to the Remaining Balance
(the “Exchange Amount”) and then cause the Remaining Balance to be reduced by the Exchange Amount; and (ii) exchange
the Partitioned Note for the delivery of 3,842 shares of the Company’s common stock at an effective price share equal to
$99.90. Following such partition of the Original Note, the Original Note was deemed paid in full, was automatically deemed cancelled,
and shall not be reissued.
October
2018 Note Purchase Agreement and Promissory Note
On
October 12, 2018, the Company entered into a note purchase agreement with Iliad Research and Trading, L.P. (the “Holder”
or “Iliad”), which is affiliated with Chicago Venture, pursuant to which the Company agreed to issue and sell to the
Holder an unsecured promissory note in an aggregate principal amount of $2,520,000, which is payable on or before the date that
is 12 months from the issuance date. The initial principal amount includes an original issue discount of $500,000 and $20,000
that the Company agreed to pay to the Holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring
and other transaction costs. In exchange for the note, the Holder paid an aggregate purchase price of $2,000,000. Interest on
the note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the note. Beginning
as of the date that was 6 months from the issuance date and at the intervals indicated below until the note is paid in full, the
Holder has the right to redeem up to an aggregate of 1/3 of the initial principal balance of the note each month (each monthly
exercise, a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”)
to the Company; provided, however, that if the Monthly Redemption Amount is not exercised in its corresponding month then such
Monthly Redemption Amount will be available for the Holder to redeem in any future month in addition to such future month’s
Monthly Redemption Amount. Upon receipt of any Monthly Redemption Notice, the Company is required to pay the applicable Monthly
Redemption Amount in cash to the Holder within 5 business days of the Company’s receipt of such Monthly Redemption Notice.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
14 - Debt (continued)
|
(A)
|
Notes
Payable (continued)
|
October 2018 Note Purchase Agreement
and Promissory Note (continued)
During the year ended December 31, 2019,
the Company exchanged approximately $2,729,000 of the outstanding principal and interest under the note for 92,831 shares of the
Company’s common stock at exchange prices between $22.95 and $40.45 per share. The Company analyzed the exchange of principal
under the note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price
(shares of common stock being issued) and recorded a $188,000 loss on the exchange of debt for equity as a separate item in the
other income/expense section of the consolidated statements of operations for the year ended December 31, 2019. These exchanges
satisfied the liability in full and the balance owed under the note was $0 as of December 31, 2019.
December
2018 Note Purchase Agreement and Promissory Note
On
December 21, 2018, the Company entered into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue
and sell to Iliad an unsecured promissory note (the “December 2018 Note”) in an aggregate principal amount of $1,895,000,
which is payable on or before December 31, 2019 (as provided in the Exchange Agreement, dated October 24, 2019, described below
(the “October 24th Exchange Agreement”)). The initial principal amount includes an original issue discount
of $375,000 and $20,000 that the Company agreed to pay to the Holder to cover its legal fees, accounting costs, due diligence,
monitoring and other transaction costs. In exchange for the December 2018 Note, the Holder paid an aggregate purchase price of
$1,500,000. Interest on the Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance
with the December 2018 Note. The Company may pay all or any portion of the amount owed earlier than it is due; provided, that
in the event the Company elects to prepay all or any portion of the outstanding balance, it will pay 115% of the portion of the
outstanding balance the Company elects to prepay. Beginning on the date that is 6 months from the issuance date and at the intervals
indicated below until the December 2018 Note is paid in full, the Holder has the right to redeem up to an aggregate of 1/3 of
the initial principal balance of the December 2018 Note each month (each monthly exercise, a “Monthly Redemption Amount”)
by providing written notice (each, a “Monthly Redemption Notice”) delivered to the Company; provided, however, that
if any Monthly Redemption Amount is not exercised in its corresponding month then such Monthly Redemption Amount will be available
for the Holder to redeem in any future month in addition to such future month’s Monthly Redemption Amount. Upon receipt
of any Monthly Redemption Notice, the Company shall pay the applicable Monthly Redemption Amount in cash within 5 business days
of the Company’s receipt of such Monthly Redemption Notice. Pursuant to the October 24th Exchange Agreement described
below, the Holder agreed that the exercise of any redemption rights described above would be deferred until no earlier than December
31, 2019.
Amendment
to Note Purchase Agreements
On
February 8, 2019, the Company entered into a global amendment (the “Global Amendment”) to the note purchase agreements
entered into on October 12, 2018 and December 21, 2018, in connection with the notes issued as of such dates, to delete the phrase
“by cancellation or exchange of the Note, in whole or in part” from Section 8.1 of those agreements. The Company also
agreed to pay Iliad’s fees and other expenses in an aggregate amount of $80,000 (the “Fee”) in connection with
the preparation of the Global Amendment by adding $40,000 of the Fee to the outstanding balance of each of the notes.
Standstill
Agreement
On
August 8, 2019, the Company and Iliad entered into a standstill agreement with respect to the December 2018 Note (the “Standstill
Agreement”). Pursuant to the Standstill Agreement, Iliad agreed that it will not redeem all or any portion of the December
2018 Note for a period beginning on August 8, 2019, and ending on the date that is 90 days from August 8, 2019. As consideration
for this, the outstanding balance of the December 2018 Note was increased by $206,149.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 14 - Debt (continued)
|
(A)
|
Notes Payable
(continued)
|
Note Exchanges
During the year ended December 31, 2019,
the Company exchanged approximately $2,112,000 of the outstanding principal and interest under the note for 707,071 shares of
the Company’s common stock at exchange prices between $1.80 and $4.95 per share. The Company analyzed the exchange of principal
under the note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price
(shares of common stock being issued) and recorded an approximately $10,000 loss on the exchange of debt for equity as a separate
item in the other income/expense section of the consolidated statements of operations for the year ended December 31, 2019. As
of December 31, 2019, the outstanding balance of the December 2018 Note was approximately $28,749.
May 2019 Note Purchase Agreement
and Promissory Note
On May 3, 2019, the Company entered into
a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed to
issue and sell to the investor an unsecured promissory note (the “May 2019 Note”) in an aggregate principal amount
of $3,770,000, which is payable on or before the date that is 10 months from the issuance date. The initial principal amount includes
an original issue discount of $750,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal
fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the May 2019 Note, the holder paid
an aggregate purchase price of $3,000,000. Interest on the May 2019 Note accrues at a rate of 10% per annum and is payable on
the maturity date or otherwise in accordance with the May 2019 Note. The Company may pay all or any portion of the amount owed
earlier than it is due; provided, that in the event the Company elects to prepay all or any portion of the outstanding balance,
it shall pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay. Beginning on the date
that is 6 months from the issuance date and at the intervals indicated below until the May 2019 Note is paid in full, the holder
shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the May 2019 Note each month (each
monthly exercise, a “Monthly Redemption Amount”) by providing written notice (each, a “Monthly Redemption Notice”)
delivered to the Company; provided, however, that if the holder does not exercise any Monthly Redemption Amount in its corresponding
month then such Monthly Redemption Amount shall be available for the holder to redeem in any future month in addition to such
future month’s Monthly Redemption Amount. Upon receipt of any Monthly Redemption Notice, the Company shall pay the applicable
Monthly Redemption Amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption
Notice.
During the year ended December 31, 2019,
the Company exchanged approximately $2,076,000 of the outstanding principal and interest under the note for 738,889 shares of
the Company’s common stock at exchange prices between $1.80 and $3.51 per share. The Company analyzed the exchange of principal
under the note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price
(shares of common stock being issued) and recorded an approximately $96,000 loss on the exchange of debt for equity as a separate
item in the other income/expense section of the consolidated statements of operations for the year ended December 31, 2019. As
of December 31, 2019, the outstanding balance of the May 2019 Note was approximately $1,694,000.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 14 - Debt (continued)
|
(A)
|
Notes Payable (continued)
|
June 2019 Note Purchase Agreement
and Promissory Note
On June 27, 2019, the Company entered
into a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed
to issue and sell to the holder an unsecured promissory note (the “June 2019 Note”) in an aggregate principal amount
of $1,895,000, which is payable on or before the date that is 9 months from the issuance date. The initial principal amount includes
an original issue discount of $375,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal
fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the June 2019 Note, the holder
paid an aggregate purchase price of $1,500,000. Interest on the June 2019 Note accrues at a rate of 10% per annum and is payable
on the maturity date or otherwise in accordance with the June 2019 Note. The Company may pay all or any portion of the amount
owed earlier than it is due; provided, that in the event the Company elects to prepay all or any portion of the outstanding balance,
it shall pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay. Beginning on the date
that is 6 months from the issuance date and at the intervals indicated below until the June 2019 Note is paid in full, the holder
shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the June 2019 Note each month by
providing written notice delivered to the Company; provided, however, that if the holder does not exercise any monthly redemption
amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future
month in addition to such future month’s monthly redemption amount. Upon receipt of any monthly redemption notice, the Company
shall pay the applicable monthly redemption amount in cash to the holder within five business days. The June 2019 Note includes
customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon
the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related
Event of Default”)), the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other
amounts due under the June 2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of
the June 2019 Note (the “Mandatory Default Amount”). Upon the occurrence of a Bankruptcy-Related Event of Default,
without notice, all unpaid principal, plus all accrued interest and other amounts due under the June 2019 Note will become immediately
due and payable at the Mandatory Default Amount. Pursuant to the terms of the Purchase Agreement, if the Company consummates
an offering of its equity securities, the Company is required to make a cash payment to the holder in the following amount: (a)
twenty-five percent (25%) of the outstanding balance of the June 2019 Note if the Company receives net proceeds equal to $2,500,000.00
or less; (b) fifty percent (50%) of the outstanding balance of the June 2019 Note if the Company receives net proceeds of more
than $2,500,000.00 but less than $5,000,000.00; and (c) one hundred percent (100%) of the outstanding balance of the June 2019
Note if the Company receives net proceeds equal to $5,000,000.00 or more.
Effective as
of August 12, 2019, the Company and Chicago Venture entered into an amendment agreement, dated as of August 14, 2019, to provide
that the Company’s obligation to repay all or a portion of the outstanding balance of the June 2019 Note upon the completion
of any offering of equity securities of the Company would not apply or be effective until December 27, 2019. As consideration
for the amendment, a fee of $191,883 was added to the outstanding balance of the June 2019 Note. As of December 31, 2019, the
outstanding balance of the June 2019 Note was approximately $2,086,883.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 14 - Debt (continued)
|
(A)
|
Notes Payable (continued)
|
August 2019 Note Purchase Agreement
and Promissory Note
On August 8, 2019, the Company entered
into a note purchase agreement with Chicago Venture, pursuant to which the Company agreed to issue and sell to the holder an unsecured
promissory note (the “August 2019 Note”) in an aggregate principal amount of $1,895,000, which is payable on or before
the date that is 9 months from the issuance date. The Initial Principal Amount includes an original issue discount of $375,000
and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence,
monitoring and other transaction costs. In exchange for the August 2019 Note, the holder paid an aggregate purchase price of $1,500,000.
Interest on the Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the
August 2019 Note. The Company may pay all or any portion of the amount owed earlier than it is due; provided, that in the event
the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of the portion of
the outstanding balance the Company elects to prepay. Beginning on the date that is 6 months from the issuance date and at the
intervals indicated below until the August 2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate
of 1/3 of the initial principal balance of the August 2019 Note each month by providing written notice to the Company; provided,
however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption
amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption
amount. Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash
to the holder within five business days of the Company’s receipt of such monthly redemption notice. The August 2019 Note
includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%.
Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (the
“Bankruptcy-Related Event of Default”)), the Holder may, by written notice, declare all unpaid principal, plus all
accrued interest and other amounts due under the August 2019 Note to be immediately due and payable at an amount equal to 115%
of the outstanding balance of the Note (the “Mandatory Default Amount”). Upon the occurrence of a Bankruptcy-Related
Event of Default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the Note will become
immediately due and payable at the Mandatory Default Amount. As of December 31, 2019, the outstanding balance of the August 2019
Note was approximately $1,895,000.
September 2019 Note Purchase Agreement
and Promissory Note
On September 17, 2019, the Company entered into a note purchase
agreement with Iliad, pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “September
2019 Note”) in an aggregate principal amount of $952,500, which is payable on or before the date that is 9 months from the
issuance date. The Initial Principal Amount includes an original issue discount of $187,500 and $15,000 that the Company agreed
to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction
costs. In exchange for the Note, the Holder paid an aggregate purchase price of $750,000. Interest on the Note accrues at a rate
of 10% per annum and is payable on the maturity date or otherwise in accordance with the September 2019 Note. The Company may pay
all or any portion of the amount owed earlier than it is due; provided, that in the event the Company elects to prepay all or any
portion of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding balance the Company elects
to prepay. Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the September
2019 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance
of the September 2019 Note each month by providing written notice to the Company; provided, however, that if the holder does not
exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the
holder to redeem in any future month in addition to such future month’s monthly redemption amount. Upon receipt of any monthly
redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business days
of the Company’s receipt of such monthly redemption notice. The September 2019 Note includes customary event of default provisions,
subject to certain cure periods, and provides for a default interest rate of 22%.
Upon the occurrence of
an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (the “Bankruptcy-Related
Event of Default”)), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other
amounts due under the September 2019 Note to be immediately due and payable at an amount equal to 115% of the outstanding balance
of the Note (the “Mandatory Default Amount”). Upon the occurrence of a Bankruptcy-Related Event of Default, without
notice, all unpaid principal, plus all accrued interest and other amounts due under the Note will become immediately due and payable
at the Mandatory Default Amount. Under the terms of the September 2019 Note, since it was still outstanding on December 17, 2019,
a one-time monitoring fee equal to ten percent (10%) of the then outstanding balance, or $97,661, was added to the September 2019
Note. As of December 31, 2019, the outstanding balance of the September 2019 Note was approximately $1,050,161.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 14 - Debt (continued)
|
(A)
|
Notes Payable (continued)
|
November 2019 Note Purchase Agreement
and Promissory Note
On November 22, 2019, we issued a promissory
note to St. George Investments LLC (“St. George”), an affiliate of Iliad and Chicago Venture, pursuant to which the
Company agreed to issue and sell to the Holder an unsecured promissory note (the “November 2019 Note”) in the initial
principal amount of $952,500, which is payable on or before the date that is 6 months from the issuance date, subject to extension
in accordance with the terms of the note. The initial principal amount includes an original issue discount of $187,500 and $15,000
that the Company agreed to pay to St. George to cover its legal fees, accounting costs, due diligence, monitoring and other transaction
costs. In exchange for the note, St. George paid an aggregate purchase price of $750,000. Interest on the note accrues at a rate
of 10% per annum and is payable on the maturity date or otherwise in accordance with the note. The Company may pay all or any
portion of the amount owed earlier than it is due; provided, that in the event the Company elects to prepay all or any portion
of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding balance the Company elects to prepay.
The November 2019 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default
interest rate of 22%. Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency
proceedings (the “Bankruptcy-Related Event of Default”)), the Holder may, by written notice, declare all unpaid principal,
plus all accrued interest and other amounts due under the November 2019 Note to be immediately due and payable at an amount equal
to 115% of the outstanding balance of the Note (the “Mandatory Default Amount”). Upon the occurrence of a Bankruptcy-Related
Event of Default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the Note will become
immediately due and payable at the Mandatory Default Amount. Under the terms of the note, since it was still outstanding on February
22, 2020, a one-time monitoring fee equal to ten percent (10%) of the then-current outstanding balance, or approximately $97,688,
was added to the note. As of December 31, 2019, the outstanding balance of the November 2019 Note was approximately $952,500.
|
(B)
|
Revolving
Line of Credit
|
Payplant Accounts Receivable Bank
Line
In accordance with the Payplant Loan and
Security Agreement, dated as of August 14, 2017 (the “Loan Agreement”), the Loan Agreement allows the Company to request
loans from the Lender (in the manner provided therein) with a term of no greater than 360 days in amounts that are equivalent
to 80% of the face value of purchase orders received. The Lender is not obligated to make the requested loan, however, if the
Lender agrees to make the requested loan, before the loan is made, the Company must provide Lender with (i) one or more promissory
notes for the amount being loaned in favor of Lender, (ii) one or more guaranties executed in favor of Lender and (iii) other
documents and evidence of the completion of such other matters as Lender may request. The principal amount of each loan shall
accrue interest at a 30 day rate of 2% (the “Interest Rate”), calculated per day on the basis of a year of 360 days
and, when combined with all fees that may be characterized as interest will not exceed the maximum rate allowed by law. Upon the
occurrence and during the continuance of any event of default, interest shall accrue at a rate equal to the Interest Rate plus
0.42% per 30 days. All computations of interest shall be made on the basis of a year of 360 days. The promissory note is subject
to the interest rates described in the Loan Agreement and is secured by the assets of the Company pursuant to the Loan Agreement
and will be satisfied in accordance with the terms of the Payplant Client Agreement.
On August 31, 2018, Inpixon, Sysorex, SGS,
and Payplant executed Amendment 1 to Payplant Client Agreement (the “Amendment”). Pursuant to the Amendment, Sysorex
and SGS are no longer parties to the Payplant Client Agreement, originally entered into on August 14, 2017, and have been released
from any and all obligations and liabilities arising under the Payplant Client Agreement, whether such obligations and liabilities
were in existence prior to or on the date of the Amendment or arise after the date of the Amendment. As of December 31, 2019, the
outstanding balance of the revolving line of credit was approximately $150,000.
(C) Other Short Term Debt
As of December 31, 2019, the Company owed approximately $74,065
to the pre-acquisition stockholders of Shoom. Any amounts not subject to claims shall be released to the pre-acquisition stockholders
of Shoom pro-rata on the next anniversary date of the closing date of the Shoom acquisition, August 31, 2020.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 15 - Capital Raises
January 2018 Capital Raise
On January 5, 2018, the Company entered
into that certain Securities Purchase Agreement (the “January 2018 SPA”) with certain investors (the “January
2018 Investors”) pursuant to which the Company agreed to sell an aggregate of 334 shares (the “January 2018 Shares”)
of the Company’s common stock, at a purchase price of $9,558.00 per share (the “January 2018 Offering”) and
warrants to purchase up to 334 shares (the “January 2018 Warrant Shares”) of common stock (the “January 2018
Warrants”). The aggregate gross proceeds for the sale of the January 2018 Shares and January 2018 Warrants was approximately
$3.2 million. After deducting placement agent fees and other expenses, the net proceeds from the offering was approximately $2.8
million. The January 2018 Warrants were initially exercisable at an exercise price per share equal to $11,880.00, subject to certain
adjustments, and will expire on the five year anniversary of the initial exercise date. Following the February offering described
below, the exercise price of the January 2018 Warrants was reduced to $5,400.00 per share.
February 2018 Public Offering
On February 20, 2018, the Company completed
a public offering for approximately $18 million in securities, consisting of an aggregate of 1,848 Class A units, at a price to
the public of $4,230.00 per Class A unit, each consisting of one share of the Company’s common stock and a five-year warrant
to purchase one share of common stock at an exercise price of $6,300.00 per share (“February 2018 Warrants”), and
10,184.9752 Class B units, at a price to the public of $1,000 per Class B unit, each consisting of one share of the Company’s
newly designated Series 3 convertible preferred stock (“Series 3 Preferred”) with a stated value of $1,000 and initially
convertible into approximately 1 share of our common stock at a conversion price of $4,230.00 per share for up to an aggregate
of 2,408 shares of common stock and February 2018 Warrants exercisable for the number of shares of common stock into which the
shares of Series 3 Preferred were initially convertible.
The Company received approximately $18
million in gross proceeds from the offering, including $1 million in amounts payable to service providers that participated in
the offering, and before placement agent fees and offering expenses payable by the Company. After satisfying the amounts due to
service providers and deducting placement agent fees, the net proceeds from the offering were approximately $15.4 million.
The embedded conversion option associated
with the Series 3 Preferred shares has a beneficial conversion feature, which has a value of $1,508,000. The Company recorded
this amount as a deemed dividend on the consolidated statement of operations for these beneficial conversion features.
Following the April offering described
below, the exercise price of the February 2018 Warrants was reduced to the floor price of $1,141.20 and the number of shares issuable
upon exercise of such warrants was increased to 24,055 shares of common stock.
April 2018 Public Offering
On April 24, 2018, the Company completed
a public offering consisting of 10,115 units at a price to the public of $1,000 per unit, each consisting of (i) one share of
our newly designated Series 4 convertible preferred stock (the “Series 4 Preferred”) with a stated value of $1,000
and initially convertible into approximately 2 shares of common stock, at a conversion price of $828.00 per share (subject to
adjustment) and (ii) one warrant to purchase such number of shares of common stock as each share of Series 4 Preferred is convertible
into. The warrants are immediately exercisable at an initial exercise price of $1,206.00 per share (subject to adjustment). The
Company received approximately $10.1 million in gross proceeds from this offering, before deducting placement agent fees and offering
expenses payable by the Company. After deducting placement agent fees and expenses, the net proceeds from this offering were approximately
$9.2 million.
The embedded conversion option associated
with the Series 4 Preferred shares has a beneficial conversion feature, which has a value of $673,000. Additionally, the embedded
conversion option had a price reset feature, which resulted in the reduction of the conversion price from $828.00 to $320.40 on
June 25, 2018, which has a value of $4,226,000. The Company recorded $4,899,000 as a deemed dividend on the consolidated statement
of operations for these beneficial conversion features.
As described above, the April offering
reset the price of the February 2018 Warrants to the floor price of $1,141.20 and the number of shares issuable upon exercise
of such warrants was increased to 24,055 shares of common stock. The Company has presented a deemed dividend of $4,828,000 on
the consolidated statement of operations for this price reset.
Following the rights offering in January
2019 as described below, the conversion price of the Series 4 Preferred was reduced to the floor price of $223.20 and the exercise
price of the warrants issued in the April offering were also reduced to the floor price of $223.20 and the number of shares issuable
upon exercise of such warrants was increased to 61,562 shares of common stock.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 15 - Capital Raises (continued)
January 2019 Capital Raise
On January 15,
2019, the Company closed a rights offering whereby it sold an aggregate of 12,000 units consisting of an aggregate of 12,000
shares of Series 5 Convertible Preferred Stock and 80,000 warrants to purchase common stock exercisable for one share of
common stock at an exercise price of $149.85 per share in accordance with the terms and conditions of a warrant agency agreement,
resulting in gross proceeds to the Company of approximately $12 million, and net proceeds of approximately
$10.77 million after deducting expenses relating to dealer-manager fees and expenses, and excluding any proceeds
received upon exercise of any warrants.
Following the rights offering, the conversion
price of the Series 4 Convertible Preferred Stock was reduced to the floor price of $223.20, the exercise price of the warrants
issued in the April 2018 public offering were also reduced to the floor price of $223.20 and the number of shares issuable upon
exercise of such warrants was increased to 61,562 shares of common stock. The maximum deemed dividend under the Series 4 Convertible
Preferred Stock has been recognized so there is no accounting effect from the conversion price reduction of the Series 4 Convertible
Preferred Stock. However, the Company recorded a $1.3 million deemed dividend for the reduction to the exercise price of the April
2018 warrants. As of December 31, 2019, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
August 2019 Financing
On August 12, 2019, the Company sold an
aggregate of (i) 144,387 shares of our common stock, (ii) 2,997 shares of our Series 6 Convertible Preferred Stock, with a stated
value $1,000 per share, convertible into shares of our common stock (the “Series 6 Preferred Stock”), and (iii) Series
A warrants to purchase up to an aggregate of 384,387 shares of common stock at an exercise price per share of $12.4875, resulting
in gross proceeds to the Company of approximately $4.8 million, and net proceeds of approximately $4 million after deducting the
underwriting discounts and offering expenses. As of December 31, 2019, there were 0 shares of Series 6 Convertible Preferred
Stock outstanding.
At-The-Market Program
During the year ended December 31, 2019 under an at-the-market
(“ATM”) program, we sold an aggregate of 1,470,900 shares of common stock, at a weighted average price of approximately
$4.42 per share resulting in net proceeds of approximately $5.9 million to us after deduction of sales commissions equal to 4.5%
of the gross sales and other offering expenses. We raised total aggregate gross proceeds of approximately $6.5 million in connection
with the ATM program.
Note 16 - Common Stock
On January 5, 2018, the Company issued
5 shares of common stock pursuant to a subscription agreement with a service provider at a purchase price of $18,360.00 per
share, in satisfaction of $80,000 payable to the provider.
On January 5, 2018, the Company entered
into a securities purchase agreement with certain investors pursuant to which the Company agreed to sell an aggregate of 334 shares
of the Company’s common stock, at a purchase price of $9,558.00 per share (see Note 15).
On February 5, 2018, the holder of the
Debenture delivered a conversion notice to the Company pursuant to which it converted $300,000 of principal of the Debenture into
28 shares of the Company’s common stock. Such shares of common stock were issued on February 6, 2018.
On February 7, 2018, the holder of the
Debenture delivered a conversion notice to the Company pursuant to which it converted $400,000 of principal of the Debenture into
67 shares of the Company’s common stock.
On February 9, 2018, the holder of the
Debenture delivered a final conversion notice to the Company pursuant to which it converted $317,000 of principal of the Debenture
into 59 shares of the Company’s common stock, which paid the Debenture in full.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 16 - Common Stock (continued)
On February 20, 2018, the Company completed
a public offering including an aggregate of 1,848 Class A units, at a price to the public of $4,230.00 per Class A unit, each
consisting of one share of the Company’s common stock and a five-year warrant to purchase one share of common stock (see
Note 15).
During the three months ended March 31,
2018, 9,773.7252 shares of Series 3 Preferred were converted into 2,311 shares of the Company’s common stock.
During the three months ended March 31,
2018, the Company issued 6 shares of common stock for fractional shares due to the reverse stock split effective February 6, 2018.
During the three months ended June 30,
2018, 411.25 shares of Series 3 Preferred were converted into 98 shares of the Company’s common stock.
During the three months ended June 30,
2018, 7,796.7067 shares of Series 4 Preferred were converted into 15,966 shares of the Company’s common stock.
During the three months ended September
30, 2018, 2,311.2933 shares of Series 4 Preferred were converted into 7,218 shares of the Company’s common stock.
On October 8,
2018, the Company issued 3,162 shares of the Company’s common stock at an effective price per share of $486.00 to pay $1,536,649
towards the balance of the November Note (see Note 14).
During the three months ended December
31, 2018, 6 shares of Series 4 Preferred were converted into 19 shares of the Company’s common stock.
During the three months ended December
31, 2018, the Company issued 834 shares of common stock for services, which were fully vested upon the date of issuance. The Company
recorded an expense of approximately $465,000 for the fair value of those shares.
During the three months ended December
31, 2018, the Company issued 615 shares of common stock for fractional shares due to the reverse stock split effective November
2, 2018.
During the three months ended December
31, 2018, the Company issued 2,056 shares of common stock in connection with the exercise of 2,056 warrants at $486.00 a share.
On January 29, 2019, the Company issued
3,842 shares of common stock under an exchange agreement to settle the outstanding balance of $383,768 under a partitioned note.
(see Note 14)
On February 20, 2019, the Company issued
16,655 shares of common stock under a settlement agreement for an arbitration proceeding.
During the three months ended March 31,
2019, the Company issued 306 shares of common stock in connection with the exercise of 306 warrants at $149.85 per share.
During the three months ended March 31,
2019, the Company issued 27,741 shares of common stock in connection with the exercise of 46,235 warrants through cashless exercises.
During the three months ended March 31,
2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 67,149 shares of the Company’s common stock.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 16 - Common Stock (continued)
During the three months ended March 31,
2019, the Company issued 4,445 shares of common stock for services, which were fully vested upon grant. The Company recorded an
expense of approximately $242,000.
During the three months ended June 30,
2019, the Company issued 61,636 shares of common stock under an exchange agreement to settle the outstanding balance of $2,005,000
under a partitioned note (See Note 14).
During the three months ended June 30,
2019, the Company issued 18,572 shares of common stock in connection with the exercise of 30,954 warrants through cashless exercises.
During the three months ended June 30,
2019, 1,812 shares of Series 5 Convertible Preferred Stock were converted into 12,093 shares of the Company’s common stock.
On May 21, 2019, the Company issued 14,445
shares of common stock to Locality as part of an acquisition (See Note 3).
On June 27, 2019, the Company issued 22,223
shares of common stock to GTX as part of an acquisition (See Note 4).
On August 12, 2019, the Company issued
144,387 shares of common stock as part of a public offering (See Note 15).
On August 15, 2019, the Company issued
112,644 shares of common stock to security holders of Jibestream as part of an acquisition (See Note 5).
During the three months ended September
30, 2019, the Company issued 31,195 shares of common stock under an exchange agreement to settle the outstanding balance of approximately
$725,000 under a partitioned note (See Note 14).
During the three months ended September
30, 2019, the Company issued 310,154 shares of common stock in connection with the exercise of 310,154 warrants through cashless
exercises.
During the three months ended September
30, 2019, 2,997 shares of Series 6 Convertible Preferred Stock were converted into 240,001 shares of the Company’s common
stock.
On November 5, 2019, the Company issued
63,645 shares of common stock to security holders of Jibestream as part of an acquisition (See Note 5).
During the three months ended December
31, 2019, the Company issued 1,470,900 shares of common stock as part of an ATM program (See Note 15).
During the three months ended December
31, 2019, the Company issued 1,445,960 shares of common stock under an exchange agreement to settle the outstanding balance of
approximately $4.2 million under a partitioned note (See Note 14).
During the three months ended December
31, 2019, the Company issued 69,485 shares of common stock in connection with the exercise of 69,485 warrants through cashless
exercises.
During the three months ended December
31, 2019, the Company issued 14 shares of common stock in connection with the exercise of 14 employee stock options.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 17 - Preferred Stock
The Company is authorized to issue up
to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges and restrictions
as to be determined by the Company’s Board of Directors.
Series 3 Convertible Preferred Stock
On February 15, 2018, the Company filed
with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 3 Convertible Preferred Stock
(“Series 3 Preferred”), authorized 10,184.9752 shares of Series 3 Preferred and designated the preferences, rights
and limitations of the Series 3 Preferred. The Series 3 Preferred is non-voting (except to the extent required by law). The Series
3 Preferred was convertible into the number of shares of Common Stock, determined by dividing the aggregate stated value of the
Series 3 Preferred of $1,000 per share to be converted by $4,230.00.
On February 20, 2018, the Company completed
a public offering including an aggregate of 10,184.9752 Class B units, at a price to the public of $1,000 per Class B unit, each
consisting of 1 share of the Series 3 Preferred with a stated value of $1,000 and initially convertible into approximately 1 share
of our common stock at a conversion price of $4,230.00 per share (See Note 15).
During the three months ended March 31,
2018, 9773.7252 shares of Series 3 Preferred were converted into 2,311 shares of the Company’s common stock. During the three
months ended June 30, 2018, 411.25 shares of Series 3 Preferred were converted into 98 shares of the Company’s common stock.
As of December 31, 2019 and 2018, there are no Series 3 Preferred shares outstanding.
Series 4 Convertible Preferred Stock
On April 20, 2018, the Company filed with
the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock
(“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and
limitations of the Series 4 Preferred. The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible
into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $1,000
per share to be converted by $828.00 (the “Conversion Price”).
On April 24, 2018, the Company completed
a public offering consisting of 10,115 units at a price to the public of $1,000 per unit, each consisting of (i) one share of
our newly designated Series 4 Preferred and (ii) one warrant to purchase such number of shares of common stock as each share of
Series 4 Preferred is convertible into (see Note 15).
On June 25, 2018, in accordance with the
terms of the price reset provisions described in the Certificate of Designations the Conversion Price of the Series 4 Preferred
was adjusted to $320.40. On January 15, 2019, following the rights offering described above (See Note 15), the Conversion Price
of the Series 4 Preferred was reduced to the floor price of $223.20.
During the three months ended June 30,
2018, 7,796.7067 shares of Series 4 Preferred were converted into 15,966 shares of the Company’s common stock. During the
three months ended September 30, 2018, 2,311.2933 shares of Series 4 Preferred were converted into 7,218 shares of the Company’s
common stock. During the three months ended December 31, 2018, 6 shares of Series 4 Preferred were converted into 19 shares of
the Company’s common stock. As of December 31, 2019 and 2018, there was 1 share of Series 4 Preferred outstanding.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 17 - Preferred Stock (continued)
Series 5 Convertible Preferred Stock
On January 14, 2019, the Company filed
with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred
Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations
of the Series 5 Convertible Preferred Stock. The Series 5 Convertible Preferred Stock is non-voting (except to the extent required
by law). The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common Stock, determined by dividing
the aggregate stated value of the Series 5 Convertible Preferred Stock of $1,000 per share to be converted by $149.85.
On January 15, 2019, the Company closed
a rights offering whereby it sold an aggregate of 12,000 units consisting of an aggregate of 12,000 shares of Series
5 Convertible Preferred Stock and 80,000 warrants to purchase common stock exercisable for one share of common stock at an exercise
price of $149.85 per share.
During the three months ended March 31,
2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 67,149 shares of the Company’s common stock.
During the three months ended June 30,
2019, 1,812 shares of Series 5 Convertible Preferred Stock were converted into 12,093 shares of the Company’s common stock.
As of December 31, 2019, there were 126
shares of Series 5 Convertible Preferred Stock outstanding.
Series 6 Convertible Preferred Stock
On August 13,
2019, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series 6 Convertible Preferred
Stock (the “Series 6 Preferred Certificate of Designation”) with the Secretary of State of Nevada, establishing the
rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series 6 Convertible Preferred
Stock with a stated value of $1,000 and convertible into a number of shares of the Company’s common stock equal to $1,000
divided by $12.4875.
On August 12, 2019, the Company closed
a public offering whereby it sold an aggregate of 2,997 shares of Series 6 Convertible Preferred Stock, 144,387 shares
of our common stock and 384,387 warrants to purchase common stock exercisable for one share of common stock at an exercise price
of $12.4875 per share.
During the three months ended September
30, 2019, 2,997 shares of Series 6 Convertible Preferred Stock were converted into 240,001 shares of the Company’s common
stock.
As of December 31, 2019, there were
0 shares of Series 6 Convertible Preferred Stock outstanding.
Note 18 - Authorized Share Increase
and Reverse Stock Split
On February 2, 2018, the Company filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to increase the
total number of authorized shares of common stock from 50,000,000 to 250,000,000, as approved by the Company’s stockholders
at a special meeting held on February 2, 2018.
On February 2, 2018, the Company filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-30
reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of February 6, 2018.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 18 - Authorized Share Increase
and Reverse Stock Split (continued)
On October 31, 2018, the Company filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-40
reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of November 2, 2018.
On January 3, 2020, the Company filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-45
reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of January 7, 2020.
The consolidated financial statements
and accompanying notes give effect to the 1-for-30, 1-for-40 and 1-for-45 reverse stock splits and increase in authorized shares
as if they occurred at the first period presented.
Note 19 - Stock Options
In September 2011, the Company adopted
the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory
common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors.
The plan was amended and restated in May 2014. Unless terminated sooner by the Board of Directors, this plan will terminate on
August 31, 2021.
In February 2018, the Company adopted
the 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Option Plans”),
which will be utilized with the 2011 Plan for employees, corporate officers, directors, consultants and other key persons employed.
The 2018 Plan will provide for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including
Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).
Incentive stock options granted under
the Option Plans are granted at exercise prices not less than 100% of the estimated fair market value of the underlying common
stock at date of grant. The exercise price per share for incentive stock options may not be less than 110% of the estimated fair
value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common
stock of the Company. Options granted under the Option Plans vest over periods ranging from immediately to four years and are
exercisable over periods not exceeding ten years.
The aggregate number of shares that may be awarded as of December
31, 2019 under the 2011 Plan and the 2018 Plan were 3,521 and 8,316,376, respectively. As of December 31, 2019, 121,796 of options
were granted to employees, directors and consultants of the Company (including 1 share outside of our plan) and 8,198,102 options
were available for future grant under the Option Plans.
During the year ended December 31, 2018,
the Company granted options under the 2018 Plan for the purchase of 1,690 shares of common stock to employees and consultants
of the Company. These options are 100% vested or vest pro-rata over 48 months, have a life of ten years and an exercise price
between $288.90 and $570.60 per share. The Company valued the stock options using the Black-Scholes option valuation model and
the fair value of the awards was determined to be $428,000. The fair value of the common stock as of the grant date was determined
to be between $288.90 and $570.60 per share.
During the year ended December 31, 2019, the Company granted
options under the 2018 Plan for the purchase of 130,651 shares of common stock to employees and consultants of the Company. These
options are 100% vested or vest pro-rata over 12, 36, 40 or 48 months, have a life of ten years and an exercise price between $6.30
and $101.70 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of
the awards was determined to be $4,364,000. The fair value of the common stock as of the grant date was determined to be between
$6.30 and $101.70 per share.
During the year ended December 31, 2019
and 2018, the Company recorded a charge of $3,247,000 and $949,000, respectively, for the amortization of employee stock options.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 19 - Stock Options (continued)
As of December 31, 2019, the fair value
of non-vested options totaled approximately $1,010,000, which will be amortized to expense over the weighted average remaining
term of 0.81 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-average assumptions used
to apply this pricing model during the years ended December 31, 2019 and 2018 were as follows:
|
|
For the
Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
1.77-2.66%
|
|
|
|
2.79-3.01%
|
|
Expected life of option grants
|
|
|
7
years
|
|
|
|
5-6
years
|
|
Expected volatility of underlying stock
|
|
|
49.48-106.16%
|
|
|
|
45.64-46.18%
|
|
Dividends assumption
|
|
$
|
--
|
|
|
$
|
--
|
|
The expected stock price volatility for
the Company’s stock options was determined by the historical volatilities for industry peers and used an average of those
volatilities. The Company attributes the value of stock-based compensation to operations on the straight-line single option method.
Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The dividends assumptions was $0 as
the Company historically has not declared any dividends and does not expect to.
The following table summarizes the changes
in options outstanding during the years ended December 31, 2018 and 2019:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at January 1, 2018
|
|
|
9
|
|
|
$
|
1,223,157.60
|
|
|
$
|
--
|
|
Granted
|
|
|
1,690
|
|
|
|
564.75
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Expired
|
|
|
(59
|
)
|
|
|
26,750.25
|
|
|
|
--
|
|
Forfeitures
|
|
|
(16
|
)
|
|
|
45,779.85
|
|
|
|
--
|
|
Outstanding at December 31, 2018
|
|
|
1,624
|
|
|
$
|
5,229.00
|
|
|
$
|
--
|
|
Granted
|
|
|
130,651
|
|
|
|
61.79
|
|
|
|
--
|
|
Exercised
|
|
|
(14
|
)
|
|
|
6.30
|
|
|
|
--
|
|
Expired
|
|
|
(2,106
|
)
|
|
|
353.19
|
|
|
|
--
|
|
Forfeitures
|
|
|
(8,359
|
)
|
|
|
91.67
|
|
|
|
--
|
|
Outstanding at December 31, 2019
|
|
|
121,796
|
|
|
$
|
123.66
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
1,497
|
|
|
$
|
4,705.65
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
77,576
|
|
|
$
|
167.88
|
|
|
$
|
--
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 20 - Warrants
During the three months ended December
31, 2018, the Company issued 2,056 shares of common stock in connection with the exercise of 2,056 warrants at $12.15 a share.
On January 15, 2019, the Company issued
warrants for the purchase of 80,000 shares of common stock in connection with a rights offering more fully described in Note 15.
The warrants are exercisable for 5 years at an exercise price of $149.85 per share. Following the rights offering, the exercise
price of the warrants issued in the April 2018 public offering were reduced to the floor price of $223.20 and the number of shares
issuable upon exercise of such warrants was increased by 33,366 shares of common stock.
On August 12, 2019, the Company issued
Series A warrants to purchase up to an aggregate of 384,387 shares of common stock in connection with the August 2019 capital raise
more fully described in Note 15. The warrants are exercisable for 5 years at an exercise price per share of $12.4875.
During the three months ended March 31,
2019, the Company issued 306 shares of common stock in connection with the exercise of 306 warrants at $149.85 per share.
During the three months ended March 31,
2019, the Company issued 27,741 shares of common stock in connection with the exercise of 46,235 warrants through cashless exercises.
During the three months ended June 30, 2019, the Company issued
18,572 shares of common stock in connection with the exercise of 30,952 warrants through cashless exercises.
During the three months ended September
30, 2019, the Company issued 310,154 shares of common stock in connection with the exercise of 310,154 warrants through cashless
exercises.
During the three months ended December
31, 2019, the Company issued 69,485 shares of common stock in connection with the exercise of 69,485 warrants through cashless
exercises.
The following table summarizes the changes
in warrants outstanding during the years ended December 31, 2018 and 2019:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at January 1, 2018
|
|
|
25
|
|
|
$
|
17,424.00
|
|
|
$
|
--
|
|
Granted
|
|
|
54,664
|
|
|
|
803.70
|
|
|
|
--
|
|
Exercised
|
|
|
(2,056
|
)
|
|
|
12.15
|
|
|
|
--
|
|
Expired
|
|
|
(1
|
)
|
|
|
810,000.00
|
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2018
|
|
|
52,632
|
|
|
$
|
866.70
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
497,753
|
|
|
$
|
48.66
|
|
|
|
--
|
|
Exercised
|
|
|
(457,132
|
)
|
|
|
35.78
|
|
|
|
--
|
|
Expired
|
|
|
(1
|
)
|
|
|
6,075,000.00
|
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2019
|
|
|
93,252
|
|
|
$
|
503.09
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
52,632
|
|
|
$
|
866.70
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
93,252
|
|
|
$
|
503.09
|
|
|
|
--
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 21 - Income Taxes
The domestic and foreign components of
income (loss) before income taxes from continuing operations for the years ended December 31, 2019 and 2018 are as follows (in
thousands):
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
(32,116
|
)
|
|
$
|
(18,336
|
)
|
Foreign
|
|
|
(2,450
|
)
|
|
|
(1,447
|
)
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations before Provision for Income Taxes
|
|
$
|
(34,566
|
)
|
|
$
|
(19,783
|
)
|
The income tax provision (benefit) for
the years ended December 31, 2019 and 2018 consists of the following (in thousands):
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Foreign
|
|
|
|
|
|
|
Current
|
|
$
|
--
|
|
|
$
|
17
|
|
Deferred
|
|
|
(844
|
)
|
|
|
(142
|
)
|
U.S. federal
|
|
|
--
|
|
|
|
--
|
|
Current
|
|
|
--
|
|
|
|
--
|
|
Deferred
|
|
|
(5,177
|
)
|
|
|
734
|
|
State and local
|
|
|
--
|
|
|
|
--
|
|
Current
|
|
|
--
|
|
|
|
7
|
|
Deferred
|
|
|
(898
|
)
|
|
|
391
|
|
|
|
|
(6,919
|
)
|
|
|
1,007
|
|
Change in valuation allowance
|
|
|
6,335
|
|
|
|
(1,007
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax Provision
|
|
$
|
(584
|
)
|
|
$
|
--
|
|
The reconciliation between the U.S. statutory
federal income tax rate and the Company’s effective rate for the years ended December 31, 2019 and 2018 is as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
U.S. federal statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income taxes, net of federal benefit
|
|
|
2.0
|
|
|
|
(0.2
|
)
|
Impairment of goodwill
|
|
|
--
|
|
|
|
(0.7
|
)
|
Impairment of net operating loss
|
|
|
--
|
|
|
|
(4.5
|
)
|
Incentive stock options
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
Additional Beneficial Conversion Feature
|
|
|
--
|
|
|
|
(0.5
|
)
|
Federal and state rate change and other
|
|
|
--
|
|
|
|
0.8
|
|
US-Foreign income tax rate difference
|
|
|
0.4
|
|
|
|
0.4
|
|
Other permanent items
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
Provision to return adjustments
|
|
|
--
|
|
|
|
--
|
|
Deferred rate change
|
|
|
--
|
|
|
|
--
|
|
Deferred only adjustment
|
|
|
(2.7
|
)
|
|
|
--
|
|
Change in valuation allowance
|
|
|
(18.3
|
)
|
|
|
(15.3
|
)
|
Effective Rate
|
|
|
1.8
|
%
|
|
|
0.0
|
%
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 21 - Income Taxes (continued)
As of December 31, 2019 and 2018, the
Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:
|
|
As
of December 31,
|
|
(in 000s)
|
|
2019
|
|
|
2018
|
|
Deferred Tax Asset
|
|
|
|
|
|
|
Net operating loss carryovers
|
|
$
|
8,918
|
|
|
$
|
4,892
|
|
Deferred revenue
|
|
|
--
|
|
|
|
--
|
|
Stock based compensation
|
|
|
1,114
|
|
|
|
646
|
|
Debt debenture
|
|
|
--
|
|
|
|
--
|
|
Research credits
|
|
|
135
|
|
|
|
133
|
|
Accrued compensation
|
|
|
36
|
|
|
|
55
|
|
Reserves
|
|
|
242
|
|
|
|
191
|
|
Intangibles
|
|
|
2,361
|
|
|
|
1,741
|
|
Fixed assets
|
|
|
39
|
|
|
|
--
|
|
Other
|
|
|
3.046
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Tax Asset
|
|
|
15,891
|
|
|
|
8,128
|
|
Less: valuation allowance
|
|
|
(13,902
|
)
|
|
|
(7,677
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset, Net of Valuation Allowance
|
|
$
|
1,989
|
|
|
$
|
451
|
|
|
|
As
of December 31,
|
|
Deferred Tax Liabilities
|
|
2019
|
|
|
2018
|
|
Intangible assets
|
|
$
|
(1,671
|
)
|
|
$
|
--
|
|
Fixed assets
|
|
|
--
|
|
|
|
--
|
|
Other
|
|
|
(53
|
)
|
|
|
(36
|
)
|
Prepaid maintenance
|
|
|
--
|
|
|
|
--
|
|
Capitalized research
|
|
|
(352
|
)
|
|
|
(415
|
)
|
Total deferred tax liabilities
|
|
|
(2,076
|
)
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
|
$
|
(87
|
)
|
|
$
|
--
|
|
The transition tax is based on total post-1986
earnings and profits which were previously deferred from U.S. income taxes. At December 31, 2019, the Company did not have any
undistributed earnings of our foreign subsidiaries. As a result, no additional income or withholding taxes have been provided for.
The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse
tax (“BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 21 - Income Taxes
(continued)
In accordance with Section 382 of the Internal
Revenue Code, deductibility of the Company’s NOL carryover is subject to an annual limitation in the event of a change of
control, as defined by the regulations. The Company performed an analysis to determine the annual limitation as a result of the
changes in ownership that occurred during 2018 and 2019. Based on the Company’s analysis, the NOL available to offset future
taxable income after these ownership changes was approximately $6.2 million and $16.3 million, respectively. These NOLs, if not
utilized, expire beginning in December 31, 2037.
As of December 31, 2019 and 2018, Inpixon
Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement, had approximately $12.0 million and $10.9
million, 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, 2019, Jibestream,
which was acquired on August 15, 2019, had approximately $4.3 million Canadian NOL carryovers available to offset future
taxable income. These NOLs, if not utilized, begin expiring in the year 2033.
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is
“more likely than 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 the generation 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 will not 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 uncertainty exists with respect to future realization of its deferred tax assets
with respect to Inpixon and Inpixon Canada and has, therefore, established a full valuation allowance as of December 31, 2019 and
2018. As of December 31, 2019 and December 31, 2018, the change in valuation allowance was $6.3 million and $(1.0) million, respectively.
ASC 740 also clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing
authorities. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal), Canada,
India, and in various state jurisdictions in the United States. Based on the Company’s evaluation, it has been concluded
that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements
for the years ended December 31, 2019 and 2018.
The Company’s policy for recording
interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and
as a component of selling, general and administrative expense, respectively. There were no amounts accrued for interest or
penalties for the years ended December 31, 2019 and 2018. Management does not expect any material changes in its unrecognized
tax benefits in the next year.
The
Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination
by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject
to examination by U.S. tax authorities beginning with the year ended December 31, 2015. In general, the Canadian Revenue Authority
may reassess taxes four years from the date the original notice of assessment was issued. The tax years that remain open and subject
to Canadian reassessment are 2015 – 2019. The tax years that remain open and subject to Indian reassessment are tax years
beginning March 31, 2014.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 22 - Credit Risk and Concentrations
Financial instruments that subject the
Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain
credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes
that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes
that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with
financial institutions, which, from time to time, may exceed federally insured limits. Cash is also maintained at foreign financial
institutions for its Canadian subsidiary and its majority-owned India subsidiary. Cash in foreign financial institutions as of
December 31, 2019 and 2018 was immaterial. 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 during the years ended December
31, 2019 and 2018 (in thousands):
|
|
For the Year
Ended
December 31, 2019
|
|
|
For the Year
Ended
December 31, 2018
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Customer A
|
|
|
2,661
|
|
|
|
42%
|
|
|
|
--
|
|
|
|
--
|
|
Customer B
|
|
|
1,224
|
|
|
|
19%
|
|
|
|
1,238
|
|
|
|
33%
|
|
As of December 31, 2019, Customer C represented
approximately 29%, Customer A represented approximately 14%, and Customer D represented approximately 10 % of total accounts receivable.
As of December 31, 2018, Customer E represented approximately 30%, Customer C represented approximately 26%, Customer F represented
approximately 13%, Customer D represented approximately 10% and Customer G represented approximately 10% of total accounts receivable.
As of December 31, 2019, three vendors
represented approximately 36%, 12%, and 10% of total gross accounts payable. Purchases from these vendors during the year ended
December 31, 2019 was $0. As of December 31, 2018, one vendor represented approximately 49% of total gross accounts payable.
Purchases from this vendor during the year ended December 31, 2018 was $0.
For the year ended December 31, 2019,
three vendors represented approximately 32%, 27%, and 21% of total purchases. For the year ended December 31, 2018, one vendor
represented approximately 97% of total purchases.
Note 23 - Foreign Operations
The Company’s operations are located
primarily in the United States, Canada, and India. Revenues by geographic area are attributed by country of domicile of our subsidiaries.
The financial data by geographic area are as follows (in thousands):
|
|
United
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Canada
|
|
|
India
|
|
|
Eliminations
|
|
|
Total
|
|
For the Year Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
5,786
|
|
|
$
|
1,516
|
|
|
$
|
569
|
|
|
$
|
(1,570
|
)
|
|
$
|
6,301
|
|
Operating income (loss) by geographic area
|
|
$
|
(18,371
|
)
|
|
$
|
(2,488
|
)
|
|
$
|
49
|
|
|
$
|
--
|
|
|
$
|
(20,810
|
)
|
Net income (loss) by geographic area
|
|
$
|
(32,117
|
)
|
|
$
|
(1,914
|
)
|
|
$
|
49
|
|
|
$
|
--
|
|
|
$
|
(33,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
3,737
|
|
|
$
|
19
|
|
|
$
|
301
|
|
|
$
|
(301
|
)
|
|
$
|
3,756
|
|
Operating income (loss) by geographic area
|
|
$
|
(16,956
|
)
|
|
$
|
(1,509
|
)
|
|
$
|
63
|
|
|
$
|
--
|
|
|
$
|
(18,402
|
)
|
Net income (loss) by geographic area
|
|
$
|
(23,111
|
)
|
|
$
|
(1,513
|
)
|
|
$
|
63
|
|
|
$
|
--
|
|
|
$
|
(24,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
11,061
|
|
|
$
|
9,675
|
|
|
$
|
483
|
|
|
$
|
--
|
|
|
$
|
21,219
|
|
Long lived assets by geographic area
|
|
$
|
4,347
|
|
|
$
|
6,981
|
|
|
$
|
345
|
|
|
$
|
--
|
|
|
$
|
11,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
11,872
|
|
|
$
|
187
|
|
|
$
|
119
|
|
|
$
|
--
|
|
|
$
|
12,178
|
|
Long lived assets by geographic area
|
|
$
|
6,233
|
|
|
$
|
140
|
|
|
$
|
28
|
|
|
$
|
--
|
|
|
$
|
6,401
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 24 - Related Party Transactions
Nadir Ali, the Company’s Chief Executive
Officer and a member of its Board of Directors, is also a member of the Board of Directors of Sysorex.
Sysorex Note Purchase Agreement
On December 31,
2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which
the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below), a secured promissory
note (the “Secured Note”) for up to an aggregate principal amount of $3 million (the “Principal Amount”),
including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be borrowed and disbursed
in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the “Loan Amount”),
with interest to accrue at a rate of 10% percent per annum on all such Loan Amounts, beginning as of the date of disbursement
with respect to any portion of such Loan Amount. In addition, Sysorex agreed to pay $20,000 to the Company to cover the Company’s
legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and
sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the Principal Amount.
Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding balance, exclusive of any unpaid
accrued interest, not to exceed the Principal Amount at any one time.
All
sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will
become part of the aggregate Loan Amount underlying the Secured Note. All outstanding principal amounts and accrued unpaid interest
owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the
date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company
upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in
the Secured Note. All accrued unpaid interest shall be payable in cash. On February 4, 2019, April 2, 2019, and May 22, 2019,
the Secured Note was amended to increase the Principal Amount that may be outstanding at any time from $3 million to $5 million,
$5 million to $8 million and $8 million to $10 million, respectively. On March 1, 2020, the Company extended the maturity date
of the Secured Note to December 31, 2022. In addition, the Secured Note was amended to increase the default interest rate from
18% to 21% or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount
in an amount equal to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series
of related financings, in which Sysorex raises aggregate gross proceeds of at least $5 million.
The amount owed for principal and accrued
interest by Sysorex to the Company as of December 31, 2018 was $2.2 million and as of December 31, 2019 was approximately
$10.6 million. The Secured Note has been classified as “held for sale” and the Company, with the assistance of a third-party
valuation firm, estimated the fair value of such using Sysorex financial projections, a discounted cash flow model and a 12.3%
discount rate. As a result, the Company established a full valuation allowance as of December 31, 2019. We are required to periodically
re-evaluate the carrying value of the note and the related valuation allowance based on various factors, including, but not limited
to, Sysorex’s performance and collectability of the note. Sysorex’s performance against those financial projections
will directly impact future assessments of the fair value of the note.
Sysorex
Receivable
On February 20, 2019, the Company, Sysorex
and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement resulting in a net award of $941,796
whereby Atlas agreed to accept an aggregate of 16,655 shares of freely-tradable common stock of the Company in full satisfaction
of the award. The Company and Sysorex each agreed pursuant to the terms and conditions of that certain Separation and Distribution
Agreement, dated August 7, 2018, as amended, that 50% of the costs and liabilities related to the arbitration action would be shared
by each party following the Spin-off. As a result, Sysorex owes the Company $559,121 for the settlement plus the interest accrued
during the fiscal year ended December 31, 2019 of $57,238. The total owed to the Company for this settlement as of December 31,
2019 was $616,359.
Jibestream Promissory Note
On August 12, 2019, prior to the acquisition
of Jibestream, the Company loaned Jibestream $140,600 for operating expenses. The note accrues interest at a rate of 5% per annum
and has a maturity date of December 31, 2019. This note is recorded as a current note receivable on the Company books, however,
it is eliminated in the consolidated financial statements. As of December 31, 2019, the balance of the note including principal
and interest was approximately $143,000.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 25 -
Leases
The Company has an operating lease
for its administrative office in Palo Alto, California, effective October 1, 2014, for 8.3 years. The initial lease rate
was $14,225 per month with escalating payments. In connection with the lease, the Company is obligated to pay $8,985
monthly for operating expenses for building repairs and maintenance. The Company also has an operating lease for its administrative
office in Encino, CA. This lease was effective June 1, 2014 and will end on July 31, 2021. The current lease rate is $6,984 per
month and $276 per month for the common area maintenance. Additionally, the Company has an operating lease for its administrative
office in Coquitlam, Canada, from October 1, 2016 through September 30, 2021. The initial lease rate was $8,931 CAD per month with
escalating payments. In connection with the lease, the Company is obligated to pay $6,411 CAD monthly for operating
expenses for building repairs and maintenance. The Company has an operating lease for its administrative office in Toronto,
Canada, from August 15, 2019 through July 31, 2021. The monthly lease rate is $24,506 CAD per month with no escalating payments. In
connection with the lease, the Company is obligated to pay $9,651 CAD monthly for operating expenses for building repairs and maintenance.
Additionally, the Company has an operating lease for its administrative office in New Westminster, Canada, from August 1, 2019
through July 31, 2021. The initial lease rate was $575 CAD per month. The Company has an operating lease for its administrative
office in Hyderabad, India, from January 1, 2019 through February 28, 2024. The monthly lease rate is 482,720 INR per month with
5% escalating payments. In connection with the lease, the Company is obligated to pay 68,960 INR monthly for operating
expenses for building repairs and maintenance. The Company has no other operating or financing leases with terms greater
than 12 months.
The Company adopted ASC Topic 842, Leases
(“ASC Topic 842”) effective January 1, 2019 using the modified-retrospective method, and thus, the prior comparative
period continues to be reported under the accounting standards in effect for that period.
The Company elected to use the package
of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain
leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need
not reassess any initial direct costs for any existing leases. At the time of adoption, the Company did not have any leases with
terms of 12 months or less, which would have resulted in short-term lease payments being recognized in the consolidated
statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified
as operating and are similarly classified as operating lease under the new standard.
On January 1, 2019, upon adoption of ASC
Topic 842, the Company recorded right-of-use asset of $641,992, lease liability of $683,575 and eliminated deferred rent of $41,583.
The adoption of ASC 842 did not have a material impact to prior year comparative periods and a result, a cumulative-effect adjustment
was not required. The Company determined the lease liability using the Company’s estimated incremental borrowing rate of
8.0% to estimate the present value of the remaining monthly lease payments. With the Locality acquisition, the Company adopted
ASC Topic 842 effective May 21, 2019 for the Westminster, Canada office operating lease. With the Jibestream acquisition, the Company
adopted ASC Topic 842 effective August 15, 2019 for the Toronto, Canada office operating lease. With the India acquisition, the
Company adopted ASC Topic 842 effective January 1, 2019 for the Hyderabad, India office operating lease.
Right-of-use assets is summarized below
(in thousands):
|
|
As of
December 31,
2019
|
|
Palo Alto, CA Office
|
|
$
|
808
|
|
Encino, CA Office
|
|
|
188
|
|
Hyderabad, India Office
|
|
|
375
|
|
Coquitlam, Canada Office
|
|
|
273
|
|
Westminster, Canada Office
|
|
|
10
|
|
Toronto, Canada Office
|
|
|
405
|
|
Less accumulated amortization
|
|
|
(474
|
)
|
Right-of-use asset, net
|
|
$
|
1,585
|
|
Lease expense for operating leases recorded in the balance sheet
is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis
over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease
expenses, recognized in our consolidated statement of income for the period ended December 31, 2019 was $839,000.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 25 -
Leases (continued)
During the year ended December 31,
2019, the Company recorded $568,715 as rent expense to the right-of-use assets.
Lease liability is summarized below (in
thousands):
|
|
As of
December 31,
2019
|
|
Total lease liability
|
|
$
|
1,613
|
|
Less: short term portion
|
|
|
(776
|
)
|
Long term portion
|
|
$
|
837
|
|
Maturity analysis under the lease agreement
is as follows (in thousands):
Year ending December 31, 2020
|
|
$
|
736
|
|
Year ending December 31, 2021
|
|
|
592
|
|
Year ending December 31, 2022
|
|
|
335
|
|
Year ending December 31, 2023
|
|
|
118
|
|
Year ending December 31, 2024
|
|
|
16
|
|
Total
|
|
$
|
1,797
|
|
Less: Present value discount
|
|
|
(184
|
)
|
Lease liability
|
|
$
|
1,613
|
|
Operating lease liabilities are based on
the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease
payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of Topic 842.
As of December 31, 2019, the weighted average remaining lease term is 2.61 years and the weighted average discount rate used to
determine the operating lease liabilities was 8.0%.
Note 26 - Commitments and Contingencies
Litigation
Certain conditions may exist as of the
date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company,
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are
generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance
that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations
or cash flows.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 26 - Commitments and Contingencies
(continued)
Atlas Settlement
On February 20, 2019, the Company,
Sysorex and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement (the “Settlement
Agreement”) in connection with the satisfaction of an arbitration award granted to Atlas in an aggregate amount of
$1,156,840 plus pre-judgment interest equal to an aggregate of $59,955 (the “Award”) arising out of an
engagement agreement, dated September 8, 2016, by and between Atlas and the Company as well as its subsidiaries, including
the predecessor to Sysorex (the “Engagement Agreement”). Pursuant to the Settlement Agreement, Atlas agreed to
(a) reduce the Award by $275,000 resulting in a net award of $941,796 (the “Net Award”) and (b) accept an
aggregate of 16,655 shares of freely-tradable common stock of the Company (the “Settlement Shares”), in full
satisfaction of the Award. Atlas also agreed to apply an amount equal to the difference between the proceeds received from
the sale of the Settlement Shares and the Net Award, against legal fees incurred by the Company and Sysorex in connection
with the Settlement Agreement.
In connection with the Spin-off, pursuant
to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018, 50% of the costs and liabilities
related to the arbitration action arising from the Engagement Agreement are required to be shared by Sysorex.
Compliance with Nasdaq Continued
Listing Requirement
On May 30, 2019, we received a deficiency
letter from Nasdaq indicating that, based on our closing bid price for the last 30 consecutive business days, we
do not comply with the minimum bid price requirement of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2).
In accordance with Nasdaq listing Rule 5810(c)(3)(A), the Company was provided a period of 180 calendar days, or until November
26, 2019, in which to regain compliance. In order to regain compliance with the minimum bid price requirement,
the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business
days without effecting a reverse split.
In addition to the failure to comply with
Nasdaq Listing Rule 5550(a)(2), the Nasdaq Staff has advised us that our history of non-compliance with Nasdaq’s minimum
bid price requirement, the corresponding history of reverse stock splits, the dilutive effect of the Offering and an inability
to cure the bid price deficiency organically without effecting a reverse stock split prior to November 26, 2019 would raise public
interest concerns under Nasdaq Listing Rule 5101 and could result in the Nasdaq Staff issuing a delisting determination with respect
to our common stock (subject to any appeal the Company may file). Nasdaq rules provide that Nasdaq may suspend or delist particular
securities based on any event, condition or circumstance that exists or occurs that makes continued listing of the securities
on Nasdaq inadvisable or unwarranted in the opinion of the Nasdaq Staff, even though the securities meet all enumerated criteria
for continued listing on Nasdaq. In that regard, the Nasdaq Staff has discretion to determine that our failure to comply with
the minimum bid price rule or any subsequent price-based market value requirement or the dilutive effect of the an offering, constitutes
a public interest concern and while the Company will have an opportunity to appeal, the Company cannot assure that Nasdaq will
not exercise such discretionary authority or that the Company will be successful if such discretion is exercised and the Company
appeals.
On November 27, 2019, we received notice from the Nasdaq Listing
Qualifications Department of the Nasdaq Stock Market LLC that based upon our continued non-compliance with the minimum $1.00 bid
price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2), our common stock would be subject to delisting
from the Nasdaq Capital Market (the “Staff Delisting Determination”), unless we timely requested an appeal hearing
before the Nasdaq Hearings Panel. The Company requested such hearing which was held on January 23, 2020, following the Company’s
implementation of a reverse stock split effective on January 7, 2020.
On February 5, 2020, we received a letter
from the Office of General Counsel of Nasdaq informing us that the Nasdaq Hearings Panel (the “Panel”) granted our
request to continue the listing of our common stock on Nasdaq. The Panel also determined to impose a Panel Monitor pursuant to
Nasdaq Listing Rule 5815(d)(4)(A) to last until February 5, 2021 (“Panel Monitor Period”). If at any time before February
5, 2021, the Staff or the Panel determines that we have failed to meet the minimum bid price requirement for a period of 30 consecutive
trading days or any other requirement for continued listing on Nasdaq, the Panel will direct the Staff to issue a Staff Delisting
Determination and the Hearings Department will promptly schedule a new hearing, with the initial Panel or a newly convened Panel
if the initial Panel is unavailable. During the monitor period, we are obligated to notify the Panel immediately, in writing, in
the event our bid price falls below the minimum requirement for any reason, or if we fall out of compliance with any applicable
listing requirement.
The Nasdaq Listing and Hearing Review Council
(the “Listing Council”) may, on its own motion, determine to review any Panel decision within 45 days. If the Listing
Council determines to review the Panel’s decision, it may affirm, modify, reverse, dismiss or remand the decision to the
Panel.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 27 - Subsequent Events
On January 3, 2020, the Company filed
a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-45
reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of January 7, 2020.
Exchange Agreements
On January 14, 2020, the Company exchanged
approximately $1,500,000 of the outstanding principal and interest under the May 2019 Note for 410,958 shares of the Company’s
common stock at an exchange price of $3.65 per share.
On January 16, 2020, the Company exchanged
approximately $458,000 of the outstanding principal and interest under the May 2019 Note for 113,182 shares of the Company’s
common stock at an exchange price of $4.05 per share.
On February 7, 2020, the Company exchanged
approximately $300,290 of the outstanding principal and interest under the June 2019 Note for 115,000 shares of the Company’s
common stock at an exchange price of $3.046 per share.
On February 12, 2020, the Company exchanged
approximately $490,000 of the outstanding principal and interest under the June 2019 Note for 175,000 shares of the Company’s
common stock at an exchange price of $2.80 per share.
Sysorex Note Amendment
On March 1,
2020, the Company amended the Secured Note to extend the maturity date from December 31, 2020 to December 31,
2022, increase the default interest rate from 18% to 21% or the
maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount in an amount equal
to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series of related financings,
in which Sysorex raises aggregate gross proceeds of at least $5 million.
Equity Distribution Agreement
On March 3, 2020, the Company
entered into an Equity Distribution Agreement (the “Sales Agreement”) with Maxim Group LLC (“Maxim”)
under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $50 million
(the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the
“Offering”). The Company intends to use the net proceeds of the Offering primarily for working capital and
general corporate purposes. The Company may also use a portion of the net proceeds to invest in or acquire businesses or
technologies that it believes are complementary to its own, although the Company has no current plans, commitments or
agreements with respect to any acquisitions as of the date of this Annual Report on Form 10-K. Any Shares offered and sold in
the Offering will be issued pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-223960) filed
with the Securities and Exchange Commission on March 27, 2018, as amended on May 15, 2018 and declared effective on June 5,
2018 (the “Form S-3”), the base prospectus dated June 5, 2018 included in the Form S-3 and the prospectus
supplement relating to the Offering to be filed with the SEC on or about March 3, 2020. Maxim will be entitled to compensation at
a fixed commission rate of 4.0% of the gross sales price per Share sold. In addition, the Company has agreed to reimburse
Maxim for its costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket
expenses of its legal counsel.
The Company is not obligated to make
any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any Shares under
the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the dates on which any
such sales will take place. The Sales Agreement will continue until the earliest of (i) twelve (12) months following the date
of the Sales Agreement, (ii) the sale of Shares having an aggregate offering price of $50 million, and (iii) the termination
by either the Agent or the Company upon the provision of 15 days written notice or otherwise pursuant to the terms of the
Sales Agreement.