NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
1 - Organization and Nature of Business and Going Concern
Inpixon,
through its wholly-owned subsidiaries, Inpixon USA, Inpixon Federal, Inc. (“Inpixon Federal”), Inpixon
Canada, Inc. (“Inpixon Canada”) and the majority-owned subsidiary, Sysorex Arabia LLC (“Sysorex
Arabia”) (unless otherwise stated or the context otherwise requires, the terms “Inpixon”
“we,” “us,” “our” and the “Company” refer collectively to Inpixon and the
above subsidiaries), provides Big Data analytics and location based products and related services for the cyber-security and
Internet of Things markets. The Company is headquartered in California, and has sales and subsidiary offices in Virginia, Hawaii, State of Washington, California, Vancouver, Canada and Riyadh, Saudi Arabia.
On
November 21, 2016, and as more fully described in Note 4, the Company completed the acquisition of substantially all of the assets
and certain liabilities of Integrio Technologies, LLC, which is in the U.S. Federal Government IT contracts business.
As of March 31, 2017, the Company has
a working capital deficiency of approximately $25.3 million. For the three months ended March 31, 2017, the Company incurred a
net loss of approximately $6.1 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 August 9, 2016,
the Company entered into a Securities Purchase Agreement with Hillair Capital Investments L.P. pursuant to which it issued
and sold (i) an 8% Original Issue Discount Senior Convertible Debenture in an aggregate principal amount of $5,700,000 due
on August 9, 2018 and (ii) 2,250 shares of newly created Series 1 Convertible Preferred Stock, par value $0.001 per share,
for an aggregate purchase price of $5,000,000. The Company also has a credit facility with GemCap Lending I for up to $10
million (the “Credit Facility”) which we borrow against based on eligible assets of which approximately $4.4
million is utilized. The Credit Facility has a maturity date of November 14, 2018. During the third quarter of 2016, the
Company implemented a cost cutting program that would reduce operating expenses by approximately $1.8 million on an annual
basis.
The Company’s capital resources as
of March 31, 2017, availability on the $10.0 million Credit Facility (of which $4.4 million is utilized as of March 31, 2017),
higher margin business line expansion and credit limitation improvements, may not be sufficient to fund planned operations during
2017. The Company will need to raise outside capital under structures availability to it including debt and/or equity offerings.
The Company also has an effective registration statement on Form S-3 which will may allow it to raise additional capital from the
sale of its securities, subject to certain limitations for registrants with a market capitalization of less than $75 million. The
information in this Form 10-Q concerning the Company’s Form S-3 registration statement does not constitute an offer of any
securities for sale. If these sources do not provide the capital necessary to fund the Company’s operations during the next
twelve months, the Company may need to curtail certain aspects of its expansion activities or consider other means of obtaining
additional financing, such as through the sale of assets or of a business segment, although there is no guarantee that the Company
could obtain the financing necessary to continue its operations.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
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”)
for interim financial information, 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, 2017 is not necessarily
indicative of the results to be expected for the year ending December 31, 2017. These interim 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, 2016 and 2015 included in the annual report Form 10-K filed with the U.S. Securities and Exchange Commission
on April 17, 2017.
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, 2016
and 2015.
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 allowance for doubtful accounts;
|
|
|
|
|
●
|
the valuation allowance for the deferred tax asset; and
|
|
|
|
|
●
|
impairment of long-lived assets and goodwill.
|
Revenue
Recognition
The Company provides Information Technology
solutions and services to customers and derives revenues primarily from the sale of third-party hardware and software products,
software, assurance, licenses and other consulting services, including maintenance services and recognizes revenue once the following
four criteria are met: (1) persuasive evidence of an arrangement exists; (2) the price is fixed and determinable, (3) shipment
(software and hardware) or fulfillment (maintenance) has occurred,; and (4) there is reasonable assurance of collection of the
sales proceeds (the “Revenue Recognition Criteria”). In addition, the Company also records revenues in accordance with
Accounting Standards Codification (“ASC”) Topic 605-45 “Principal Agent Consideration” (“ASC 605-45”).
The Company evaluates the sales of products and services on a case by case basis to determine whether the transaction should be
recorded gross or net, including, but not limited to, assessing whether or not the Company: (1) is the primary obligor in the transaction;
(2) has inventory risk with respect to the products and/or services sold; (3) has latitude in pricing; and (4) changes the product
or performs part of the services sold. The Company evaluates whether revenues received from the sale of hardware and software products,
licenses, and services, including maintenance and professional consulting services, should be recognized on a gross or net basis
on a transaction by transaction basis. As of March 31, 2017, the Company has determined that all revenues received should be recognized
on a gross basis in accordance with applicable standards.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
Cooperative reimbursements from vendors,
which are earned and available, are recorded during the period the related transaction has occurred. Cooperative reimbursements
are recorded as a reduction of cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller)
for Certain Consideration Received from a Vendor.” Provisions for returns are estimated based on historical collections and
credit memo analysis for the period. The Company receives Marketing Development Funds from vendors based on quarterly or annual
sales performance to promote the marketing of vendor products and services. The Company must file claims with vendors for these
cooperative reimbursements by providing invoices and receipts for marketing expenses. Reimbursements are recorded as a reduction
of marketing expenses and other applicable selling, general and administrative expenses ratably over the period in which the expenses
are expected to occur. The Company receives vendor rebates which are recorded to cost of sales.
The Company also enters into sales transactions
whereby customer orders contain multiple deliverables, and reports its multiple deliverable arrangements under ASC 605-25 “Revenue
Arrangements with Multiple Deliverables” (“ASC-605-25”). These multiple deliverable arrangements primarily consist
of the following deliverables: the Company’s design, configuration, installation, integration, warranty/maintenance and
consulting services; and third-party computer hardware, software and warranty maintenance services. In situations where the Company
bundles all or a portion of the separate elements, Vendor Specific Objective Evidence (“VSOE”) is determined based
on prices when sold separately. For the three months ended March 31, 2017 and 2016 revenues recognized as a result of customer
contracts requiring the delivery of multiple elements were $3.1 million and $5.3 million, respectively.
Hardware,
Software and Licensing Revenue Recognition
Generally,
the Revenue Recognition Criteria are met with respect to the sales of hardware and software products when they are shipped to
the customer. The delivery of products to our customers occurs in a variety of ways, including (i) as a physical product shipped
from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect
to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products
to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the
sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from
its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards
and requirements of the customer. As a result, the Company recognizes the sale of the product and the cost of such upon receiving
notification from the supplier that the product has shipped. Vendor rebates and price protection are recorded when earned as a
reduction to cost of sales or merchandise inventory, as applicable. Vendor product price discounts are recorded when earned as
a reduction to cost of sales.
Maintenance
and Professional Services Revenue Recognition
With respect to sales of our maintenance,
consulting and other service agreements including our digital advertising and electronic services, the Revenue Recognition Criteria
is met once the service has been provided. Revenue on time and material contracts is recognized based on a fixed hourly rate as
direct labor hours are expended. The fixed rate includes direct labor, indirect expenses, and profits. Materials, or other specified
direct costs, are reimbursed as actual costs and may include markup. Anticipated losses are recognized as soon as they become known.
For the three months ended March 31, 2017 and 2016, the Company did not incur any such losses. These amounts are based on known
and estimated factors. Revenues from time and material or firm fixed price long-term and short-term contracts are derived principally
with various United States government agencies and commercial customers.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
The
Company recognizes revenue for sales of all services billed as a fixed fee ratably over the term of the arrangement as such services
are provided. Billings for such services that are made in advance of the related revenue recognized are recorded as deferred revenue
and recognized as revenue ratably over the billing coverage period. Amounts received as prepayments for services to be rendered
are recognized as deferred revenue. Revenue from such prepayments is recognized when the services are provided.
The Company’s storage and computing
maintenance services agreements permit customers to obtain technical support from the Company and/or the manufacturer and to update,
at no additional cost, to the latest technology when new software updates are introduced when and if available during the period
that the maintenance agreement is in effect. Since the Company assumes certain responsibility for product staging, configuration,
installation, modification, and integration with other client systems, or retains general inventory risk upon customer return or
rejection and is most familiar with the customer and its required specifications, it generally serves as the initial contact with
the customer with respect to any storage and computing maintenance services required and therefore will perform all or part of
the required service.
Typically,
the Company sells maintenance contracts for a separate fee with initial contractual periods ranging from one to three years with
renewal for additional periods thereafter. The Company generally bills maintenance fees in advance and records the amounts received
as deferred revenue with respect to any portion of the fee for which services have not yet been provided. The Company recognizes
the related revenue ratably over the term of the maintenance agreement as services are provided. In situations where the Company
bundles all or a portion of the maintenance fee with products, VSOE for maintenance is determined based on prices when sold separately.
Customers
that have purchased maintenance/warranty services have a right to cancel and receive a refund of the amounts paid for unused services
at any time during the service period upon advance written notice to the Company. Cancellation and refund privileges with respect
to maintenance/warranty services lapse as to any period during the term of the agreement for which such services have already
been provided. Customers do not have the right to a refund of paid fees for maintenance/warranty services that the Company has
earned and recognized as revenue. Invoices issued for maintenance/warranty services not yet rendered are recorded as deferred
revenue and then recognized as revenue ratably over the service period. As a result, (1) the warranty and maintenance service fees
payable by each customer are separately accounted for in each customer purchase order as a separate line item, and (2) upon the
Company’s receipt and acceptance of a request for refund of maintenance/warranty services not yet provided, the Company’s
obligation to perform any additional maintenance/warranty services will end. Sales are recorded net of discounts and returns.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
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 expense over the period during which the recipient is required to provide services in exchange for that award.
Options
and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted
to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments,
as adjusted, is expensed over the related vesting period.
The Company incurred stock-based compensation
charges, net of estimated forfeitures of $283,000 and $364,000 for the three months ended March 31, 2017 and 2016, respectively,
which is 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,
|
|
|
|
2017
|
|
|
2016
|
|
Compensation and related
benefits
|
|
$
|
262
|
|
|
$
|
338
|
|
Professional and legal fees
|
|
|
14
|
|
|
|
26
|
|
Acquisition transaction
costs
|
|
|
7
|
|
|
|
--
|
|
Totals
|
|
$
|
283
|
|
|
$
|
364
|
|
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, 2017 and 2016:
|
|
For
the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
381,330
|
|
|
|
321,141
|
|
Warrants
|
|
|
287,417
|
|
|
|
37,417
|
|
Shares
accrued but not issued
|
|
|
1,000
|
|
|
|
122,800
|
|
Convertible
preferred stock
|
|
|
100,000
|
|
|
|
--
|
|
Convertible
debenture
|
|
|
253,333
|
|
|
|
--
|
|
Totals
|
|
|
1,023,080
|
|
|
|
481,358
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
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.
Reclassification
Certain
accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation
in the current year’s financial statements. These reclassifications have no effect on previously reported earnings.
Derivative
Liabilities
During the year ended December 31,
2016, the Company issued a convertible debenture that included reset provisions considered to be down-round protection. In
addition, the Company issued warrants that include a fundamental transaction clause which provide for the warrant holders
to be paid in cash the fair value of the warrants as computed under a black scholes valuation model. The Company determined
that the conversion feature and warrants are derivative instruments pursuant to ASC 815 “Derivatives and Hedging” issued by the Financial Accounting Standards Board
(“FASB”). The accounting treatment of derivative financial instruments requires that the Company bifurcate the
conversion feature and record it as a liability at fair value and the fair value of the warrants were computed as defined in
the agreement. The instruments are marked-to-market at fair value as of each balance sheet date. Any change in fair value is
recorded as a change in the fair value of derivative liabilities for each reporting period. The fair value of the conversion
feature was determined using the Binomial Lattice model. The Company reassesses the classification at each balance sheet
date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of
the event that caused the reclassification. As of March 31, 2017, the fair value of the derivative liability was $154,000 and
was included in accrued liabilities.
Recent
Accounting Standards
In January 2017, the FASB issued ASU 2017-04:
“Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”),
which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15,
2019. Early adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1,
2017. The Company is currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.
Reverse Stock Split
The board of directors was authorized
by the Company’s stockholders to effect a 1 for 15 reverse stock split of its issued and outstanding shares of common stock
which was effective March 1, 2017. The financial statements and accompanying notes give effect to the 1 for 15 reverse stock split
as if it occurred at the beginning of the first period presented.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
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 consolidated financial statements.
Note
4 - Integrio Technologies, LLC Asset Acquisition
On November 14, 2016, the Company and
its wholly-owned subsidiary, Sysorex Government Services, Inc. (collectively, the “Buyer”), entered into an Asset Purchase
Agreement, as amended by the Amendment No. 1 to Asset Purchase Agreement (as so amended, the “Purchase Agreement”)
with Integrio Technologies, LLC (“Integrio”) and Emtec Federal, LLC, a wholly-owned subsidiary of Integrio, (collectively,
the “Seller”) which are in the business of providing IT integration and engineering services to customers, primarily
government agencies. The transaction closed on November 21, 2016. The consideration paid for the assets included an aggregate of
(A) $1,800,000 in cash, of which $1,400,000 minus certain amounts payable to creditors of the Seller were paid upon the closing
of the acquisition and $400,000 will be paid in two annual installments of $200,000 each on the respective
anniversary dates of the closing, subject to certain set offs and recoupment by Buyer; (B) 35,333 unregistered restricted shares
of the Company’s voting common stock valued at $22.50 per share; (C) certain specified assumed liabilities as detailed in
the purchase price table below; and (D) up to an aggregate of $1,200,000 in earnout payments, of which up to $400,000 shall be
payable to the Seller per year for the three years following the closing. Inpixon acquired these assets to pursue its previously
stated strategy to expand its business into the federal government sector because of the large long-term contracts that the government
sector offers. Inpixon started with bidding on government contracts directly and this acquisition provided an opportunity
to accelerate this expansion. In addition, the acquisition allows Inpixon to offset the revenue softening in the commercial
vertical for this business segment that it experienced in 2016.
The total recorded purchase price for
the transaction was $2,332,000 at closing on November 21, 2016 (“Closing”) which consisted of the cash paid at Closing
of $753,000, $400,000 cash that will be paid in two annual installments of $200,000 each on the respective anniversary dates of
the Closing, $1,078,000 in contingent earnout payments and $101,000 representing the fair value of the stock issued at Closing.
The purchase price is allocated as
follows (in thousands):
|
|
|
|
|
|
|
|
Assets Acquired:
|
|
|
|
Cash
|
|
$
|
189
|
|
Accounts receivable
|
|
|
2,365
|
|
Other receivables
|
|
|
377
|
|
Prepaid assets
|
|
|
4,164
|
|
Fixed assets
|
|
|
64
|
|
Other assets
|
|
|
34
|
|
Customer relationships
|
|
|
1,873
|
|
Supplier relationships
|
|
|
2,985
|
|
Goodwill (A)
|
|
|
3,261
|
|
|
|
|
15,312
|
|
Liabilities Assumed:
|
|
|
|
|
Accounts payable
|
|
$
|
8,341
|
|
Accrued liabilities
|
|
|
344
|
|
Deferred revenue
|
|
|
4,252
|
|
Other long
term liabilities
|
|
|
43
|
|
|
|
|
12,980
|
|
Total Purchase
Price
|
|
$
|
2,332
|
|
(A)
|
The
goodwill will be deductible for tax purposes once the contingent and assumed liabilities are settled.
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
5 – Proforma Financial Information
The
following unaudited proforma financial information presents the consolidated results of operations of the Company and Integrio
for the three months ended March 31, 2016, as if the acquisition of Integrio had occurred on January 1, 2016 instead of November
21, 2016. 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. The financial information for LightMiner was deminimis.
(in thousands, except
share amounts )
|
|
For the Three
Months Ended
March 31,
2016
|
|
Revenues
|
|
$
|
25,756
|
|
Net Loss Attributable
to Common Shareholder
|
|
$
|
(4,946
|
)
|
Weighted Average
Number of Common Shares Outstanding, Basic and Diluted
|
|
|
1,708,659
|
|
Loss Per Common
Share - Basic and Diluted
|
|
$
|
(2.89
|
)
|
Note
6 – Related Party
Due
from Related Parties
Non-interest bearing amounts due on demand
from a related party were $666,000 as of March 31, 2017 and December 31, 2016, and consist primarily of amounts due from Sysorex
Consulting, Inc. (“SCI”). Subsequent to December 31, 2014, SCI is no longer a direct shareholder or investor in the Company. The
amounts due from SCI as of March 31, 2017 and December 31, 2016 have been classified in and as a reduction of stockholders’
equity. Subsequent to March 31, 2017, the Company is in negotiations with SCI for the repayment and settlement of this receivable
through the purchase of Sysorex India, a wholly owned subsidiary of SCI. The Company cannot provide assurance it will be successful
in the consummation of the arrangement.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
7 - Inventory
Inventory
at March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
|
|
March
31,
2017
|
|
|
December 31,
2016
|
|
Raw
materials
|
|
$
|
220
|
|
|
$
|
326
|
|
Work
in process
|
|
|
7
|
|
|
|
238
|
|
Finished
goods
|
|
|
555
|
|
|
|
497
|
|
Total
Inventory
|
|
$
|
782
|
|
|
$
|
1,061
|
|
Note
8 - Discontinued Operations
As
of December 31, 2015, the Company’s management decided to close its Saudi Arabia legal entity as business activities and
operations have been strategically shifted according to the business plan of the Company.
In accordance with ASC topic 360 “Property,
Plant and Equipment”, the Company has classified the assets and liabilities as discontinued assets and liabilities in the
accompanying consolidated financial statements.
The
major categories of assets and liabilities held for sale in the condensed consolidated balance sheets at March 31, 2017 and
December 31, 2016 (in thousands):
|
|
March
31,
2017
|
|
|
December
31, 2016
|
|
Assets
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
1
|
|
|
|
1
|
|
Notes and other
receivables
|
|
|
8
|
|
|
|
8
|
|
Other
assets
|
|
|
14
|
|
|
|
14
|
|
Total Current Assets
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
--
|
|
|
|
--
|
|
Total Assets
|
|
$
|
23
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
178
|
|
|
$
|
178
|
|
Accrued liabilities
|
|
|
908
|
|
|
|
904
|
|
Deferred revenue
|
|
|
236
|
|
|
|
236
|
|
Due to related party
|
|
|
2
|
|
|
|
1
|
|
Short-term
debt
|
|
|
722
|
|
|
|
722
|
|
Total Current Liabilities
|
|
|
2,046
|
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
2,046
|
|
|
$
|
2,041
|
|
The
Company has entered into surety bonds with a financial institution in Saudi Arabia which guaranteed performance on certain contracts.
Deposits for surety bonds amounted to $0 as of March 31, 2017 and December 31, 2016, as a reserve was placed against the deposit
balance during the year ended December 31, 2016 due to the uncertainty of when the bond will be released.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
8 - Discontinued Operations (continued)
The
Company did not recognize any depreciation or amortization expense related to discontinued operations during the three months
ended March 31, 2017 and 2016. There were no significant capital expenditures or non-cash operating or investing activities of
discontinued operations during the periods presented. The operations of Sysorex Arabia were insignificant for the three months
ended March 31, 2017 and 2016.
End
of Service Indemnity Provision
In accordance with local labor laws, Sysorex
Arabia is required to accrue benefits payable to its employees at the end of their services with Sysorex Arabia. For
the three months ended March 31, 2017 and 2016, no amounts were required to be accrued under this provision.
Note
9 – Debt
Debt
as of March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable
|
|
$
|
170
|
|
|
$
|
170
|
|
Revolving line of credit (A)
|
|
|
4,448
|
|
|
|
6,717
|
|
Total Short-Term Debt
|
|
$
|
4,618
|
|
|
$
|
6,887
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
212
|
|
|
$
|
212
|
|
Senior secured convertible debenture, less debt discount of $1,570 and $1,865
|
|
|
4,130
|
|
|
|
3,835
|
|
Total Long-Term Debt
|
|
$
|
4,342
|
|
|
$
|
4,047
|
|
(A) Revolving
Lines of Credit
GemCap
Loan and Security Agreement Amendment 2
On
January 24, 2017, the Company, and its U.S. wholly-owned subsidiaries, Inpixon USA and Inpixon Federal, entered into Amendment
Number 2 to the Loan and Security Agreement to amend that certain Loan and Security Agreement and Loan Agreement Schedule, both
dated as of November 14, 2016, with GemCap Lending I, LLC whereby Section (21) of the definition of “Eligible Accounts”
in Section 1.29 of the Loan Agreement was deleted and restated in its entirety as follows: Accounts that satisfy the criteria
set forth in the foregoing items (1) – (20), which are owed by any other single Account Debtor or its Affiliates so long
as such Accounts, in the aggregate, constitute no more than twenty percent (20%) of all Eligible Accounts, provided, that only
for the period commencing on January 24, 2017 through and including April 24, 2017, Accounts in the aggregate only from and owed
by Centene Corporation or its Affiliates may exceed twenty percent (20%) of all Eligible Accounts by an amount not to exceed $500,000,
provided, further, that, from and after April 25, 2017, Accounts in the aggregate that are owed by Centene Corporation or its
Affiliates that satisfy the criteria set forth in the foregoing items (1) – (20) shall not exceed twenty percent (20%) of
all Eligible Accounts; and Borrower shall have paid to Lender an accommodation fee in the amount of $5,000 on February 2, 2017.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
10 - Common Stock
During
the three months ended March 31, 2017, the Company issued 1,767 shares of common stock related to the acquisition of Integrio
Technologies, LLC which were fully vested upon the date of grant. The Company recorded an expense of $7,050 for the fair value
of those shares.
During
the three months ended March 31, 2017, the Company issued 3,613 shares of common stock for services which were fully vested upon
the date of grant. The Company recorded an expense of $14,092 for the fair value of those shares.
During
the three months ended March 31, 2017, the Company issued 18,905 of common stock for the settlement of $567,000 of shares held
in escrow related to the LightMiner asset acquisition.
Note
11 - Stock Options
In
September 2011, the Company adopted the 2011 Employee Stock Incentive 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. Incentive stock options 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. Unless terminated sooner by the Board of Directors,
this plan will terminate on August 31, 2021.
Options granted under the
Company’s plan 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 under the Company’s plan as of December 31, 2016 is
450,402. As of March 31, 2017, 381,330 of options were granted to employees and consultants of the Company
(including 41,667 shares outside of our plan) and 110,739 options were available for future grant under our plan.
During
the three months ended March 31, 2017, the Company granted options for the purchase of 25,627 shares of common stock to employees
and directors of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of
$3.90 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the
awards was determined to be $51,000. The fair value of the common stock as of the grant date was determined to be $3.90 per share.
During
the three months ended March 31, 2017 and 2016, the Company recorded a charge of $283,000 and $364,000, respectively, for the amortization
of employee stock options.
As
of March 31, 2017, the fair value of non-vested options totaled $1,993,000 which will be amortized to expense over the weighted
average remaining term of 1.23 years.
The
fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key
weighted-average assumptions used to apply this pricing model during the three months ended March 31, 2017 and 2016 were as follows:
|
|
For
the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free
interest rate
|
|
|
2.27%
|
|
|
|
1.47%
|
|
Expected
life of option grants
|
|
|
7
years
|
|
|
|
7
years
|
|
Expected
volatility of underlying stock
|
|
|
47.34%
|
|
|
|
49.02%
|
|
Dividends
assumption
|
|
|
$ --
|
|
|
|
$ --
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
11 - Stock Options (continued)
The
expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry
peers and used an average of those volatilities. The Company attributes the value of stock-based compensation to operations on
the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.
The dividends assumptions was $0 as the Company historically has not declared any dividends and does not expect to.
Note
12 - 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, as a consequence, 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 Saudi Arabia subsidiary.
Cash in foreign financial institutions as of March 31, 2017 and December 31, 2016 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 months ended March 31, 2017 and 2016 (in thousands):
|
|
For
the Three Months Ended
March 31, 2017
|
|
|
For
the Three Months Ended
March 31, 2016
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Customer
A
|
|
|
--
|
|
|
|
--
|
|
|
|
5,209
|
|
|
|
36%
|
|
Customer
B
|
|
|
1,616
|
|
|
|
12%
|
|
|
|
1,841
|
|
|
|
13%
|
|
As
of March 31, 2017, Customer D represented approximately 12% of total accounts receivable. As of March 31, 2016, Customer C represented
approximately 33% and Customer A represented approximately 17% of total accounts receivable.
As
of March 31, 2017, one vendor represented approximately 38% of total gross accounts payable. Purchases from this vendor during
the three months ended March 31, 2017 were $1.0 million. As of March 31, 2016, two vendors represented approximately 38% and 10%
of total gross accounts payable. Purchases from these vendors during the three months ended March 31, 2016 were $4.5 million and
$0.9 million.
For
the three months ended March 31, 2017, three vendors represented approximately 16%, 12%, and 10% of total purchases. For the three
months ended March 31, 2016, three vendors represented approximately 55%, 11% and 10% of total purchases.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
13 - Segment Reporting and Foreign Operations
Effective
January 1, 2017 the Company has changed the way it analyzes and assesses divisional performance of the Company. The Company has
therefore re-aligned its operating segments along those division business lines and has created the following operating segments.
The Company has retroactively applied these new segment categories to the prior periods presented below for comparative purposes.
|
●
|
Indoor Positioning Analytics: This segment includes Inpixon’s proprietary products and services delivered on premise or in the Cloud as well as our hosted Software-as-a-Service (SaaS) based solutions. Our Indoor Positioning Analytics product is based on a unique and patented sensor technology that detects and locates accessible cellular, Wi-Fi and Bluetooth devices and then uses a lightning fast data-analytics engine to deliver actionable insights and intelligent reports for security, marketing, asset management, etc.
|
|
|
|
|
●
|
Infrastructure: This segment includes third party hardware, software and related maintenance/warranty products and services that Inpixon resells to commercial and government customers. It includes but is not limited to products for enterprise computing; storage; virtualization; networking; etc. as well as services including custom application/software design; architecture and development; staff augmentation and project management.
|
The
following tables present key financial information of the Company’s reportable segments before unallocated corporate expenses
(in thousands):
|
|
Indoor
Positioning Analytics
|
|
|
Infrastructure
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
981
|
|
|
$
|
12,500
|
|
|
$
|
13,481
|
|
Cost of net revenues
|
|
$
|
(343
|
)
|
|
$
|
(9,850
|
)
|
|
$
|
(10,193
|
)
|
Gross profit
|
|
$
|
638
|
|
|
$
|
2,650
|
|
|
$
|
3,288
|
|
Gross margin %
|
|
|
65
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
Depreciation and amortization
|
|
$
|
76
|
|
|
$
|
325
|
|
|
$
|
401
|
|
Amortization of intangibles
|
|
$
|
864
|
|
|
$
|
519
|
|
|
$
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,024
|
|
|
$
|
13,063
|
|
|
$
|
14,087
|
|
Cost of net revenues
|
|
$
|
(286
|
)
|
|
$
|
(9,854
|
)
|
|
$
|
(10,140
|
)
|
Gross profit
|
|
$
|
738
|
|
|
$
|
3,209
|
|
|
$
|
3,947
|
|
Gross margin %
|
|
|
72
|
%
|
|
|
25
|
%
|
|
|
28
|
%
|
Depreciation and amortization
|
|
$
|
77
|
|
|
$
|
186
|
|
|
$
|
263
|
|
Amortization of intangibles
|
|
$
|
864
|
|
|
$
|
192
|
|
|
$
|
1,056
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
13 - Segment Reporting and Foreign Operations (continued)
Reconciliation
of reportable segments’ combined income from operations to the consolidated loss before income taxes is as follows (in thousands):
|
|
For
the Three Months Ended
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Income
from operations of reportable segments
|
|
$
|
3,288
|
|
|
$
|
3,947
|
|
Unallocated
operating expenses
|
|
|
(8,642
|
)
|
|
|
(8,129
|
)
|
Interest
expense
|
|
|
(684
|
)
|
|
|
(143
|
)
|
Other
income (expense)
|
|
|
(9
|
)
|
|
|
19
|
|
Loss
from discontinued operations
|
|
|
(9
|
)
|
|
|
--
|
|
Consolidated
net loss
|
|
$
|
(6,056
|
)
|
|
$
|
(4,306
|
)
|
The
Company’s operations are located primarily in the United States, Canada and Saudi Arabia. Revenues by geographic area are
attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands):
|
|
United
|
|
|
|
|
|
Saudi
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Canada
|
|
|
Arabia
|
|
|
Eliminations
|
|
|
Total
|
|
For the Three Months Ended March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
13,425
|
|
|
$
|
56
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
13,481
|
|
Operating loss by geographic area
|
|
$
|
(4,953
|
)
|
|
$
|
(401
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
(5,354
|
)
|
Net loss by geographic area
|
|
$
|
(5,647
|
)
|
|
$
|
(401
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(6,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
14,049
|
|
|
$
|
38
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
14,087
|
|
Operating loss by geographic area
|
|
$
|
(3,790
|
)
|
|
$
|
(383
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(4,182
|
)
|
Net loss by geographic area
|
|
$
|
(3,914
|
)
|
|
$
|
(383
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(4,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
54,019
|
|
|
$
|
535
|
|
|
$
|
23
|
|
|
$
|
--
|
|
|
$
|
54,577
|
|
Long lived assets by geographic area
|
|
$
|
28,422
|
|
|
$
|
375
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
28,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
66,050
|
|
|
$
|
400
|
|
|
$
|
23
|
|
|
$
|
--
|
|
|
$
|
66,473
|
|
Long lived assets by geographic area
|
|
$
|
29,843
|
|
|
$
|
319
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
30,162
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
14 - 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 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.
During the year ended December 31, 2011,
a judgment in the amount of $936,000 was levied against Sysorex Arabia in favor of Creative Edge, Inc. in connection with amounts
advanced for operations. Of that amount, $214,000 has been repaid, and the remaining $722,000 has been accrued and is included
as a component of liabilities held for sale as of March 31, 2017 and December 31, 2016 in the condensed consolidated balance sheets.
Note 15 - Subsequent Events
On April 10, 2017, the Company issued 50,000
shares of common stock for services which were fully vested upon the date of grant. The Company recorded an expense of $141,000
for the fair value of those shares.
On April 19, 2017, Inpixon entered into
an exchange agreement (the “Exchange Agreement”) with Hillair Capital Investments L.P. in connection with an interest
payment due on May 9, 2017 pursuant to the Company’s 8% Original Issue Discount Senior Secured Convertible Debenture in
the principal amount of $5,700,000. In accordance with the Exchange Agreement, solely in respect of the interest payment in the
amount of $343,267 due on May 9, 2017, the parties agreed that $315,700 of such interest payment will be made in in the form of
110,000 shares of the Company’s common stock issued at an interest conversion rate equal to $2.87 per share. The shares
were issued on April 20, 2017.
On May 8, 2017, Hillair Capital Investments L.P. delivered a conversion notice to the Company pursuant
to which it converted 2,250 shares of the Company’s Series 1 Convertible Preferred Stock into 100,000 shares of the Company’s
common stock. Such shares of common stock were issued on May 9, 2017.