The accompanying condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial
information which are the accounting principles that are generally accepted in the United States of America and in accordance with
the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management,
the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods
presented.
The results for the
period ended March 31, 2020 are not necessarily indicative of the results of operations for the full year. These financial statements
and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited
consolidated financial statements for the fiscal years ended December 31, 2019 and 2018 included in the annual report on Form 10-K
filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 3, 2020.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
1 - Organization and Nature of Business and Going Concern
Inpixon, and its wholly-owned subsidiary,
Inpixon Canada, Inc. (“Inpixon Canada”), 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), are an indoor
intelligence company. Our business and government customers use our solutions to secure, digitize and optimize their indoor spaces
with our positioning, mapping and analytics products. Our indoor intelligence platform uses sensor technology to detect accessible
cellular, Wi-Fi, Bluetooth, ultra-wide band “UWB” and radio frequency identification “RFID” signals emitted
from devices within a venue providing positional information similar to what global positioning system (“GPS”) satellite
systems provide for the outdoors. Combining this positional data with our dynamic and interactive mapping solution and a high-performance
analytics engine, yields near real time insights to our customers providing them with visibility, security and business intelligence
within their indoor spaces. Our highly configurable platform can also ingest data from our customers’ and other third party
sensors, Wi-Fi access points, Bluetooth beacons, video cameras, and big data sources, among others to maximize indoor intelligence.
The Company also offers digital tear-sheets with optional invoice integration, digital ad delivery, and an e-edition designed
for reader engagement for the media, publishing and entertainment industry. Our Indoor Intelligence products secure, digitize
and optimize the interior of any premises with indoor positioning and data analytics that provide rich positional information,
similar to a GPS, and browser-like intelligence for the indoors. The Company is headquartered in Palo Alto, California, and
has subsidiary offices in Coquitlam, Canada, New Westminster, Canada, Toronto, Canada and Hyderabad, India.
Going
Concern and Management’s Plans
As
of March 31, 2020, the Company has a working capital deficiency of approximately $6.2 million. For the three months ended March
31, 2020, the Company incurred a net loss of approximately $6.2 million. The aforementioned factors raise substantial doubt about
the Company’s ability to continue as a going concern. The accompanying condensed 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 March 3, 2020, the Company entered into
an Equity Distribution Agreement with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of
our common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up
to $50 million. The Company issued 937,010 shares of common stock during the quarter ended March 31, 2020 in connection with the
ATM resulting in net proceeds to the Company of approximately $1.3 million. Subsequent to the quarter ended March 31, 2020, the
Company issued an additional 9,551,636 shares of common stock in connection with the ATM, resulting in net proceeds to the Company
of approximately $10.6 million.
While the Company believes that its recent debt financing, access
to capital in connection with the sale of its securities under the ATM, 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 9), and
funds from revenue may be sufficient to fund planned operations for the next 12 months from the date the financial statements are
issued, the impact of the COVID-19 pandemic on our business and results of operations is uncertain at this time. While the Company
has been able to continue operations remotely and has not seen a significant impact in the demand for certain products including
our SaaS or subscription based services and products, certain projects and customer requests have had to be delayed either because
they require onsite services, which could not be performed while shelter in place orders have been in effect or because of the
uncertainty of the customer’s financial position and ability to invest in our technology. However, the Company has also seen
an increase in interest in our indoor intelligence solutions for workplace readiness, which is directed at enterprise organizations
and government agencies to assist them in optimizing the use of their facilities as well as in developing and monitoring compliance
with corporate policies and government regulations for physical distancing, exposure notification, and the identification of high
traffic areas for sanitizing and cleaning in order to keep their employees healthier and safer within the workplace. If the Company
is successful in expanding the adoption of our products and services for this solution, the Company may be able to offset any revenue
loss that may be experienced, however, there are no assurances that the Company will be successful or that the Company will be
able to offset any losses, if realized. In addition, if general economic or other conditions resulting from COVID 19 or other events
materially impact the liquidity of our common stock or ability to access capital from the ATM in addition to our ability to generate
revenue from the sales of our products and services, the Company may not have sufficient funds to support our operations
for the next 12 months. The Company is also pursuing possible strategic transactions and may raise such additional capital as needed, using
our equity securities, an assignment of our note receivable from Sysorex Inc. (“Sysorex”) and/or cash and debt financings
in combinations appropriate for each acquisition.
The
Company’s condensed consolidated financial statements as of March 31, 2020 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 condensed consolidated financial statements as
of March 31, 2020 do not include any adjustments that might result from the outcome of this uncertainty.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
2 - Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”),
which are the accounting principles that are generally accepted in the United States of America. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the
Company’s operations for the three-month period ended March 31, 2020 are not necessarily indicative of the results to be
expected for the year ending December 31, 2020. These interim unaudited condensed consolidated financial statements should
be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December
31, 2019 and 2018 included in the Annual Report on Form 10-K filed with the SEC on March 3, 2020.
Note
3 - Summary of Significant Accounting Policies
The
Company’s complete accounting policies are described in Note 2 to the Company’s audited consolidated financial statements
and notes for the years ended December 31, 2019 and 2018.
Use
of Estimates
The preparation of financial statements in
conformity with 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 in connection with certain recent acquisitions as described in Notes 4, 5 and
6, respectively, as well as the valuation of the Company’s common stock 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.
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Restricted
Cash
In connection with certain transactions, the
Company may be required to deposit assets, including cash or 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 March 31, 2020
and 2019, the Company had $71,000 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 March 31, 2020 and 2019, $71,000 and $70,000, respectively,
were current and included in Prepaid Assets and Other Current Assets on the condensed consolidated balance sheets. As of March
31, 2020 and 2019, $0 and $70,000 were non-current and included in Other Assets on the condensed consolidated balance sheets.
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 shown in
the statement of cash flows.
|
|
As of March 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
6,111
|
|
|
$
|
3,830
|
|
Restricted cash,
current included in prepaid assets and other current assets
|
|
|
71
|
|
|
|
70
|
|
Restricted cash,
non-current included in other assets
|
|
|
--
|
|
|
|
70
|
|
Total cash, cash equivalents, and restricted cash in the balance sheets
|
|
$
|
6,182
|
|
|
$
|
3,970
|
|
Revenue
Recognition
The
Company reports revenues under ASC 606, “Revenue from Contracts with Customers” and all the related amendments (Topic
606). The company recognizes revenue after applying the following five steps:
1) identification of the contract, or contracts,
with a customer;
2) identification of the performance obligations
in the contract, including whether they are distinct within the context of the contract;
3) determination of the transaction price,
including the constraint on variable consideration;
4) allocation of the transaction price
to the performance obligations in the contract; and
5) recognition of revenue when, or as,
performance obligations are satisfied.
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 tear-sheets, customers pay fixed monthly
fees in exchange for the Company’s services. The Company’s performance obligation is satisfied over time as the digital
tear-sheets 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 services.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Revenue
Recognition (continued)
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 condensed 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 three months ended March 31, 2020 and 2019,
the Company did not incur any such losses. These amounts are based on known and estimated factors.
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 $877,000 and $912,000 as of March 31, 2020 and December 31, 2019,
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. The Company’s contract balances as of March 31, 2020 and December 31, 2019 were deemed immaterial.
Disaggregation
of Revenue
Revenues consisted of the following (in millions):
|
|
For the Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
IPA
|
|
$
|
757
|
|
|
$
|
814
|
|
Mapping (A)
|
|
|
532
|
|
|
|
--
|
|
Digital tear-sheets
|
|
|
515
|
|
|
|
549
|
|
Totals
|
|
$
|
1,804
|
|
|
$
|
1,363
|
|
(A)
|
Mapping revenue is a result of the Jibestream acquisition in August
2019.
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
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.
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 $399,000 and $890,000 for the three months ended March 31, 2020 and 2019,
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 Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Compensation and related benefits
|
|
$
|
399
|
|
|
$
|
648
|
|
Professional and legal fees
|
|
|
--
|
|
|
|
242
|
|
Totals
|
|
$
|
399
|
|
|
$
|
890
|
|
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 three months ended March 31, 2020 and 2019:
|
|
For the Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Options
|
|
|
120,796
|
|
|
|
61,611
|
|
Warrants
|
|
|
93,252
|
|
|
|
119,366
|
|
Convertible preferred stock
|
|
|
846
|
|
|
|
12,938
|
|
ATM sales of common stock to be issued*
|
|
|
639,142
|
|
|
|
--
|
|
Reserved for service providers
|
|
|
--
|
|
|
|
25
|
|
Totals
|
|
|
854,036
|
|
|
|
193,940
|
|
*
|
Represents shares of common stock sold as of March 31, 2020, with a closing date following the period covered by this Form 10-Q.
|
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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Recently
Issued and Adopted Accounting Standards
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 adopted this standard and the adoption of this standard did not have a material impact on its financials or disclosures.
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 adopted this standard and the adoption of this
standard did not have a material impact on its financials or disclosures.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Recently
Issued and Adopted Accounting Standards (continued)
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”). These amendments are effective for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years with early application permitted. The Company is
currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed 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 condensed consolidated financial statements.
Reverse
Stock Split
On January 7, 2020, the Company effected
a 1-for-45 reverse stock split of its outstanding common stock. The condensed consolidated financial statements and accompanying
notes give effect to the stock split as if it occurred at the beginning of the first period presented. There
was no change to the previously reported net loss.
Subsequent
Events
The
Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the
condensed consolidated financial statements to determine if any of those events and/or transactions requires adjustment to or
disclosure in the condensed consolidated financial statements.
Note
4 - 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.
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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
4 - Locality Acquisition (continued)
The
purchase price was allocated and modified for measurement period adjustments due to the receipt of the final 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 three months ended March 31, 2020. Proforma information has not been presented as it has been
deemed to be immaterial.
Note
5 - 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”)
that allow us to provide positioning and positioning solutions for assets and devices homogenously 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
5 - GTX Acquisition (continued)
The purchase price was allocated based
on the receipt of a final valuation report as follows (in thousands):
Developed technology
|
|
$
|
830
|
|
Non-compete agreements
|
|
|
68
|
|
Goodwill
|
|
|
2
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
900
|
|
On September 16, 2019, the Company
loaned GTX $50,000 in accordance with the terms of the asset purchase agreement. The note began to accrue interest at a rate
of 5% per annum beginning on November 1, 2019. The note was amended on May 11, 2020 to extend the maturity date from April
13, 2020 to September 13, 2020 and require monthly payments against the outstanding balance of the note. This note is
included as part of other receivables in the Company’s condensed consolidated financial statements. As of March 31,
2020, the balance of the note including interest was $51,067. Proforma information has not been presented as it has been
deemed to be immaterial.
Note
6 - 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 applicable purchase agreement (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 were issued in the Company’s
common stock 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
6 - 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 condensed consolidated 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 three months ended March 31, 2020.
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 the Company’s 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 second quarter of 2020.
Jibestream was amalgamated into Inpixon
Canada on January 1, 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
7 - Proforma Financial Information
The following unaudited proforma financial
information presents the condensed consolidated results of operations of the Company and Jibestream for the three months ended
March 31, 2019, 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 Three
Months
Ended
March 31,
2019
|
|
Revenues
|
|
$
|
1,844
|
|
Net loss attributable to common stockholders
|
|
$
|
(6,355
|
)
|
Net loss per basic and diluted common share
|
|
$
|
(15.97
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
Basic and Diluted
|
|
|
397,961
|
|
Note
8 - Inventory
Inventory
as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
As of
March 31,
2020
|
|
|
As of
December 31,
2019
|
|
Raw materials
|
|
$
|
13
|
|
|
$
|
13
|
|
Finished goods
|
|
|
357
|
|
|
|
387
|
|
Total Inventory
|
|
$
|
370
|
|
|
$
|
400
|
|
Note
9 - Debt
Debt
as of March 31, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
As of
March 31,
2020
|
|
|
As
of
December 31,
2019
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable, less debt discount of $1,536 and $628, respectively (A)
|
|
$
|
8,953
|
|
|
$
|
7,080
|
|
Revolving line of credit (B)
|
|
|
--
|
|
|
|
150
|
|
Other short-term debt (C)
|
|
|
75
|
|
|
|
74
|
|
Total Short-Term Debt
|
|
$
|
9,028
|
|
|
$
|
7,304
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (continued)
December
2018 Note Purchase Agreement and Promissory Note
On December 21, 2018, the Company entered into a note purchase
agreement with Iliad Research and Trading, L.P. (“Iliad” or the “Holder”), 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 December 2018 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.
The Company and
Iliad entered into an amendment to the December 2018 Note pursuant to which the maturity date of the note was further extended
from December 31, 2019 to March 31, 2020. In addition, Iliad agreed to further extend the standstill previously agreed to pursuant
to the terms of that certain Standstill Agreement, dated as of August 8, 2019, whereby Iliad will not be entitled to redeem all
or any portion of the principal amount of the Note until March 31, 2020.
Note
Exchanges
From October 15, 2019 through March 31,
2020, the Company exchanged approximately $2,112,000 of the outstanding principal and interest under the December 2018 Note for
707,078 shares of the Company’s common stock at exchange prices between $1.80 and $4.95 per share. As of March 31, 2020,
the outstanding principal balance of the December 2018 Note was approximately $28,749.
On April 1, 2020, the Company exchanged
approximately $223,146 of the remaining outstanding principal and interest under the December 2018 Note for 187,517 shares of the
Company’s common stock at an exchange price of $1.19 per share. After this exchange the balance owed under the December 2018
Note was $0.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (continued)
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 Partners, L.P. (“Chicago Venture”),
an affiliate of Iliad, 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 738,891 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.
During the three months ended March 31,
2020, the Company exchanged approximately $1,958,000 of the outstanding principal and interest under the May 2019 Note for 524,140
shares of the Company’s common stock at exchange prices between $3.65 and $4.05 per share. The Company analyzed the exchange
of principal under the May 2019 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 $53,000 loss on the exchange of debt
for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations for the
three months ended March 31, 2020.
As
of March 31, 2020, the outstanding balance of the May 2019 Note was $0.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (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.
During the three months ended March 31,
2020, the Company exchanged approximately $2,236,000 of the outstanding principal and interest under the June 2019 Note for 1,372,417
shares of the Company’s common stock at exchange prices between $1.12 and $3.05 per share. The Company analyzed the exchange
of principal under the June 2019 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 $33,000 loss on the exchange of debt
for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations for the
three months ended March 31, 2020.
As
of March 31, 2020, the outstanding balance of the June 2019 Note was $0.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (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 March 31, 2020, the outstanding principal 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 September 2019 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%.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (continued)
September
2019 Note Purchase Agreement and Promissory Note (continued)
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 September 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 September 2019 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 March 31, 2020, the outstanding principal balance of the September 2019 Note was approximately $1,050,161.
November 2019 Note Purchase Agreement
and Promissory Note
On November 22, 2019, the Company 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 November 2019 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 November 2019 Note, St. George paid an aggregate purchase price of
$750,000. Interest on the November 2019 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 November 2019 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 March 31,
2020, the outstanding balance of the November 2019 Note was approximately $1,050,188.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (continued)
March
2020 Note Purchase Agreement and Promissory Note
On March 18, 2020, 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 “March 2020 Note”) in an aggregate initial principal amount of $6,465,000, 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 $1,450,000
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 March 2020 Note, the holder paid an aggregate purchase price of $5,000,000. Interest
on the March 2020 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the
March 2020 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 March 2020 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 March 2020 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 of the Company’s receipt of such Monthly Redemption Notice. The March 2020 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 holder may,
by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 Note to be
immediately due and payable. 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 March 2020 Note will become immediately due and payable at the mandatory
default amount. If the March 2020 Note is still outstanding on the date that is six (6) months from the issuance date, then a one-time
monitoring fee equal to ten percent (10%) of the then-current outstanding balance shall be added to the March 2020 Note. As of
March 31, 2020, the outstanding principal balance of the March 2020 Note was approximately $6,465,000.
|
(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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
9 - Debt (continued)
Payplant
Accounts Receivable Bank Line (continued)
On August 31, 2018, Inpixon, Sysorex, Sysorex Government Services,
Inc. (“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 March 31, 2020, the outstanding balance on the revolving line of credit is $0.
|
(C)
|
Other
Short-Term Debt
|
As
of March 31, 2020, the Company owed approximately $75,000 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.
Note
10 - Capital Raises
At-The-Market
Program
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
filing. 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.
The Company issued 937,010 shares of common
stock during the quarter ended March 31, 2020, in connection with the ATM at per share prices between $1.23 and $2.11, resulting
in net proceeds to the Company of approximately $1.3 million after subtracting sales commissions and other offering expenses.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
11 - Common Stock
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.
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.
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 March 31,
2020, the Company issued 1,896,557 shares of common stock under exchange agreements to settle outstanding balances totalling $4,194,030
under partitioned notes.
During the three months ended March 31,
2020, the Company issued 937,010 shares of common stock in connection with the ATM at per share prices between $1.23 and $2.11,
resulting in net proceeds to the Company of approximately $1,300,000 after subtracting sales commissions and other offering expenses
(see Note 10).
Note
12 - 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
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”). As
of March 31, 2020, there was 1 share of Series 4 Preferred outstanding.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
12 - 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.
As
of March 31, 2020, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
Note
13 - Authorized Share Increase and Reverse Stock Split
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 condensed consolidated financial statements
and accompanying notes give effect to 1-for-45 reverse stock split as if it occurred at the first period presented.
Note
14 - 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 March 31, 2020 under the 2011 Plan and the 2018 Plan were 417,270 and 11,230,073, respectively. As of March 31,
2020, 120,796 of options were granted to employees, directors and consultants of the Company (including 1 share outside of the
Company’s Option Plans) and 11,526,548 options were available for future grant under the Option Plans.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
14 - Stock Options (continued)
During the three months ended March 31,
2020, no stock options were granted to consultants or employees of the Company.
During the three months ended March 31,
2020 and 2019, the Company recorded a charge of approximately $399,000 and $648,000, respectively, for the amortization of employee
stock options.
As of March 31, 2020, the fair value of
non-vested options totalled approximately $496,000, which will be amortized to expense over the weighted average remaining term
of 0.38 years.
Note
15 - 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 March 31, 2020 and December 31, 2019 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 three-month period ended March 31, 2020 and 2019 (in thousands):
|
|
For the Three Months Ended
March 31, 2020
|
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
Customer A
|
|
|
500
|
|
|
|
28%
|
|
|
|
750
|
|
|
|
55%
|
|
Customer B
|
|
|
305
|
|
|
|
17%
|
|
|
|
306
|
|
|
|
22%
|
|
As
of March 31, 2020, Customer C represented approximately 32% and Customer A represented approximately 27 % of total accounts receivable.
As of March 31, 2019, Customer A represented approximately 37%, Customer C represented approximately 22%, Customer D represented
approximately 11%, and Customer E represented approximately 11% of total accounts receivable.
As
of March 31, 2020, two vendors represented approximately 41% and 16% of total gross accounts payable. Purchases from these vendors
during the three months ended March 31, 2020 was $0. As of March 31, 2019, one vendor represented approximately 43% of total
gross accounts payable. Purchases from this vendor during the three months ended March 31, 2019 was $0.
For
the three months ended March 31, 2020, five vendors represented approximately 28%, 21%, 17%, 16%, and 15% of total purchases.
For the three months ended March 31, 2019, two vendors represented approximately 44% and 56% of total purchases.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
16 - 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 the Company’s
subsidiaries. The financial data by geographic area are as follows (in thousands):
|
|
United
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Canada
|
|
|
India
|
|
|
Eliminations
|
|
|
Total
|
|
For the Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
1,179
|
|
|
$
|
1,348
|
|
|
$
|
128
|
|
|
$
|
(851
|
)
|
|
$
|
1,804
|
|
Operating income (loss) by geographic area
|
|
$
|
(5,376
|
)
|
|
$
|
(135
|
)
|
|
$
|
(55
|
)
|
|
$
|
--
|
|
|
$
|
(5,566
|
)
|
Net income (loss) by geographic area
|
|
$
|
(6,069
|
)
|
|
$
|
(43
|
)
|
|
$
|
(56
|
)
|
|
$
|
--
|
|
|
$
|
(6,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
1,361
|
|
|
$
|
2
|
|
|
$
|
68
|
|
|
$
|
(68
|
)
|
|
$
|
1,363
|
|
Operating income (loss) by geographic area
|
|
$
|
(4,527
|
)
|
|
$
|
(308
|
)
|
|
$
|
(28
|
)
|
|
$
|
--
|
|
|
$
|
(4,863
|
)
|
Net income (loss) by geographic area
|
|
$
|
(4,814
|
)
|
|
$
|
(308
|
)
|
|
$
|
(28
|
)
|
|
$
|
--
|
|
|
$
|
(5,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
11,738
|
|
|
$
|
8,804
|
|
|
$
|
396
|
|
|
$
|
--
|
|
|
$
|
20,938
|
|
Long lived assets by geographic area
|
|
$
|
3,404
|
|
|
$
|
6,194
|
|
|
$
|
305
|
|
|
$
|
--
|
|
|
$
|
9,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Note
17 - 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
17 - Related Party Transactions (continued)
Sysorex
Note Purchase Agreement (continued)
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 March 31, 2020 and 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 March 31, 2020. The Company is 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 through March 31, 2020 of approximately $72,949. The total owed to the Company
for this settlement as of March 31, 2020 was $632,070.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
18 - 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 condensed 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
18 - Leases (continued)
Right-of-use
assets is summarized below (in thousands):
|
|
As of
March 31,
2020
|
|
Palo Alto, CA Office
|
|
$
|
808
|
|
Encino, CA Office
|
|
|
194
|
|
Hyderabad, India Office
|
|
|
355
|
|
Coquitlam, Canada Office
|
|
|
252
|
|
Westminster, Canada Office
|
|
|
9
|
|
Toronto, Canada Office
|
|
|
372
|
|
Less accumulated amortization
|
|
|
(615
|
)
|
Right-of-use asset, net
|
|
$
|
1,375
|
|
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 the Company’s condensed consolidated
statement of income for the three-month period ended March 31, 2020 was $271,000.
During
the three-month period ended March 31, 2020, the Company recorded $124,264 as rent expense to the right-of-use assets.
Lease
liability is summarized below (in thousands):
|
|
As of
March 31,
2020
|
|
Total lease liability
|
|
$
|
1,401
|
|
Less: short term portion
|
|
|
(634
|
)
|
Long term portion
|
|
$
|
767
|
|
Maturity
analysis under the lease agreement is as follows (in thousands):
Year ending December 31, 2020
|
|
$
|
533
|
|
Year ending December 31, 2021
|
|
|
572
|
|
Year ending December 31, 2022
|
|
|
330
|
|
Year ending December 31, 2023
|
|
|
113
|
|
Year ending December 31, 2024
|
|
|
15
|
|
Total
|
|
$
|
1,563
|
|
Less: Present value discount
|
|
|
(162
|
)
|
Lease liability
|
|
$
|
1,401
|
|
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 March 31, 2020, the weighted average remaining lease term is 2.51 years and the weighted
average discount rate used to determine the operating lease liabilities was 8.0%.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
19 - Commitments and Contingencies
Litigation
Certain
conditions may exist as of the date the condensed 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 condensed 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.
Compliance
with Nasdaq Continued Listing Requirement
On May 30, 2019, the Company received a
deficiency letter from Nasdaq indicating that, based on the Company’s closing bid price for the last 30 consecutive
business days, the Company did 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 the Company’s 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 advised us that the Company’s 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 could raise public
interest concerns under Nasdaq Listing Rule 5101 and could result in the Nasdaq Staff issuing a delisting determination with respect
to the Company’s 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 the Company’s
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 would have an opportunity to appeal, the Company
cannot assure that Nasdaq would not exercise such discretionary authority or that the Company would be successful if such discretion
is exercised and the Company appeals.
On November 27, 2019, the Company received
notice from the Nasdaq Listing Qualifications Department of the Nasdaq Stock Market LLC that based upon the Company’s continued
non-compliance with the minimum $1.00 bid price requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(2),
the Company’s common stock would be subject to delisting from the Nasdaq Capital Market (the “Staff Delisting Determination”),
unless the Company 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
Note
19 - Commitments and Contingencies (continued)
Compliance
with Nasdaq Continued Listing Requirement (continued)
On February 5, 2020, the Company received
a letter from the Office of General Counsel of Nasdaq informing us that the Nasdaq Hearings Panel (the “Panel”) granted
the Company’s request to continue the listing of the Company’s 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 the Company has 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, the Company is obligated
to notify the Panel immediately, in writing, in the event the Company’s bid price falls below the minimum requirement for
any reason, or if the Company falls out of compliance with any applicable listing requirement.
Note 20 - Subsequent Events
On April 13, 2020, the Company entered
into a subscription agreement with a provider in connection with the issuance by the Company of an aggregate of 183,486 shares
of the Company’s common stock at a purchase price of $1.09 per share in satisfaction of an aggregate of $200,000 payable
to the provider by the Company for legal services rendered.
At-The-Market Program
During the quarter ending June 30, 2020,
the Company issued 9,551,636 shares of common stock in connection with the ATM, at per share prices between $1.13 and $1.28, resulting
in net proceeds to the Company of approximately $10,623,000 after subtracting sales commissions of 4% of gross proceeds.
Note
Exchanges
During the quarter ending June 30, 2020,
the Company exchanged approximately $2,257,000 of the outstanding principal and interest under notes for 2,019,737 shares of the
Company’s common stock at exchange prices between $1.09 and $1.19 per share.
Stock Option Grants
During the quarter ending June 30, 2020,
the Company granted options under the 2018 Plan for the purchase of 5,567,500 shares of common stock to employees and consultants
of the Company. These options are 100% vested or vest pro-rata over 12 to 48 months, have a life of ten years and an exercise price
of $1.10 per share.