NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
1 - Organization and Nature of Business
Inpixon, and its wholly-owned subsidiaries,
Inpixon Canada, Inc. (“Inpixon Canada”), Inpixon Limited, Inpixon GmbH 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. The
Company is headquartered in Palo Alto, California, and has subsidiary offices in Coquitlam, Canada, New Westminster, Canada, Toronto,
Canada, Slough, United Kingdom, Ratingen, Germany, Bangalore, India and Hyderabad, India.
Liquidity
As of September 30, 2020, the Company has
a working capital total of approximately $23.2 million and cash of $31.4 million. The Company experienced a net loss of approximately
$7.5 million and $6.6 million for the three months ended September 30, 2020 and 2019, respectively, and a net loss of $20.9
million and $17.0 million for the nine months ended September 30, 2020 and 2019, respectively. On March
3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”)
under which the Company may offer and sell shares of its common stock in connection with an at-the-market equity facility (“ATM”)
in an aggregate offering amount of up to $50 million, which was increased on June 19, 2020 to $150 million pursuant to an amendment
to the EDA, from time to time through Maxim, acting exclusively as the Company’s sales agent. The Company issued 31,574,358
shares of common stock during the nine months ended September 30, 2020 in connection with the ATM resulting in net proceeds to
the Company of approximately $44.0 million. Subsequent to the quarter ended September 30, 2020, the Company issued an additional
213,474 shares of common stock in connection with the ATM, resulting in net proceeds to the Company of approximately $230,000.
Risks
and Uncertainties
The Company cannot assure you that we
will ever earn revenues sufficient to support our operations, or that we will ever be profitable. In order to continue our
operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and
proceeds from loans and bank credit lines. The impact of the COVID-19 pandemic on our business and results of operations
continues to remain uncertain at this time. While we have been able to continue operations remotely, we have experienced
supply chain constraints and delays in the receipt of certain components of our products impacting delivery times for our
products. We have also seen some impact in the demand of certain products, delays in certain projects and customer orders
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. Despite these
challenges, we were able to realize growth in revenue during the first and third quarters of 2020 and for the first nine
months of 2020 when compared to the same periods of 2019 as a result of an increase in sales associated with our indoor
intelligence platform, including our sensors, in addition to additional revenue from the sale of Systat software licenses.
The impact that COVID-19 will have on general economic conditions is continuously evolving and the ultimate impact the
pandemic will have on our results of operations continues to remain uncertain. There are no assurances that we will be able
to continue to experience the same growth or not be materially adversely effected.
Given
our cash balances and our budgeted cash flow requirements, the Company believes such funds are sufficient to support ongoing
operations for at least one year after the issuance of these financial statements. The Company has control over its
expenditures and has the ability to adjust spending accordingly based on its budgeted cash flow requirements and the excess
cash on hand.
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 nine-month period ended September 30, 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
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, 6, 7 and 8, as well as the valuation of the Company’s common
stock issued in the transactions, as applicable;
|
|
|
|
|
●
|
the
allowance for doubtful accounts;
|
|
|
|
|
●
|
the
valuation of loans receivable;
|
|
|
|
|
●
|
the
valuation allowance for deferred tax assets; and
|
|
|
|
|
●
|
the impairment of long-lived assets and goodwill.
|
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 September 30, 2020 and 2019, the Company had $0 and $71,000, respectively, deposited in escrow as restricted
cash for the Shoom acquisition, of which any amounts not subject to claims were to be released to the pre-acquisition stockholders
of Shoom pro-rata on the anniversary dates of the closing date of the Shoom acquisition. As of September 30, 2019, $71,000 was
current and included in Prepaid Assets and Other Current Assets on the condensed consolidated balance sheet. As of September 30,
2020, the final escrowed amount had been released and the restricted cash balance was $0.
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 September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
31,376
|
|
|
$
|
494
|
|
Restricted cash, current included in prepaid assets and other current assets
|
|
|
--
|
|
|
|
71
|
|
Total cash, cash equivalents, and restricted cash in the balance sheets
|
|
$
|
31,376
|
|
|
$
|
565
|
|
Revenue
Recognition
The
Company reports revenues under Accounting Standards Codification (“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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Revenue
Recognition (continued)
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.
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 and nine months ended September 30,
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 $1,842,000 and $912,000 as of September 30, 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 product 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 September 30, 2020 and December 31, 2019 were deemed immaterial.
Disaggregation
of Revenue
Revenues
consisted of the following (in thousands):
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Recurring revenue
|
|
$
|
1,182
|
|
|
$
|
754
|
|
|
$
|
2,883
|
|
|
$
|
1,968
|
|
Non-recurring revenue
|
|
|
1,372
|
|
|
|
780
|
|
|
|
2,551
|
|
|
|
2,419
|
|
Totals
|
|
$
|
2,554
|
|
|
$
|
1,534
|
|
|
$
|
5,434
|
|
|
$
|
4,387
|
|
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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
3 - Summary of Significant Accounting Policies (continued)
Stock-Based
Compensation (continued)
The
Company incurred stock-based compensation charges of $256,000 and $871,000 for the three months ended September 30, 2020 and 2019,
respectively, and $941,000 and $2,618,000 for the nine months ended September 30, 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
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Compensation and related benefits
|
|
$
|
256
|
|
|
$
|
871
|
|
|
$
|
941
|
|
|
$
|
2,376
|
|
Professional and legal fees
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
242
|
|
Totals
|
|
$
|
256
|
|
|
$
|
871
|
|
|
$
|
941
|
|
|
$
|
2,618
|
|
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 nine months ended September 30, 2020 and 2019:
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options
|
|
|
5,544,594
|
|
|
|
124,099
|
|
Warrants
|
|
|
93,252
|
|
|
|
162,646
|
|
Convertible preferred stock
|
|
|
846
|
|
|
|
846
|
|
Reserved for service providers
|
|
|
--
|
|
|
|
25
|
|
Common stock issuable pursuant to Jibestream acquisition share purchase agreement
|
|
|
--
|
|
|
|
63,645
|
|
Totals
|
|
|
5,638,692
|
|
|
|
351,261
|
|
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.
Recently
Issued and Adopted Accounting Standards
In June 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“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.
In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815), and Leases (Topic 842) clarifying effective dates for the impacted ASUs. For public business entities that meet the
definition of an SEC 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 condensed consolidated financial statements or disclosures.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement,” (“ASU 2018-13”). ASU 2018-13 requires application of
the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year
of adoption) to the new disclosure requirements for (1) changes in unrealized gains and losses included in other
comprehensive income and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair
value measurements. ASU 2018-13 also requires prospective application to any modifications to disclosures made because of the
change to the requirements for the narrative description of measurement uncertainty. ASU 2018-13 is effective for fiscal
years beginning after December 15, 2019, including interim periods within that fiscal year. The Company has adopted these
ASU’s and the adoption of these ASU’s did not have a material impact on its condensed consolidated financial
statements or disclosures.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 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 has adopted this standard and the adoption of this standard did not have a material impact
on its condensed consolidated financial statements or disclosures.
In December 2019, the FASB issued ASU 2019-12,
“Income Taxes (Topic 740) (“ASU 2019-12”): 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 January 1, 2021. The Company does not expect this ASU will have a material effect on its condensed consolidated
financial statements or disclosures.
In
February 2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments
to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting
Standards Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement
and requirements related to credit losses. The new guidance was effective upon issuance of this final accounting standards update.
The adoption of this ASU did not have a material impact on our condensed consolidated financial statements or disclosures.
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
Systems, Inc. (“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 $85,923, and (ii) 14,445 shares of the Company’s common stock with a fair market value of $514,000. Locality was 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 at closing.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 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 period ended September 30, 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 Corp (“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 the Company’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.
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.
The note was amended on October 28, 2020 to extend the maturity date from September 13, 2020 to December 31, 2020 and waive the
requirement for the monthly repayment installment obligation provided for in the May 11, 2020 amendment. This note is included
as part of other receivables in the Company’s condensed consolidated financial statements. As of September 30, 2020, the
balance of the note including interest was $52,381. Proforma information has not been presented as it has been deemed to be immaterial.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
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
Inc. (“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 purchase agreement (the “Purchase Agreement”)),
minus any amounts loaned by the Purchaser to Jibestream to settle any Indebtedness (as defined in the Purchase Agreement) or other
fees, minus any cash payments to the holders of outstanding options to settle any in-the-money options, minus the deferred revenue
costs of CAD $150,000, and minus the costs associated with the audit and review of the financial statements of Jibestream required
by the Purchase Agreement (collectively, the “Estimated Cash Closing Amount”); plus (ii) 176,289 shares of the Company’s
common stock, which was equal to CAD $3,000,000, converted to U.S. dollars based on the exchange rate at the time of the closing,
divided by $12.4875 which was the price per share at which shares of the Company’s common stock were issued in the Company’s
common stock offering on August 12, 2019 (“Inpixon Shares”).
Jibestream provided a dynamic interactive
map that allowed customers to put their digitized map into their mobile app or provide the map on a kiosk or other interface. Inpixon
can now utilize the Jibestream map 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.
The
purchase price was allocated based on the receipt of a final valuation report 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 period ended September
30, 2020.
Jibestream
was amalgamated into Inpixon Canada on January 1, 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note 7 - Systat Licensing Agreement
On June 19, 2020, the Company entered into
an exclusive license with Cranes Software International Ltd. and Systat Software, Inc. (together the “Systat Parties”)
to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (the “License Grant”) pursuant
to the terms and conditions of that certain Exclusive Software License and Distribution Agreement, deemed effective as of June
1, 2020 (the “Effective Date”), and amended on June 30, 2020 (as amended, the “License Agreement”). In
accordance with Rule 11-01(d) and ASC 805, the transaction was deemed to be the acquisition of a business and accounted for as
a business combination with an acquisition date of June 30, 2020 (the “Closing Date”). In accordance with the terms
of the License Agreement, on the Closing Date, we partitioned a portion of that certain promissory note (the “Sysorex Note”)
issued to us by Sysorex, Inc. (“Sysorex”), into a new note in an amount equal to $3 million in principal plus accrued
interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat Software,
Inc. in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement. An additional
$3.3 million of the principal balance underlying the Sysorex Note will be partitioned and assigned to Systat Software, Inc. as
consideration payable for the rights granted under the license as follows: (i) $1.3 million on the three month anniversary of the
Closing Date; (ii) $1.0 million on the six month anniversary of the Closing Date; and (iii) $1.0 million on the nine month anniversary
of the Closing Date. In addition, the cash consideration of $2.2 million was delivered on July 8, 2020.
In connection with the License Grant, the
Systat Parties provided us with equipment for us to use at no additional cost for a minimum period of six months following the
Closing Date. We are also entitled to any customer maintenance revenue, new license fees, or license renewal fees, received by
any of the Systat Parties after June 1, 2020 in connection with the Systat Customer Contracts and/or Systat Distribution Agreements
(as such terms are defined in the License Agreement) assigned to and assumed by us in connection with the License Agreement. The
net amount owed to the Company for this period is included in the Other Receivable line item listed in the assets acquired below.
The License Grant will remain in effect for a period of 15 years following the Closing Date, unless terminated sooner upon mutual
written consent of Systat Software, Inc. and us or upon termination by either for the other party’s specified breach.
In
connection with the License Grant, the Company expanded its operations into the United Kingdom and Germany. As a result of such
expansion, the Company formed Inpixon Limited, a new wholly owned subsidiary in the United Kingdom, and established Inpixon GmbH,
a wholly owned subsidiary incorporated under the laws of Germany.
The total recorded purchase price for the
transaction was $2,200,000, which consisted of the $2,200,000 cash consideration as a full valuation allowance was retained against
the Sysorex note.
The
preliminary purchase price is allocated as follows (in thousands):
Assets Acquired:
|
|
|
|
Other receivable
|
|
$
|
44
|
|
Developed technology
|
|
|
1,200
|
|
Customer relationships
|
|
|
395
|
|
Tradename & Trademarks
|
|
|
279
|
|
Non-compete agreements
|
|
|
495
|
|
Goodwill
|
|
|
520
|
|
|
|
$
|
2,933
|
|
Liabilities Assumed:
|
|
|
|
|
Deferred Revenue
|
|
$
|
733
|
|
Total Purchase Price
|
|
$
|
2,200
|
|
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. The financial data of the License Grant is included in the Company’s financial statements as of deemed
acquisition date of June 30, 2020.
A final valuation of the assets and purchase
price allocation of the License Grant 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 fourth quarter of 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
8 - Ten Degrees Acquisition
On August 19, 2020, in accordance with
the terms and conditions of that certain Asset Purchase Agreement, by and among the Company, Ten Degrees Inc. (“TDI”),
Ten Degrees International Limited (“TDIL”), mCube International Limited (“MCI”), and the holder of a majority
of the outstanding capital of TDIL and mCube, Inc., and the sole shareholder of 100% of the outstanding capital stock of MCI (“mCube,”
together with TDI, TDIL, and MCI collectively, the “Transferors”), we acquired a suite of on-device “blue-dot”
indoor location and motion technologies, including patents, trademarks, software and related intellectual property from the Transferors
(collectively, the “Assets”). The Assets were acquired for consideration consisting of (i) $1,500,000 in cash and (ii)
480,000 shares of our common stock. In accordance with the terms of the APA, commencing as of the date of the APA, the Transferors,
and their affiliates, have agreed to not compete with our business associated with the Assets for a period of five years from the
closing date. In addition, each party agreed to not solicit any employees from the other party for a period of one year from the
closing date, subject to certain exceptions.
The
total recorded purchase price for the transaction was $2,100,000, which consisted of the cash paid of $1,500,000 and $600,000
representing the value of the stock issued upon closing.
The
preliminary purchase price is allocated as follows (in thousands):
Developed technology
|
|
$
|
1,701
|
|
Non-compete agreements
|
|
|
399
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
2,100
|
|
The
value of the intangibles were calculated by a third party valuation firm based on projections and financial data provided by management
of the Company. A final valuation of the assets and purchase price allocation 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 fourth quarter of 2020.
Note
9 - Proforma Financial Information
The
following unaudited proforma financial information presents the condensed consolidated results of operations of the Company and
Jibestream for the three and nine months ended September 30, 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
September 30,
2019
|
|
|
For the Nine
Months
Ended
September 30,
2019
|
|
Revenues
|
|
$
|
2,031
|
|
|
$
|
5,898
|
|
Net loss attributable to common stockholders
|
|
$
|
(7,226
|
)
|
|
$
|
(19,805
|
)
|
Net loss per basic and diluted common share
|
|
$
|
(9.31
|
)
|
|
$
|
(37.19
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
776,288
|
|
|
|
532,588
|
|
Note
10 - Inventory
Inventory
as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
As of
September 30,
2020
|
|
|
As of
December 31,
2019
|
|
Raw materials
|
|
$
|
73
|
|
|
$
|
13
|
|
Finished goods
|
|
|
341
|
|
|
|
387
|
|
Total Inventory
|
|
$
|
414
|
|
|
$
|
400
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
11 - Debt
Debt
as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
As of
September 30,
2020
|
|
|
As of
December 31,
2019
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable, less debt discount of $655 and $628, respectively (A)
|
|
$
|
6,150
|
|
|
$
|
7,080
|
|
Revolving line of credit (B)
|
|
|
--
|
|
|
|
150
|
|
Other short-term debt (C)
|
|
|
--
|
|
|
|
74
|
|
Total Short-Term Debt
|
|
$
|
6,150
|
|
|
$
|
7,304
|
|
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 December 31, 2019, 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 $223,000 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 NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
11 - 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 September 30, 2020, the outstanding balance of the May 2019 Note was $0 and the note was fully satisfied.
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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
11 - Debt (continued)
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 September 30, 2020, the outstanding balance of the June 2019 Note was $0 and the note was fully satisfied.
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.
During
the three months ended June 30, 2020, the Company exchanged approximately $2,034,000 of the outstanding principal and interest
under the August 2019 Note for 1,832,220 shares of the Company’s common stock at exchange prices between $1.09 and $1.128
per share. The Company analyzed the exchange of principal under the August 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 $25,000 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 June 30, 2020.
As
of September 30, 2020, the outstanding balance of the August 2019 Note was $0 and the note was fully satisfied.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
11 - Debt (continued)
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%.
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.
During
the three months ended June 30, 2020, the Company exchanged approximately $1,120,000 of the outstanding principal and interest
under the September 2019 Note for 975,704 shares of the Company’s common stock at exchange prices between $1.136 and $1.17
per share. The Company analyzed the exchange of principal under the September 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 $22,000 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 June 30, 2020.
As
of September 30, 2020, the outstanding balance of the September 2019 Note was $0 and the note was fully satisfied.
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.
During
the three months ended June 30, 2020, the Company exchanged approximately $1,215,000 of the outstanding principal and interest
under the November 2019 Note for 894,549 shares of the Company’s common stock at exchange prices between $1.354 and $1.362
per share.
As
of September 30, 2020, the outstanding balance of the November 2019 Note was $0 and the note was fully satisfied.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
11 - 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 September 30, 2020, the outstanding principal balance of the March 2020 Note was approximately $6,805,000.
|
(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.
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 September 30, 2020, the outstanding balance on the
revolving line of credit is $0.
On
August 13, 2020, we provided Payplant a Notice of Termination (the “Notice”) of (i) that certain Loan and Security
Agreement, dated as of August 14, 2017 (the “Loan Agreement”), by and among the Company, Payplant and Lender and (ii)
that certain Payplant Client Agreement, dated as of August 14, 2017, as amended (the “Client Agreement”), by and between
the Company and Payplant, pursuant to which we are able to request loans from the Lender. In accordance with Section 14 and Section
27 of the Loan Agreement and the Client Agreement, respectively, we terminated each agreement as the Company has fully satisfied
all obligations under the Loan Agreement and will not incur any additional obligations thereunder. As a result of the termination,
the security interest we previously granted under the Loan Agreement was terminated and we paid a corresponding UCC termination
fee of $150 to Payplant in accordance with Section 27 of the Client Agreement.
|
(C)
|
Other Short-Term
Debt
|
As
of September 30, 2020, the Company owed $0 to the pre-acquisition stockholders of Shoom.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
12 - Capital Raises
At-The-Market
Program
On
March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) 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, which was increased on June 19, 2020 to $150 million pursuant to an amendment
to the EDA, from time to time through Maxim, acting exclusively as our sales agent. The Company intends to use the net proceeds
of the ATM 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 for the initial $50.0 million of shares
and 3.25% for any sales in excess of such amount. 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 EDA and no assurance can be given that the Company will sell
any shares under the EDA, 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 EDA will continue until the earliest of (i) December 3, 2021, (ii) the sale of shares having
an aggregate offering price of $150.0 million, and (iii) the termination by either Maxim or the Company upon the provision of
15 days written notice or otherwise pursuant to the terms of the EDA.
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 $1.25 million after subtracting sales
commissions and other offering expenses.
The
Company issued 29,033,036 shares of common stock during the quarter ended June 30, 2020, in
connection with the ATM at per share prices between $1.13 and $2.02, resulting in net proceeds to the Company of approximately
$40.52 million after subtracting sales commissions and other offering expenses.
The
Company issued 1,604,312 shares of common stock during the quarter ended September 30, 2020, in
connection with the ATM at per share prices between $1.5064 and $1.5134, resulting in net proceeds to the Company of approximately
$2.27 million after subtracting sales commissions and other offering expenses.
Note
13 - Common Stock
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 totaling approximately $4,194,000 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 $1.25 million after subtracting sales
commissions and other offering expenses (see Note 12).
During
the three months ended June 30, 2020, the Company issued 3,889,990 shares of common stock under exchange agreements to settle
outstanding balances totaling approximately $4,592,000 under partitioned notes.
During
the three months ended June 30, 2020, the Company issued 29,033,036 shares of common stock in connection with the ATM
at per share prices between $1.13 and $2.02, resulting in net proceeds to the Company of approximately $40.52 million after subtracting
sales commissions and other offering expenses (see Note 12).
During
the three months ended June 30, 2020, the Company issued 183,486 shares of common stock for the extinguishment of liability totaling
approximately $200,000.
During
the three months ended September 30, 2020, the Company issued 1,604,312 shares of common stock in connection with the
ATM at per share prices between $1.5064 and $1.5134, resulting in net proceeds to the Company of approximately $2.27 million after
subtracting sales commissions and other offering expenses (see Note 12).
On
August 19, 2020, the Company issued 480,000 shares of common stock to the security holders of Ten Degrees as part of an acquisition
(See Note 8).
Note
14 - 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
14 - Preferred Stock (continued)
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.
As
of September 30, 2020, there was 1 share of Series 4 Preferred outstanding.
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 September 30, 2020, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
Note
15 - 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
16 - 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.
On
August 10, 2020, our Board of Directors approved an amendment to the Company’s 2018 Plan to remove the limit on the amount
of non-qualified stock options that can be issued under the 2018 Plan to any one individual.
The
aggregate number of shares that may be awarded as of September 30, 2020 under the 2011 Plan and the 2018 Plan were 417,270 and
12,730,073, respectively. As of September 30, 2020, 5,544,594 of options were granted to employees, directors and consultants
of the Company (including 1 share outside of the Company’s Option Plans) and 7,602,750 options were available for future
grant under the Option Plans.
During
the three months ended June 30, 2020, the Company granted stock options for the purchase of 5,567,500 shares of common stock to
employees and directors of the Company. These stock options are 100% vested at grant or vest pro-rata over 12 to 48 months, have
a life of ten years and an exercise price of $1.10 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 approximately $1,911,000. The fair value of the common stock
as of the grant date was determined to be $1.10 per share.
During
the three months ended September 30, 2020 and 2019, the Company recorded a charge for the amortization of employee stock options
of approximately $256,000 and $871,000, respectively, and $941,000 and $2,376,000 for the nine months ended September 30,2020
and 2019, respectively.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
16 - Stock Options (continued)
As
of September 30, 2020, the fair value of non-vested options totaled approximately $1,907,000, which will be amortized to expense
over the weighted average remaining term of 0.985 years.
The
fair value of each employee stock 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 nine months ended September 30, 2020 were as follows:
|
|
For the
Nine Months Ended
September 30,
2020
|
|
|
|
|
|
Risk-free interest rate
|
|
0.33%
|
|
Expected life of stock option grants
|
|
5 years
|
|
Expected volatility of underlying stock
|
|
34.43%
|
|
Dividends assumption
|
|
$--
|
|
|
|
|
|
|
The
expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry
peers and used an average of those volatilities. The Company attributes the value of stock-based compensation to operations on
the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.
The dividends assumption was $0 as the Company historically has not declared and does not expect to declare any dividends.
Note
17 - 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 September 30, 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 September 30, 2020 and 2019 (in thousands):
|
|
For the Three Months Ended
September 30,
2020
|
|
|
For the Three Months Ended
September 30,
2019
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Customer A
|
|
800
|
|
|
31%
|
|
|
500
|
|
|
33%
|
|
Customer B
|
|
305
|
|
|
12%
|
|
|
306
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine-month period ended September 30, 2020 and 2019 (in thousands):
|
|
For the Nine Months Ended
September 30,
2020
|
|
|
For the Nine Months Ended
September 30,
2019
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Customer A
|
|
1,300
|
|
|
23%
|
|
|
2,000
|
|
|
46%
|
|
Customer B
|
|
916
|
|
|
17%
|
|
|
918
|
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 30, 2020, Customer A represented approximately 44% of total accounts receivable. As of September 30, 2019, Customer
A represented approximately 59%, and Customer C represented approximately 17% of total accounts receivable.
As
of September 30, 2020, two vendors represented approximately 19% and 11% of total gross accounts payable. Purchases from
these vendors during the three and nine months ended September 30, 2020 was $0. As of September 30, 2019, two vendors
represented approximately 41% and 14% of total gross accounts payable. Purchases from these vendors during the three
and nine months ended September 30, 2019 was $0.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
17 - Credit Risk and Concentrations (continued)
For
the three months ended September 30, 2020, four vendors represented approximately 21%, 19%, 15%, and 14% of total purchases.
For the three months ended September 30, 2019, five vendors represented approximately 23%, 19%, 13%, 12% and 10% of total purchases.
For
the nine months ended September 30, 2020, four vendors represented approximately 24%, 13%, 11%, and 10% of total
purchases. For the nine months ended September 30, 2019, three vendors represented approximately 25%, 19% and 13% of total purchases.
Note
18 - Foreign Operations
The
Company’s operations are located primarily in the United States, Canada, United Kingdom, Germany 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
|
|
|
Germany
|
|
|
United Kingdom
|
|
|
India
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
1,919
|
|
|
$
|
1,199
|
|
|
$
|
42
|
|
|
$
|
31
|
|
|
$
|
372
|
|
|
$
|
(1,009
|
)
|
|
$
|
2,554
|
|
Operating income (loss) by geographic area
|
|
$
|
(5,996
|
)
|
|
$
|
(103
|
)
|
|
$
|
(146
|
)
|
|
$
|
(93
|
)
|
|
$
|
92
|
|
|
$
|
--
|
|
|
$
|
(6,246
|
)
|
Net income (loss) by geographic area
|
|
$
|
(7,178
|
)
|
|
$
|
(126
|
)
|
|
$
|
(146
|
)
|
|
$
|
(92
|
)
|
|
$
|
91
|
|
|
$
|
--
|
|
|
$
|
(7,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
1,231
|
|
|
$
|
303
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
154
|
|
|
$
|
(154
|
)
|
|
$
|
1,534
|
|
Operating income (loss) by geographic area
|
|
$
|
(4,733
|
)
|
|
$
|
(977
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
26
|
|
|
$
|
--
|
|
|
$
|
(5,684
|
)
|
Net income (loss) by geographic area
|
|
$
|
(5,658
|
)
|
|
$
|
(947
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
26
|
|
|
$
|
--
|
|
|
$
|
(6,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
3,634
|
|
|
$
|
3,925
|
|
|
$
|
42
|
|
|
$
|
31
|
|
|
$
|
797
|
|
|
$
|
(2,995
|
)
|
|
$
|
5,434
|
|
Operating income (loss) by geographic area
|
|
$
|
(16,601
|
)
|
|
$
|
(242
|
)
|
|
$
|
(146
|
)
|
|
$
|
(93
|
)
|
|
$
|
144
|
|
|
$
|
--
|
|
|
$
|
(16,938
|
)
|
Net income (loss) by geographic area
|
|
$
|
(20,747
|
)
|
|
$
|
(77
|
)
|
|
$
|
(146
|
)
|
|
$
|
(92
|
)
|
|
$
|
143
|
|
|
$
|
--
|
|
|
$
|
(20,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
4,064
|
|
|
$
|
323
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
391
|
|
|
$
|
(391
|
)
|
|
$
|
4,387
|
|
Operating income (loss) by geographic area
|
|
$
|
(13,433
|
)
|
|
$
|
(1,889
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
50
|
|
|
$
|
--
|
|
|
$
|
(15,272
|
)
|
Net income (loss) by geographic area
|
|
$
|
(15,153
|
)
|
|
$
|
(1,857
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
50
|
|
|
$
|
--
|
|
|
$
|
(16,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
42,328
|
|
|
$
|
9,393
|
|
|
$
|
128
|
|
|
$
|
121
|
|
|
$
|
623
|
|
|
$
|
--
|
|
|
$
|
52,593
|
|
Long lived assets by geographic area
|
|
$
|
7,706
|
|
|
$
|
6,620
|
|
|
$
|
15
|
|
|
$
|
30
|
|
|
$
|
294
|
|
|
$
|
--
|
|
|
$
|
14,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
19 - Related Party Transactions
Nadir
Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, is also a member of the Board of Directors
of Sysorex.
Sysorex
Note Purchase Agreement
On
December 31, 2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”)
pursuant to which the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below),
a secured promissory note (the “Secured Note”) for up to an aggregate principal amount of $3 million (the “Principal
Amount”), including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be
borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the
“Loan Amount”), with interest to accrue at a rate of 10% percent per annum on all such Loan Amounts, beginning as
of the date of disbursement with respect to any portion of such Loan Amount. In addition, Sysorex agreed to pay $20,000 to the
Company to cover the Company’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred
in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount
is included in the Principal Amount. Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding
balance, exclusive of any unpaid accrued interest, not to exceed the Principal Amount at any one time.
All
sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will
become part of the aggregate Loan Amount underlying the Secured Note. All outstanding principal amounts and accrued unpaid interest
owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the
date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company
upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in
the Secured Note. All accrued unpaid interest shall be payable in cash. On February 4, 2019, April 2, 2019, and May 22, 2019,
the Secured Note was amended to increase the Principal Amount that may be outstanding at any time from $3 million to $5 million,
$5 million to $8 million and $8 million to $10 million, respectively. On March 1, 2020, the Company extended the maturity date
of the Secured Note to December 31, 2022. In addition, the Secured Note was amended to increase the default interest rate from
18% to 21% or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount
in an amount equal to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series
of related financings, in which Sysorex raises aggregate gross proceeds of at least $5 million.
In
accordance with the terms of the Systat License Agreement (see Note 7), on June 30, 2020, the Company partitioned a portion of
the Secured Note into a new note in an amount equal to $3 million in principal plus accrued interest (the “Closing Note”)
and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions
of that certain Promissory Note Assignment and Assumption Agreement. An additional $1.3 million of the principal balance underlying
the Sysorex Note was partitioned and assigned to Systat as consideration payable for the rights granted under the license as of
September 30, 2020. The amount owed for principal and accrued interest by Sysorex to the Company as of September 30, 2020 and
December 31, 2019 was approximately $7.8 million and $10.6 million, respectively.
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 September 30, 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
approximately $565,078 for the settlement plus the interest accrued through September 30, 2020 of approximately $83,105. The total
owed to the Company for this settlement as of September 30, 2020 was approximately $648,183. The Company established a full
valuation allowance against this balance as of September 30, 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
20 - 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 amended operating lease for its administrative office in
Coquitlam, Canada, from May 1, 2020 through September 30, 2022. The initial lease rate was CAD $4,479 per month with escalating
payments. In connection with the lease, the Company is obligated to pay CAD $2,566 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 CAD $24,506 per month with no escalating payments. In
connection with the lease, the Company is obligated to pay CAD $9,651 monthly for operating expenses for building repairs and
maintenance. Starting in January 2021, the lease rate for the Toronto office space will be reduced due to a smaller leased office
space. The extension agreement for the reduced office space is through June 30, 2026 with escalating payments. 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 CAD $575 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 an operating lease for its administrative office in Ratingen, Germany, from July 1, 2020 through
June 30, 2022 with an initial lease rate of 641 EUR per month. The Company has an operating lease for its administrative office
in Slough, United Kingdom, from July 1, 2020 through October 31, 2021. The monthly lease rate is 1,600 GBP per month with 4% escalating
payments. 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. With the Systat license
agreement, the Company adopted ASC Topic 842 effective July 1, 2020 for the Ratingen, Germany and Slough, United Kingdom office
operating leases.
Right-of-use
assets is summarized below (in thousands):
|
|
As of
September 30,
2020
|
|
Palo Alto, CA Office
|
|
$
|
630
|
|
Encino, CA Office
|
|
|
194
|
|
Hyderabad, India Office
|
|
|
362
|
|
Coquitlam, Canada Office
|
|
|
92
|
|
Westminster, Canada Office
|
|
|
10
|
|
Toronto, Canada Office
|
|
|
902
|
|
Ratingen, Germany Office
|
|
|
18
|
|
Slough, United Kingdom Office
|
|
|
32
|
|
Less accumulated amortization
|
|
|
(618
|
)
|
Right-of-use asset, net
|
|
$
|
1,622
|
|
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 September 30, 2020 was $279,000 and $802,000 for the nine-month period ended September
30, 2020.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
20 - Leases (continued)
During
the three-month period ended September 30, 2020, the Company recorded $175,736 as rent expense to the right-of-use assets. During
the nine-month period ended September 30, 2020, the Company recorded $460,913 as rent expense to the right-of-use assets.
Lease
liability is summarized below (in thousands):
|
|
As of
September 30,
2020
|
|
Total lease liability
|
|
$
|
1,646
|
|
Less: short term portion
|
|
|
(572
|
)
|
Long term portion
|
|
$
|
1,074
|
|
Maturity
analysis under the lease agreement is as follows (in thousands):
Year ending December 31, 2020
|
|
$
|
173
|
|
Year ending December 31, 2021
|
|
|
577
|
|
Year ending December 31, 2022
|
|
|
501
|
|
Year ending December 31, 2023
|
|
|
253
|
|
Year ending December 31, 2024
|
|
|
159
|
|
Year ending December 31, 2025 and thereafter
|
|
|
202
|
|
Total
|
|
$
|
1,865
|
|
Less: Present value discount
|
|
|
(219
|
)
|
Lease liability
|
|
$
|
1,646
|
|
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 September 30, 2020, the weighted average remaining lease term is 3.21 years and the weighted
average discount rate used to determine the operating lease liabilities was 8.0%.
Note
21 - 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.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
21 - Commitments and Contingencies (continued)
Compliance
with Nasdaq Continued Listing Requirement
Between November
2015 and May 2018, we received four deficiency letters from Nasdaq indicating that we did not comply with certain Nasdaq continued
listing requirements. Such deficiencies were later cured. However, on May 30, 2019, we received another deficiency letter from
Nasdaq indicating that, based on our closing bid price for the last 30 consecutive business days, we 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 the Nasdaq Listing Rules, the Company was provided with a 180 calendar day period, through November 26, 2019 (the “Compliance
Deadline”), to regain compliance with the Minimum Bid Price Requirement. On November 27, 2019, the Company received notice
from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”)
that based upon the Company’s continued non-compliance with the Minimum Bid Price Requirement (as defined below), the Company’s
common stock would be subject to delisting from Nasdaq (the “Staff Delisting Determination”), unless the Company timely
requested an appeal hearing before the Nasdaq Hearings Panel (the “Panel”). The Company requested such hearing, which
was held on January 23, 2020, following the Company’s implementation of a reverse stock split effective on January 7, 2020.
On
February 5, 2020, 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
22 - Subsequent Events
At-The-Market
Program
During
the quarter ending December 31, 2020, the Company issued 213,474 shares of common stock in connection with the ATM, at per share
prices between $1.1206 and $1.1209, resulting in net proceeds to the Company of approximately $230,000 after subtracting sales
commissions and other offering expenses.
Nanotron Acquisition
On
October 6, 2020, we acquired, through our wholly-owned subsidiary Inpixon GmbH, all of the outstanding capital stock (the “Nanotron
Shares”) of Nanotron Technologies GmbH, a limited liability company incorporated under the laws of Germany (“Nanotron”),
pursuant to the terms and conditions of that certain Share Sale and Purchase Agreement, dated as of October 5, 2020 (the “Purchase
Agreement”), among the Purchaser, Nanotron and Sensera Limited, a stock corporation incorporated under the laws of Australia
and the sole shareholder of Nanotron (the “Seller”).
As
a result of the acquisition, we now own 100% of Nanotron. Nanotron’s business consists of developing and manufacturing location-aware
IoT systems and solutions.
At
the closing, the Purchaser paid to the Seller an aggregate purchase price of $8,700,000 (less the Holdback Funds (as defined below)
and certain other closing adjustments) for the Nanotron Shares (“Purchase Price”). The Purchase Price may be subject
to certain post-Closing adjustments based on actual working capital as of the closing as described in the Purchase Agreement.
The Purchaser retained $750,000 (the “Holdback Funds”) from the Purchase Price to secure the Seller’s obligations
under the Purchase Agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18
months after the closing date. The Purchaser paid the Purchase Price from funds received in connection with a capital contribution
from us, and a portion of the Purchase Price was used by the Seller to satisfy outstanding loans payable by the Seller to obtain
the release of certain existing security interests on Nanotron’s assets.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Note
22 - Subsequent Events (continued)
Subscription
of Units of Cardinal Venture Holdings
On
September 30, 2020, we entered into a Subscription Agreement (the “Subscription Agreement”) with Cardinal Venture Holdings
LLC, a Delaware limited liability company (“CVH”), pursuant to which we agreed to (i) contribute up to $1,800,000 (the
“Contribution”) to CVH and (ii) purchase up to 599,999 Class A Units of CVH (the “Class A Units”) and up
to 1,800,000 Class B Units of CVH (the “Class B Units,” and, together with the Class A Units, the “Units”).
The aggregate purchase price of $1,800,000 for the Units is deemed to be satisfied through the Contribution. The $1,800,000 purchase
price was paid on October 12, 2020 and therefore that is the date the purchase of the Units was closed.
CVH
owns certain interests in the sponsor entity (the “Sponsor”) to a special purpose acquisition company formed for the
purpose of pursuing an initial public offering of its securities followed by effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “SPAC”).
It is anticipated that the Contribution will be used by CVH to fund the Sponsor’s purchase of securities in the SPAC.
Nadir
Ali, our Chief Executive Officer, beneficially owns membership interests in CVH through 3AM LLC, a Delaware limited liability
company and a founding member of CVH (“3AM”).
Concurrently
with our entry into the Subscription Agreement, we entered into the Amended and Restated Limited Liability Company Agreement of
CVH (the “LLC Agreement”), dated as of September 30, 2020. Under the terms of the LLC Agreement, in the event the
Managing Member (as defined in the LLC Agreement) can no longer manage CVH’s affairs due to his death, disability or incapacity,
3AM will serve as CVH’s replacement Managing Member. Except as may be required by law, the Company, as a non-managing member
under the LLC Agreement, does not have any voting rights and generally cannot take part in the management or control of CVH’s
business and affairs.
The
LLC Agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions
made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor.
We
are not required to make additional capital contributions to CVH, unless any such capital contribution is approved by all of CVH’s
members. In addition, the LLC Agreement contains terms and conditions that provide for limitations on liability, restrictions
on rights to distributions and certain indemnification rights for CVH’s members.