NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
1 - Organization and Nature of Business and Going Concern
Inpixon,
through its wholly-owned subsidiaries, Inpixon USA, Inpixon Federal, Inc. (“Inpixon Federal”), Inpixon
Canada, Inc. (“Inpixon Canada”) and the majority-owned subsidiary, Sysorex Arabia LLC (“Sysorex
Arabia”) (unless otherwise stated or the context otherwise requires, the terms “Inpixon”
“we,” “us,” “our” and the “Company” refer collectively to Inpixon and the
above subsidiaries), provides Big Data analytics and location based products and related services for the cyber-security and
Internet of Things markets. The Company is headquartered in California, and has sales and subsidiary offices in Virginia, Hawaii, State of Washington, California, Vancouver, Canada and Riyadh, Saudi Arabia.
On
November 21, 2016, and as more fully described in Note 4, the Company completed the acquisition of substantially all of the assets
and certain liabilities of Integrio Technologies, LLC, which is in the U.S. Federal Government IT contracts business.
As of March 31, 2017, the Company has
a working capital deficiency of approximately $25.3 million. For the three months ended March 31, 2017, the Company incurred a
net loss of approximately $6.1 million. The aforementioned factors raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the
classification of liabilities that might be necessary should the Company be unable to continue as a going concern within one year
after the date the financial statements are issued.
On August 9, 2016,
the Company entered into a Securities Purchase Agreement with Hillair Capital Investments L.P. pursuant to which it issued
and sold (i) an 8% Original Issue Discount Senior Convertible Debenture in an aggregate principal amount of $5,700,000 due
on August 9, 2018 and (ii) 2,250 shares of newly created Series 1 Convertible Preferred Stock, par value $0.001 per share,
for an aggregate purchase price of $5,000,000. The Company also has a credit facility with GemCap Lending I for up to $10
million (the “Credit Facility”) which we borrow against based on eligible assets of which approximately $4.4
million is utilized. The Credit Facility has a maturity date of November 14, 2018. During the third quarter of 2016, the
Company implemented a cost cutting program that would reduce operating expenses by approximately $1.8 million on an annual
basis.
The Company’s capital resources as
of March 31, 2017, availability on the $10.0 million Credit Facility (of which $4.4 million is utilized as of March 31, 2017),
higher margin business line expansion and credit limitation improvements, may not be sufficient to fund planned operations during
2017. The Company will need to raise outside capital under structures availability to it including debt and/or equity offerings.
The Company also has an effective registration statement on Form S-3 which will may allow it to raise additional capital from the
sale of its securities, subject to certain limitations for registrants with a market capitalization of less than $75 million. The
information in this Form 10-Q concerning the Company’s Form S-3 registration statement does not constitute an offer of any
securities for sale. If these sources do not provide the capital necessary to fund the Company’s operations during the next
twelve months, the Company may need to curtail certain aspects of its expansion activities or consider other means of obtaining
additional financing, such as through the sale of assets or of a business segment, although there is no guarantee that the Company
could obtain the financing necessary to continue its operations.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
2 - Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”)
for interim financial information, which are the accounting principles that are generally accepted in the United States of America.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of the Company’s operations for the three month period ended March 31, 2017 is not necessarily
indicative of the results to be expected for the year ending December 31, 2017. These interim condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated financial statements and notes for the years ended
December 31, 2016 and 2015 included in the annual report Form 10-K filed with the U.S. Securities and Exchange Commission
on April 17, 2017.
Note
3 - Summary of Significant Accounting Policies
The Company’s complete accounting policies
are described in Note 2 to the Company’s audited consolidated financial statements and notes for the years ended December 31, 2016
and 2015.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ
from those estimates. The Company’s significant estimates consist of:
|
●
|
the valuation of stock-based compensation;
|
|
|
|
|
●
|
the allowance for doubtful accounts;
|
|
|
|
|
●
|
the valuation allowance for the deferred tax asset; and
|
|
|
|
|
●
|
impairment of long-lived assets and goodwill.
|
Revenue
Recognition
The Company provides Information Technology
solutions and services to customers and derives revenues primarily from the sale of third-party hardware and software products,
software, assurance, licenses and other consulting services, including maintenance services and recognizes revenue once the following
four criteria are met: (1) persuasive evidence of an arrangement exists; (2) the price is fixed and determinable, (3) shipment
(software and hardware) or fulfillment (maintenance) has occurred,; and (4) there is reasonable assurance of collection of the
sales proceeds (the “Revenue Recognition Criteria”). In addition, the Company also records revenues in accordance with
Accounting Standards Codification (“ASC”) Topic 605-45 “Principal Agent Consideration” (“ASC 605-45”).
The Company evaluates the sales of products and services on a case by case basis to determine whether the transaction should be
recorded gross or net, including, but not limited to, assessing whether or not the Company: (1) is the primary obligor in the transaction;
(2) has inventory risk with respect to the products and/or services sold; (3) has latitude in pricing; and (4) changes the product
or performs part of the services sold. The Company evaluates whether revenues received from the sale of hardware and software products,
licenses, and services, including maintenance and professional consulting services, should be recognized on a gross or net basis
on a transaction by transaction basis. As of March 31, 2017, the Company has determined that all revenues received should be recognized
on a gross basis in accordance with applicable standards.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
Cooperative reimbursements from vendors,
which are earned and available, are recorded during the period the related transaction has occurred. Cooperative reimbursements
are recorded as a reduction of cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller)
for Certain Consideration Received from a Vendor.” Provisions for returns are estimated based on historical collections and
credit memo analysis for the period. The Company receives Marketing Development Funds from vendors based on quarterly or annual
sales performance to promote the marketing of vendor products and services. The Company must file claims with vendors for these
cooperative reimbursements by providing invoices and receipts for marketing expenses. Reimbursements are recorded as a reduction
of marketing expenses and other applicable selling, general and administrative expenses ratably over the period in which the expenses
are expected to occur. The Company receives vendor rebates which are recorded to cost of sales.
The Company also enters into sales transactions
whereby customer orders contain multiple deliverables, and reports its multiple deliverable arrangements under ASC 605-25 “Revenue
Arrangements with Multiple Deliverables” (“ASC-605-25”). These multiple deliverable arrangements primarily consist
of the following deliverables: the Company’s design, configuration, installation, integration, warranty/maintenance and
consulting services; and third-party computer hardware, software and warranty maintenance services. In situations where the Company
bundles all or a portion of the separate elements, Vendor Specific Objective Evidence (“VSOE”) is determined based
on prices when sold separately. For the three months ended March 31, 2017 and 2016 revenues recognized as a result of customer
contracts requiring the delivery of multiple elements were $3.1 million and $5.3 million, respectively.
Hardware,
Software and Licensing Revenue Recognition
Generally,
the Revenue Recognition Criteria are met with respect to the sales of hardware and software products when they are shipped to
the customer. The delivery of products to our customers occurs in a variety of ways, including (i) as a physical product shipped
from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect
to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products
to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the
sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from
its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards
and requirements of the customer. As a result, the Company recognizes the sale of the product and the cost of such upon receiving
notification from the supplier that the product has shipped. Vendor rebates and price protection are recorded when earned as a
reduction to cost of sales or merchandise inventory, as applicable. Vendor product price discounts are recorded when earned as
a reduction to cost of sales.
Maintenance
and Professional Services Revenue Recognition
With respect to sales of our maintenance,
consulting and other service agreements including our digital advertising and electronic services, the Revenue Recognition Criteria
is met once the service has been provided. Revenue on time and material contracts is recognized based on a fixed hourly rate as
direct labor hours are expended. The fixed rate includes direct labor, indirect expenses, and profits. Materials, or other specified
direct costs, are reimbursed as actual costs and may include markup. Anticipated losses are recognized as soon as they become known.
For the three months ended March 31, 2017 and 2016, the Company did not incur any such losses. These amounts are based on known
and estimated factors. Revenues from time and material or firm fixed price long-term and short-term contracts are derived principally
with various United States government agencies and commercial customers.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
The
Company recognizes revenue for sales of all services billed as a fixed fee ratably over the term of the arrangement as such services
are provided. Billings for such services that are made in advance of the related revenue recognized are recorded as deferred revenue
and recognized as revenue ratably over the billing coverage period. Amounts received as prepayments for services to be rendered
are recognized as deferred revenue. Revenue from such prepayments is recognized when the services are provided.
The Company’s storage and computing
maintenance services agreements permit customers to obtain technical support from the Company and/or the manufacturer and to update,
at no additional cost, to the latest technology when new software updates are introduced when and if available during the period
that the maintenance agreement is in effect. Since the Company assumes certain responsibility for product staging, configuration,
installation, modification, and integration with other client systems, or retains general inventory risk upon customer return or
rejection and is most familiar with the customer and its required specifications, it generally serves as the initial contact with
the customer with respect to any storage and computing maintenance services required and therefore will perform all or part of
the required service.
Typically,
the Company sells maintenance contracts for a separate fee with initial contractual periods ranging from one to three years with
renewal for additional periods thereafter. The Company generally bills maintenance fees in advance and records the amounts received
as deferred revenue with respect to any portion of the fee for which services have not yet been provided. The Company recognizes
the related revenue ratably over the term of the maintenance agreement as services are provided. In situations where the Company
bundles all or a portion of the maintenance fee with products, VSOE for maintenance is determined based on prices when sold separately.
Customers
that have purchased maintenance/warranty services have a right to cancel and receive a refund of the amounts paid for unused services
at any time during the service period upon advance written notice to the Company. Cancellation and refund privileges with respect
to maintenance/warranty services lapse as to any period during the term of the agreement for which such services have already
been provided. Customers do not have the right to a refund of paid fees for maintenance/warranty services that the Company has
earned and recognized as revenue. Invoices issued for maintenance/warranty services not yet rendered are recorded as deferred
revenue and then recognized as revenue ratably over the service period. As a result, (1) the warranty and maintenance service fees
payable by each customer are separately accounted for in each customer purchase order as a separate line item, and (2) upon the
Company’s receipt and acceptance of a request for refund of maintenance/warranty services not yet provided, the Company’s
obligation to perform any additional maintenance/warranty services will end. Sales are recorded net of discounts and returns.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
Stock-Based
Compensation
The
Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity
instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized
as expense over the period during which the recipient is required to provide services in exchange for that award.
Options
and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted
to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments,
as adjusted, is expensed over the related vesting period.
The Company incurred stock-based compensation
charges, net of estimated forfeitures of $283,000 and $364,000 for the three months ended March 31, 2017 and 2016, respectively,
which is included in general and administrative expenses. The following table summarizes the nature of such charges for the periods
then ended (in thousands):
|
|
For
the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Compensation and related
benefits
|
|
$
|
262
|
|
|
$
|
338
|
|
Professional and legal fees
|
|
|
14
|
|
|
|
26
|
|
Acquisition transaction
costs
|
|
|
7
|
|
|
|
--
|
|
Totals
|
|
$
|
283
|
|
|
$
|
364
|
|
Net
Loss Per Share
The
Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding
during the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant
to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.
The
following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net
loss per common share for the three months ended March 31, 2017 and 2016:
|
|
For
the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
381,330
|
|
|
|
321,141
|
|
Warrants
|
|
|
287,417
|
|
|
|
37,417
|
|
Shares
accrued but not issued
|
|
|
1,000
|
|
|
|
122,800
|
|
Convertible
preferred stock
|
|
|
100,000
|
|
|
|
--
|
|
Convertible
debenture
|
|
|
253,333
|
|
|
|
--
|
|
Totals
|
|
|
1,023,080
|
|
|
|
481,358
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
Preferred
Stock
The Company applies the accounting standards
for distinguishing liabilities from equity under GAAP when determining the classification and measurement of its convertible preferred
stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value.
Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)
are classified as temporary equity. At all other times, preferred shares are classified as permanent equity.
Reclassification
Certain
accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation
in the current year’s financial statements. These reclassifications have no effect on previously reported earnings.
Derivative
Liabilities
During the year ended December 31,
2016, the Company issued a convertible debenture that included reset provisions considered to be down-round protection. In
addition, the Company issued warrants that include a fundamental transaction clause which provide for the warrant holders
to be paid in cash the fair value of the warrants as computed under a black scholes valuation model. The Company determined
that the conversion feature and warrants are derivative instruments pursuant to ASC 815 “Derivatives and Hedging” issued by the Financial Accounting Standards Board
(“FASB”). The accounting treatment of derivative financial instruments requires that the Company bifurcate the
conversion feature and record it as a liability at fair value and the fair value of the warrants were computed as defined in
the agreement. The instruments are marked-to-market at fair value as of each balance sheet date. Any change in fair value is
recorded as a change in the fair value of derivative liabilities for each reporting period. The fair value of the conversion
feature was determined using the Binomial Lattice model. The Company reassesses the classification at each balance sheet
date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of
the event that caused the reclassification. As of March 31, 2017, the fair value of the derivative liability was $154,000 and
was included in accrued liabilities.
Recent
Accounting Standards
In January 2017, the FASB issued ASU 2017-04:
“Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”),
which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15,
2019. Early adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1,
2017. The Company is currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.
Reverse Stock Split
The board of directors was authorized
by the Company’s stockholders to effect a 1 for 15 reverse stock split of its issued and outstanding shares of common stock
which was effective March 1, 2017. The financial statements and accompanying notes give effect to the 1 for 15 reverse stock split
as if it occurred at the beginning of the first period presented.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
3 - Summary of Significant Accounting Policies (continued)
Subsequent
Events
The
Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the condensed
consolidated financial statements to determine if any of those events and/or transactions requires adjustment to or disclosure
in the consolidated financial statements.
Note
4 - Integrio Technologies, LLC Asset Acquisition
On November 14, 2016, the Company and
its wholly-owned subsidiary, Sysorex Government Services, Inc. (collectively, the “Buyer”), entered into an Asset Purchase
Agreement, as amended by the Amendment No. 1 to Asset Purchase Agreement (as so amended, the “Purchase Agreement”)
with Integrio Technologies, LLC (“Integrio”) and Emtec Federal, LLC, a wholly-owned subsidiary of Integrio, (collectively,
the “Seller”) which are in the business of providing IT integration and engineering services to customers, primarily
government agencies. The transaction closed on November 21, 2016. The consideration paid for the assets included an aggregate of
(A) $1,800,000 in cash, of which $1,400,000 minus certain amounts payable to creditors of the Seller were paid upon the closing
of the acquisition and $400,000 will be paid in two annual installments of $200,000 each on the respective
anniversary dates of the closing, subject to certain set offs and recoupment by Buyer; (B) 35,333 unregistered restricted shares
of the Company’s voting common stock valued at $22.50 per share; (C) certain specified assumed liabilities as detailed in
the purchase price table below; and (D) up to an aggregate of $1,200,000 in earnout payments, of which up to $400,000 shall be
payable to the Seller per year for the three years following the closing. Inpixon acquired these assets to pursue its previously
stated strategy to expand its business into the federal government sector because of the large long-term contracts that the government
sector offers. Inpixon started with bidding on government contracts directly and this acquisition provided an opportunity
to accelerate this expansion. In addition, the acquisition allows Inpixon to offset the revenue softening in the commercial
vertical for this business segment that it experienced in 2016.
The total recorded purchase price for
the transaction was $2,332,000 at closing on November 21, 2016 (“Closing”) which consisted of the cash paid at Closing
of $753,000, $400,000 cash that will be paid in two annual installments of $200,000 each on the respective anniversary dates of
the Closing, $1,078,000 in contingent earnout payments and $101,000 representing the fair value of the stock issued at Closing.
The purchase price is allocated as
follows (in thousands):
|
|
|
|
|
|
|
|
Assets Acquired:
|
|
|
|
Cash
|
|
$
|
189
|
|
Accounts receivable
|
|
|
2,365
|
|
Other receivables
|
|
|
377
|
|
Prepaid assets
|
|
|
4,164
|
|
Fixed assets
|
|
|
64
|
|
Other assets
|
|
|
34
|
|
Customer relationships
|
|
|
1,873
|
|
Supplier relationships
|
|
|
2,985
|
|
Goodwill (A)
|
|
|
3,261
|
|
|
|
|
15,312
|
|
Liabilities Assumed:
|
|
|
|
|
Accounts payable
|
|
$
|
8,341
|
|
Accrued liabilities
|
|
|
344
|
|
Deferred revenue
|
|
|
4,252
|
|
Other long
term liabilities
|
|
|
43
|
|
|
|
|
12,980
|
|
Total Purchase
Price
|
|
$
|
2,332
|
|
(A)
|
The
goodwill will be deductible for tax purposes once the contingent and assumed liabilities are settled.
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
5 – Proforma Financial Information
The
following unaudited proforma financial information presents the consolidated results of operations of the Company and Integrio
for the three months ended March 31, 2016, as if the acquisition of Integrio had occurred on January 1, 2016 instead of November
21, 2016. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities
been a single company during those periods. The financial information for LightMiner was deminimis.
(in thousands, except
share amounts )
|
|
For the Three
Months Ended
March 31,
2016
|
|
Revenues
|
|
$
|
25,756
|
|
Net Loss Attributable
to Common Shareholder
|
|
$
|
(4,946
|
)
|
Weighted Average
Number of Common Shares Outstanding, Basic and Diluted
|
|
|
1,708,659
|
|
Loss Per Common
Share - Basic and Diluted
|
|
$
|
(2.89
|
)
|
Note
6 – Related Party
Due
from Related Parties
Non-interest bearing amounts due on demand
from a related party were $666,000 as of March 31, 2017 and December 31, 2016, and consist primarily of amounts due from Sysorex
Consulting, Inc. (“SCI”). Subsequent to December 31, 2014, SCI is no longer a direct shareholder or investor in the Company. The
amounts due from SCI as of March 31, 2017 and December 31, 2016 have been classified in and as a reduction of stockholders’
equity. Subsequent to March 31, 2017, the Company is in negotiations with SCI for the repayment and settlement of this receivable
through the purchase of Sysorex India, a wholly owned subsidiary of SCI. The Company cannot provide assurance it will be successful
in the consummation of the arrangement.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
7 - Inventory
Inventory
at March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
|
|
March
31,
2017
|
|
|
December 31,
2016
|
|
Raw
materials
|
|
$
|
220
|
|
|
$
|
326
|
|
Work
in process
|
|
|
7
|
|
|
|
238
|
|
Finished
goods
|
|
|
555
|
|
|
|
497
|
|
Total
Inventory
|
|
$
|
782
|
|
|
$
|
1,061
|
|
Note
8 - Discontinued Operations
As
of December 31, 2015, the Company’s management decided to close its Saudi Arabia legal entity as business activities and
operations have been strategically shifted according to the business plan of the Company.
In accordance with ASC topic 360 “Property,
Plant and Equipment”, the Company has classified the assets and liabilities as discontinued assets and liabilities in the
accompanying consolidated financial statements.
The
major categories of assets and liabilities held for sale in the condensed consolidated balance sheets at March 31, 2017 and
December 31, 2016 (in thousands):
|
|
March
31,
2017
|
|
|
December
31, 2016
|
|
Assets
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
1
|
|
|
|
1
|
|
Notes and other
receivables
|
|
|
8
|
|
|
|
8
|
|
Other
assets
|
|
|
14
|
|
|
|
14
|
|
Total Current Assets
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
--
|
|
|
|
--
|
|
Total Assets
|
|
$
|
23
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
178
|
|
|
$
|
178
|
|
Accrued liabilities
|
|
|
908
|
|
|
|
904
|
|
Deferred revenue
|
|
|
236
|
|
|
|
236
|
|
Due to related party
|
|
|
2
|
|
|
|
1
|
|
Short-term
debt
|
|
|
722
|
|
|
|
722
|
|
Total Current Liabilities
|
|
|
2,046
|
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
2,046
|
|
|
$
|
2,041
|
|
The
Company has entered into surety bonds with a financial institution in Saudi Arabia which guaranteed performance on certain contracts.
Deposits for surety bonds amounted to $0 as of March 31, 2017 and December 31, 2016, as a reserve was placed against the deposit
balance during the year ended December 31, 2016 due to the uncertainty of when the bond will be released.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
8 - Discontinued Operations (continued)
The
Company did not recognize any depreciation or amortization expense related to discontinued operations during the three months
ended March 31, 2017 and 2016. There were no significant capital expenditures or non-cash operating or investing activities of
discontinued operations during the periods presented. The operations of Sysorex Arabia were insignificant for the three months
ended March 31, 2017 and 2016.
End
of Service Indemnity Provision
In accordance with local labor laws, Sysorex
Arabia is required to accrue benefits payable to its employees at the end of their services with Sysorex Arabia. For
the three months ended March 31, 2017 and 2016, no amounts were required to be accrued under this provision.
Note
9 – Debt
Debt
as of March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable
|
|
$
|
170
|
|
|
$
|
170
|
|
Revolving line of credit (A)
|
|
|
4,448
|
|
|
|
6,717
|
|
Total Short-Term Debt
|
|
$
|
4,618
|
|
|
$
|
6,887
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
212
|
|
|
$
|
212
|
|
Senior secured convertible debenture, less debt discount of $1,570 and $1,865
|
|
|
4,130
|
|
|
|
3,835
|
|
Total Long-Term Debt
|
|
$
|
4,342
|
|
|
$
|
4,047
|
|
(A) Revolving
Lines of Credit
GemCap
Loan and Security Agreement Amendment 2
On
January 24, 2017, the Company, and its U.S. wholly-owned subsidiaries, Inpixon USA and Inpixon Federal, entered into Amendment
Number 2 to the Loan and Security Agreement to amend that certain Loan and Security Agreement and Loan Agreement Schedule, both
dated as of November 14, 2016, with GemCap Lending I, LLC whereby Section (21) of the definition of “Eligible Accounts”
in Section 1.29 of the Loan Agreement was deleted and restated in its entirety as follows: Accounts that satisfy the criteria
set forth in the foregoing items (1) – (20), which are owed by any other single Account Debtor or its Affiliates so long
as such Accounts, in the aggregate, constitute no more than twenty percent (20%) of all Eligible Accounts, provided, that only
for the period commencing on January 24, 2017 through and including April 24, 2017, Accounts in the aggregate only from and owed
by Centene Corporation or its Affiliates may exceed twenty percent (20%) of all Eligible Accounts by an amount not to exceed $500,000,
provided, further, that, from and after April 25, 2017, Accounts in the aggregate that are owed by Centene Corporation or its
Affiliates that satisfy the criteria set forth in the foregoing items (1) – (20) shall not exceed twenty percent (20%) of
all Eligible Accounts; and Borrower shall have paid to Lender an accommodation fee in the amount of $5,000 on February 2, 2017.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
10 - Common Stock
During
the three months ended March 31, 2017, the Company issued 1,767 shares of common stock related to the acquisition of Integrio
Technologies, LLC which were fully vested upon the date of grant. The Company recorded an expense of $7,050 for the fair value
of those shares.
During
the three months ended March 31, 2017, the Company issued 3,613 shares of common stock for services which were fully vested upon
the date of grant. The Company recorded an expense of $14,092 for the fair value of those shares.
During
the three months ended March 31, 2017, the Company issued 18,905 of common stock for the settlement of $567,000 of shares held
in escrow related to the LightMiner asset acquisition.
Note
11 - Stock Options
In
September 2011, the Company adopted the 2011 Employee Stock Incentive Plan which provides for the granting of incentive and non-statutory
common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors.
The plan was amended and restated in May 2014. Incentive stock options are granted at exercise prices not less than 100% of the
estimated fair market value of the underlying common stock at date of grant. The exercise price per share for incentive stock
options may not be less than 110% of the estimated fair value of the underlying common stock on the grant date for any individual
possessing more that 10% of the total outstanding common stock of the Company. Unless terminated sooner by the Board of Directors,
this plan will terminate on August 31, 2021.
Options granted under the
Company’s plan vest over periods ranging from immediately to four years and are exercisable over periods not exceeding
ten years. The aggregate number of shares that may be awarded under the Company’s plan as of December 31, 2016 is
450,402. As of March 31, 2017, 381,330 of options were granted to employees and consultants of the Company
(including 41,667 shares outside of our plan) and 110,739 options were available for future grant under our plan.
During
the three months ended March 31, 2017, the Company granted options for the purchase of 25,627 shares of common stock to employees
and directors of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of
$3.90 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the
awards was determined to be $51,000. The fair value of the common stock as of the grant date was determined to be $3.90 per share.
During
the three months ended March 31, 2017 and 2016, the Company recorded a charge of $283,000 and $364,000, respectively, for the amortization
of employee stock options.
As
of March 31, 2017, the fair value of non-vested options totaled $1,993,000 which will be amortized to expense over the weighted
average remaining term of 1.23 years.
The
fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key
weighted-average assumptions used to apply this pricing model during the three months ended March 31, 2017 and 2016 were as follows:
|
|
For
the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free
interest rate
|
|
|
2.27%
|
|
|
|
1.47%
|
|
Expected
life of option grants
|
|
|
7
years
|
|
|
|
7
years
|
|
Expected
volatility of underlying stock
|
|
|
47.34%
|
|
|
|
49.02%
|
|
Dividends
assumption
|
|
|
$ --
|
|
|
|
$ --
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
11 - Stock Options (continued)
The
expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry
peers and used an average of those volatilities. The Company attributes the value of stock-based compensation to operations on
the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.
The dividends assumptions was $0 as the Company historically has not declared any dividends and does not expect to.
Note
12 - Credit Risk and Concentrations
Financial
instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.
The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to
credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of
its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The
Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash
is also maintained at foreign financial institutions for its Canadian subsidiary and its majority-owned Saudi Arabia subsidiary.
Cash in foreign financial institutions as of March 31, 2017 and December 31, 2016 was immaterial. The Company has not experienced
any losses and believes it is not exposed to any significant credit risk from cash.
The
following table sets forth the percentages of revenue derived by the Company from those customers which accounted for at least
10% of revenues during the three months ended March 31, 2017 and 2016 (in thousands):
|
|
For
the Three Months Ended
March 31, 2017
|
|
|
For
the Three Months Ended
March 31, 2016
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Customer
A
|
|
|
--
|
|
|
|
--
|
|
|
|
5,209
|
|
|
|
36%
|
|
Customer
B
|
|
|
1,616
|
|
|
|
12%
|
|
|
|
1,841
|
|
|
|
13%
|
|
As
of March 31, 2017, Customer D represented approximately 12% of total accounts receivable. As of March 31, 2016, Customer C represented
approximately 33% and Customer A represented approximately 17% of total accounts receivable.
As
of March 31, 2017, one vendor represented approximately 38% of total gross accounts payable. Purchases from this vendor during
the three months ended March 31, 2017 were $1.0 million. As of March 31, 2016, two vendors represented approximately 38% and 10%
of total gross accounts payable. Purchases from these vendors during the three months ended March 31, 2016 were $4.5 million and
$0.9 million.
For
the three months ended March 31, 2017, three vendors represented approximately 16%, 12%, and 10% of total purchases. For the three
months ended March 31, 2016, three vendors represented approximately 55%, 11% and 10% of total purchases.
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
13 - Segment Reporting and Foreign Operations
Effective
January 1, 2017 the Company has changed the way it analyzes and assesses divisional performance of the Company. The Company has
therefore re-aligned its operating segments along those division business lines and has created the following operating segments.
The Company has retroactively applied these new segment categories to the prior periods presented below for comparative purposes.
|
●
|
Indoor Positioning Analytics: This segment includes Inpixon’s proprietary products and services delivered on premise or in the Cloud as well as our hosted Software-as-a-Service (SaaS) based solutions. Our Indoor Positioning Analytics product is based on a unique and patented sensor technology that detects and locates accessible cellular, Wi-Fi and Bluetooth devices and then uses a lightning fast data-analytics engine to deliver actionable insights and intelligent reports for security, marketing, asset management, etc.
|
|
|
|
|
●
|
Infrastructure: This segment includes third party hardware, software and related maintenance/warranty products and services that Inpixon resells to commercial and government customers. It includes but is not limited to products for enterprise computing; storage; virtualization; networking; etc. as well as services including custom application/software design; architecture and development; staff augmentation and project management.
|
The
following tables present key financial information of the Company’s reportable segments before unallocated corporate expenses
(in thousands):
|
|
Indoor
Positioning Analytics
|
|
|
Infrastructure
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
981
|
|
|
$
|
12,500
|
|
|
$
|
13,481
|
|
Cost of net revenues
|
|
$
|
(343
|
)
|
|
$
|
(9,850
|
)
|
|
$
|
(10,193
|
)
|
Gross profit
|
|
$
|
638
|
|
|
$
|
2,650
|
|
|
$
|
3,288
|
|
Gross margin %
|
|
|
65
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
Depreciation and amortization
|
|
$
|
76
|
|
|
$
|
325
|
|
|
$
|
401
|
|
Amortization of intangibles
|
|
$
|
864
|
|
|
$
|
519
|
|
|
$
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,024
|
|
|
$
|
13,063
|
|
|
$
|
14,087
|
|
Cost of net revenues
|
|
$
|
(286
|
)
|
|
$
|
(9,854
|
)
|
|
$
|
(10,140
|
)
|
Gross profit
|
|
$
|
738
|
|
|
$
|
3,209
|
|
|
$
|
3,947
|
|
Gross margin %
|
|
|
72
|
%
|
|
|
25
|
%
|
|
|
28
|
%
|
Depreciation and amortization
|
|
$
|
77
|
|
|
$
|
186
|
|
|
$
|
263
|
|
Amortization of intangibles
|
|
$
|
864
|
|
|
$
|
192
|
|
|
$
|
1,056
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
13 - Segment Reporting and Foreign Operations (continued)
Reconciliation
of reportable segments’ combined income from operations to the consolidated loss before income taxes is as follows (in thousands):
|
|
For
the Three Months Ended
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Income
from operations of reportable segments
|
|
$
|
3,288
|
|
|
$
|
3,947
|
|
Unallocated
operating expenses
|
|
|
(8,642
|
)
|
|
|
(8,129
|
)
|
Interest
expense
|
|
|
(684
|
)
|
|
|
(143
|
)
|
Other
income (expense)
|
|
|
(9
|
)
|
|
|
19
|
|
Loss
from discontinued operations
|
|
|
(9
|
)
|
|
|
--
|
|
Consolidated
net loss
|
|
$
|
(6,056
|
)
|
|
$
|
(4,306
|
)
|
The
Company’s operations are located primarily in the United States, Canada and Saudi Arabia. Revenues by geographic area are
attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands):
|
|
United
|
|
|
|
|
|
Saudi
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Canada
|
|
|
Arabia
|
|
|
Eliminations
|
|
|
Total
|
|
For the Three Months Ended March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
13,425
|
|
|
$
|
56
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
13,481
|
|
Operating loss by geographic area
|
|
$
|
(4,953
|
)
|
|
$
|
(401
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
(5,354
|
)
|
Net loss by geographic area
|
|
$
|
(5,647
|
)
|
|
$
|
(401
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(6,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
|
$
|
14,049
|
|
|
$
|
38
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
14,087
|
|
Operating loss by geographic area
|
|
$
|
(3,790
|
)
|
|
$
|
(383
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(4,182
|
)
|
Net loss by geographic area
|
|
$
|
(3,914
|
)
|
|
$
|
(383
|
)
|
|
$
|
(9
|
)
|
|
$
|
--
|
|
|
$
|
(4,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
54,019
|
|
|
$
|
535
|
|
|
$
|
23
|
|
|
$
|
--
|
|
|
$
|
54,577
|
|
Long lived assets by geographic area
|
|
$
|
28,422
|
|
|
$
|
375
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
28,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
|
$
|
66,050
|
|
|
$
|
400
|
|
|
$
|
23
|
|
|
$
|
--
|
|
|
$
|
66,473
|
|
Long lived assets by geographic area
|
|
$
|
29,843
|
|
|
$
|
319
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
30,162
|
|
INPIXON
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
Note
14 - Commitments and Contingencies
Litigation
Certain
conditions may exist as of the date the condensed consolidated financial statements are issued which may result in a loss to
the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such
contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings,
the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of
the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable
but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would
be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business,
financial position, and results of operations or cash flows.
During the year ended December 31, 2011,
a judgment in the amount of $936,000 was levied against Sysorex Arabia in favor of Creative Edge, Inc. in connection with amounts
advanced for operations. Of that amount, $214,000 has been repaid, and the remaining $722,000 has been accrued and is included
as a component of liabilities held for sale as of March 31, 2017 and December 31, 2016 in the condensed consolidated balance sheets.
Note 15 - Subsequent Events
On April 10, 2017, the Company issued 50,000
shares of common stock for services which were fully vested upon the date of grant. The Company recorded an expense of $141,000
for the fair value of those shares.
On April 19, 2017, Inpixon entered into
an exchange agreement (the “Exchange Agreement”) with Hillair Capital Investments L.P. in connection with an interest
payment due on May 9, 2017 pursuant to the Company’s 8% Original Issue Discount Senior Secured Convertible Debenture in
the principal amount of $5,700,000. In accordance with the Exchange Agreement, solely in respect of the interest payment in the
amount of $343,267 due on May 9, 2017, the parties agreed that $315,700 of such interest payment will be made in in the form of
110,000 shares of the Company’s common stock issued at an interest conversion rate equal to $2.87 per share. The shares
were issued on April 20, 2017.
On May 8, 2017, Hillair Capital Investments L.P. delivered a conversion notice to the Company pursuant
to which it converted 2,250 shares of the Company’s Series 1 Convertible Preferred Stock into 100,000 shares of the Company’s
common stock. Such shares of common stock were issued on May 9, 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors of
Inpixon and Subsidiaries
We have audited the accompanying consolidated balance
sheets of Inpixon and Subsidiaries (formerly known as Sysorex Global and Subsidiaries) (the “Company”) as of December
31, 2016 and 2015
,
and the related consolidated statements of operations, comprehensive loss, changes in stockholders’
equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial position of Inpixon and Subsidiaries (formerly known
as Sysorex Global and Subsidiaries), as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has recurring losses from operations and expects to continue to have losses in the foreseeable future. These conditions
raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our opinion is not modified with respect to this matter,
/s/ Marcum
llp
Marcum
llp
New York, NY
April 17, 2017
INPIXON AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED
BALANCE SHEETS
(In thousands, except number of shares and par value data)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,821
|
|
|
$
|
4,060
|
|
Accounts receivable, net
|
|
|
11,788
|
|
|
|
12,209
|
|
Notes and other receivables
|
|
|
362
|
|
|
|
1,340
|
|
Inventory
|
|
|
1,061
|
|
|
|
755
|
|
Prepaid licenses and maintenance contracts
|
|
|
13,321
|
|
|
|
7,509
|
|
Assets held for sale
|
|
|
23
|
|
|
|
772
|
|
Prepaid assets and other current assets
|
|
|
1,768
|
|
|
|
1,967
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
30,144
|
|
|
|
28,612
|
|
|
|
|
|
|
|
|
|
|
Prepaid licenses and maintenance contracts, non-current
|
|
|
5,169
|
|
|
|
6,586
|
|
Property and equipment, net
|
|
|
1,385
|
|
|
|
1,392
|
|
Software development costs, net
|
|
|
2,058
|
|
|
|
1,281
|
|
Intangible assets, net
|
|
|
17,691
|
|
|
|
17,161
|
|
Goodwill
|
|
|
9,028
|
|
|
|
13,166
|
|
Other assets
|
|
|
998
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
66,473
|
|
|
$
|
68,715
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except number of shares and par value data)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
23,027
|
|
|
$
|
9,320
|
|
Accrued liabilities
|
|
|
4,169
|
|
|
|
2,992
|
|
Deferred revenue
|
|
|
15,043
|
|
|
|
9,095
|
|
Short-term debt, net
|
|
|
6,887
|
|
|
|
9,417
|
|
Liabilities held for sale
|
|
|
2,041
|
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
51,167
|
|
|
|
32,850
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
Deferred revenue, non-current
|
|
|
5,960
|
|
|
|
7,666
|
|
Long-term debt, net
|
|
|
4,047
|
|
|
|
1,226
|
|
Other liabilities
|
|
|
371
|
|
|
|
542
|
|
Acquisition liability - Integrio
|
|
|
1,648
|
|
|
|
--
|
|
Acquisition liability - LightMiner
|
|
|
567
|
|
|
|
3,475
|
|
Total Liabilities
|
|
|
63,760
|
|
|
|
45,759
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - $0.001 par value; 5,000,000 shares authorized; 0 issued and outstanding
|
|
|
--
|
|
|
|
--
|
|
Convertible Series 1 Preferred Stock - $1,000.00 stated value; 5,000,000 shares authorized; 2,250 and 0 issued and outstanding at December 31, 2016 and 2015, respectively. Liquidation preference of $2,250,000 and $0 at December 31, 2016 and 2015, respectively.
|
|
|
1,340
|
|
|
|
--
|
|
Common stock - $0.001 par value; 50,000,000 shares authorized; 2,171,886 and 1,687,324 issued and 2,155,964 and 1,671,402 outstanding at December 31, 2016 and 2015, respectively
|
|
|
2
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
64,148
|
|
|
|
58,249
|
|
Treasury stock, at cost, 15,922 shares
|
|
|
(695
|
)
|
|
|
(695
|
)
|
Due from Sysorex Consulting Inc.
|
|
|
(666
|
)
|
|
|
(666
|
)
|
Accumulated other comprehensive income
|
|
|
52
|
|
|
|
31
|
|
Accumulated deficit (excluding $2,442 reclassified to additional paid in capital in quasi-reorganization)
|
|
|
(59,473
|
)
|
|
|
(32,359
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity Attributable to Inpixon
|
|
|
4,708
|
|
|
|
24,562
|
|
|
|
|
|
|
|
|
|
|
Non- controlling Interest
|
|
|
(1,995
|
)
|
|
|
(1,606
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
2,713
|
|
|
|
22,956
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
66,473
|
|
|
$
|
68,715
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
Products
|
|
$
|
37,510
|
|
|
$
|
51,381
|
|
Services
|
|
|
15,657
|
|
|
|
15,576
|
|
Total Revenues
|
|
|
53,167
|
|
|
|
66,957
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
Products
|
|
|
29,025
|
|
|
|
40,763
|
|
Services
|
|
|
9,215
|
|
|
|
6,865
|
|
Total Cost of Revenues
|
|
|
38,240
|
|
|
|
47,628
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
14,927
|
|
|
|
19,329
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,277
|
|
|
|
635
|
|
Sales and marketing
|
|
|
8,500
|
|
|
|
11,531
|
|
General and administrative
|
|
|
15,269
|
|
|
|
14,226
|
|
Acquisition related costs
|
|
|
876
|
|
|
|
355
|
|
Impairment of goodwill
|
|
|
7,400
|
|
|
|
--
|
|
Amortization of intangibles
|
|
|
4,328
|
|
|
|
3,994
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
38,650
|
|
|
|
30,741
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(23,723
|
)
|
|
|
(11,412
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,743
|
)
|
|
|
(448
|
)
|
Other income/(expense)
|
|
|
(266
|
)
|
|
|
25
|
|
Change in fair value of derivative liability
|
|
|
51
|
|
|
|
--
|
|
Loss on the settlement of
obligation
|
|
|
--
|
|
|
|
(85
|
)
|
Reserve for the recoverability of note
receivable
|
|
|
(1,077)
|
|
|
|
--
|
|
Change in fair value of shares to be issued
|
|
|
13
|
|
|
|
211
|
|
Total Other Income (Expense)
|
|
|
(3,022
|
)
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss from Continuing Operations
|
|
|
(26,745
|
)
|
|
|
(11,709
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations, Net of Tax
|
|
|
(758
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(27,503
|
)
|
|
|
(11,729
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Non-controlling Interest
|
|
|
(389
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Stockholders of Inpixon
|
|
$
|
(27,114
|
)
|
|
$
|
(11,719
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Basic and Diluted Common Share
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to common stockholders
|
|
$
|
(15.40
|
)
|
|
$
|
(8.29
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
Net Loss Per Basic and Diluted Common Share
|
|
$
|
(15.61
|
)
|
|
$
|
(8.30
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
1,737,120
|
|
|
|
1,412,094
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON
AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(27,503
|
)
|
|
$
|
(11,729
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange gain from cumulative translation adjustments
|
|
|
21
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(27,482
|
)
|
|
$
|
(11,680
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2016
(In thousands, except per share data)
|
|
Series
1 Convertible
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Due from
|
|
|
Accumulated
Other
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Treasury
Stock
|
|
|
Sysorex
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Controlling
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Consulting, Inc.
|
|
|
Income
(Loss)
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
|
|
Balance
- January 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,313,817
|
|
|
$
|
2
|
|
|
$
|
52,139
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(666
|
)
|
|
$
|
(18
|
)
|
|
$
|
(20,640
|
)
|
|
$
|
(1,596
|
)
|
|
$
|
29,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued for services
|
|
|
--
|
|
|
|
--
|
|
|
|
23,416
|
|
|
|
--
|
|
|
|
455
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
455
|
|
Stock
options granted to employees and consultants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
958
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
958
|
|
Warrants
granted to consultants for services
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12
|
|
Returned
shares from AirPatrol holdback
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(15,922
|
)
|
|
|
(695
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(695
|
)
|
Common
shares issued for options exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
91
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Common
shares issued for net cash proceeds from a public offering
|
|
|
--
|
|
|
|
--
|
|
|
|
350,000
|
|
|
|
--
|
|
|
|
4,685
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,685
|
|
Cumulative
translation adjustment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
49
|
|
|
|
--
|
|
|
|
--
|
|
|
|
49
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,719
|
)
|
|
|
(10
|
)
|
|
|
(11,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2015
|
|
|
--
|
|
|
$
|
--
|
|
|
|
1,687,324
|
|
|
$
|
2
|
|
|
$
|
58,249
|
|
|
|
(15,922
|
)
|
|
$
|
(695
|
)
|
|
$
|
(666
|
)
|
|
$
|
31
|
|
|
$
|
(32,359
|
)
|
|
$
|
(1,606
|
)
|
|
$
|
22,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
1 redeemable convertible preferred stock issued
|
|
|
2,250
|
|
|
|
1,340
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,340
|
|
Common
shares issued for services
|
|
|
--
|
|
|
|
--
|
|
|
|
13,000
|
|
|
|
--
|
|
|
|
71
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
71
|
|
Issuance
of LightMiner acquisition shares
|
|
|
--
|
|
|
|
--
|
|
|
|
102,895
|
|
|
|
--
|
|
|
|
2,896
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,896
|
|
Stock
options granted to employees for services
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,306
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,306
|
|
Reclassification
of warrants to derivative liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(209
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(209
|
)
|
Issuance
of common stock for Integrio acquisition
|
|
|
--
|
|
|
|
--
|
|
|
|
35,333
|
|
|
|
--
|
|
|
|
101
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
101
|
|
Common
shares and warrants issued for cash
|
|
|
--
|
|
|
|
--
|
|
|
|
333,333
|
|
|
|
--
|
|
|
|
1,734
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,734
|
|
Cumulative
translation adjustment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
21
|
|
|
|
--
|
|
|
|
--
|
|
|
|
21
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(27,114
|
)
|
|
|
(389
|
)
|
|
|
(27,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2016
|
|
|
2,250
|
|
|
$
|
1,340
|
|
|
|
2,171,885
|
|
|
$
|
2
|
|
|
$
|
64,148
|
|
|
|
(15,922
|
)
|
|
$
|
(695
|
)
|
|
$
|
(666
|
)
|
|
$
|
52
|
|
|
$
|
(59,473
|
)
|
|
$
|
(1,995
|
)
|
|
|
2,713
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON AND SUBSIDIARIES
(f/k/a SYSOREX GLOBAL AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
For the Years
Ended
|
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Cash Flows
from Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(27,503
|
)
|
|
$
|
(11,729
|
)
|
Adjustment
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,333
|
|
|
|
653
|
|
Amortization
of intangible assets
|
|
|
4,328
|
|
|
|
3,994
|
|
Impairment of goodwill
|
|
|
7,400
|
|
|
|
--
|
|
Stock based
compensation
|
|
|
1,377
|
|
|
|
1,424
|
|
Change in
fair value of shares to be issued
|
|
|
(13
|
)
|
|
|
(211
|
)
|
Change in
fair value of derivative liability
|
|
|
(51
|
)
|
|
|
--
|
|
Amortization
of deferred financing costs
|
|
|
--
|
|
|
|
23
|
|
Amortization
of debt discount
|
|
|
491
|
|
|
|
--
|
|
Compensation
expense, note receivable related party
|
|
|
--
|
|
|
|
90
|
|
Provision
for doubtful accounts
|
|
|
93
|
|
|
|
1,032
|
|
Reserve
for settlement of bond
|
|
|
749
|
|
|
|
--
|
|
Reserve
for note receivable
|
|
|
1,077
|
|
|
|
--
|
|
Amortization
of technology
|
|
|
133
|
|
|
|
--
|
|
Other
|
|
|
64
|
|
|
|
19
|
|
(Gain)/Loss
on settlement of obligations
|
|
|
(1,541
|
)
|
|
|
85
|
|
Treasury
shares received upon settlement of escrow
|
|
|
--
|
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable and other receivables
|
|
|
2,968
|
|
|
|
(5,066
|
)
|
Inventory
|
|
|
(305
|
)
|
|
|
(145
|
)
|
Other current
assets
|
|
|
67
|
|
|
|
(510
|
)
|
Prepaid
licenses and maintenance contracts
|
|
|
(232
|
)
|
|
|
(744
|
)
|
Other assets
|
|
|
(711
|
)
|
|
|
69
|
|
Accounts
payable
|
|
|
6,907
|
|
|
|
1,944
|
|
Accrued
liabilities
|
|
|
623
|
|
|
|
586
|
|
Deferred
revenue
|
|
|
(10
|
)
|
|
|
1,127
|
|
Other
liabilities
|
|
|
(29
|
)
|
|
|
(147
|
)
|
Total Adjustments
|
|
|
24,718
|
|
|
|
3,528
|
|
Net Cash
Used in Operating Activities
|
|
|
(2,785
|
)
|
|
|
(8,201
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows
Used in Investing Activities
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(525
|
)
|
|
|
(355
|
)
|
Investment
in capitalized software
|
|
|
(1,576
|
)
|
|
|
(1,176
|
)
|
Investment
in LightMiner
|
|
|
--
|
|
|
|
(19
|
)
|
Cash acquired
in Integrio Technologies acquisition
|
|
|
189
|
|
|
|
--
|
|
Cash
paid for the acquisition of Integrio Technologies
|
|
|
(753
|
)
|
|
|
--
|
|
Net Cash
Flows Used in Investing Activities
|
|
|
(2,665
|
)
|
|
|
(1,550
|
)
|
Cash Flows
provided by Financing Activities
|
|
|
|
|
|
|
|
|
Advances
(repayment) of lines of credit
|
|
|
(1,863
|
)
|
|
|
4,682
|
|
Advances
from term loan
|
|
|
--
|
|
|
|
2,000
|
|
Repayment
of term loan
|
|
|
(1,611
|
)
|
|
|
(764
|
)
|
Proceeds
from debenture and convertible preferred stock
|
|
|
5,000
|
|
|
|
--
|
|
Net proceeds
from the issuance of common stock and warrants
|
|
|
1,734
|
|
|
|
--
|
|
Advances
to related party
|
|
|
(3
|
)
|
|
|
--
|
|
Advances
from related party
|
|
|
3
|
|
|
|
2
|
|
Net proceeds
from issuance of common stock
|
|
|
--
|
|
|
|
4,685
|
|
Repayment
of notes payable
|
|
|
(70
|
)
|
|
|
(71
|
)
|
Net
Cash (Used In) Provided by Financing Activities
|
|
|
3,190
|
|
|
|
10,534
|
|
Effect of
Foreign Exchange Rate on Changes on Cash
|
|
|
21
|
|
|
|
49
|
|
Net (Decrease)
Increase in Cash and Cash Equivalents
|
|
|
(2,239
|
)
|
|
|
832
|
|
Cash
and Cash Equivalents - Beginning of period
|
|
|
4,060
|
|
|
|
3,228
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of period
|
|
$
|
1,821
|
|
|
$
|
4,060
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
837
|
|
|
$
|
426
|
|
Income Taxes
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
Reclassification
of warrants to derivative liabilities
|
|
$
|
(209
|
)
|
|
$
|
--
|
|
Fees paid
and original issue discount related to the issuance of debt
|
|
$
|
2,356
|
|
|
$
|
--
|
|
Shares
issued for settlement of LightMiner debt
|
|
$
|
2,896
|
|
|
$
|
--
|
|
Issuance
of shares for Integrio Acquisition
|
|
$
|
101
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of LightMiner: (Note 3)
|
|
|
|
|
|
|
|
|
Assumption
of assets other than cash (property and equipment)
|
|
$
|
--
|
|
|
$
|
225
|
|
Assumption
of assets - developed technology and export license
|
|
$
|
--
|
|
|
$
|
3,479
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Integrio Technologies: (Note 4)
|
|
|
|
|
|
|
|
|
Assumption
of assets other than cash
|
|
$
|
15,124
|
|
|
$
|
--
|
|
Assumption
of liabilities
|
|
$
|
(15,313
|
)
|
|
$
|
--
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
1 - Organization and Nature of Business and Going Concern
Inpixon
f/k/a Sysorex Global, through its wholly-owned subsidiaries, Inpixon USA f/k/a Sysorex USA, Inpixon Federal, Inc. f/k/a Sysorex
Government Services, Inc. (“Inpixon Federal”), Inpixon Canada, Inc. f/k/a Sysorex Canada Corp. (“Inpixon Canada”)
and the majority-owned subsidiary, Sysorex Arabia LLC (“Sysorex Arabia”) (unless otherwise stated or the context otherwise
requires, the terms “Inpixon” “we,” “us,” “our” and the “Company”
refer collectively to Inpixon and
the
above subsidiaries), provides
Big
Data
analytics and location based products and related services for the cyber-security and Internet of Things markets.
The Company is headquartered in California, and has subsidiary offices in Virginia, Maryland, Oregon, Hawaii, State of Washington,
California, Vancouver, Canada and Riyadh, Saudi Arabia.
On
April 24, 2015, and as more fully described in Note 3, the Company completed the acquisition of substantially all of the assets
of LightMiner Systems, Inc. which is in the business of developing and commercializing in-memory SQL databases. On November 21,
2016, and as more fully described in Note 4, the Company completed the acquisition of substantially all of the assets and certain
liabilities of Integrio Technologies,
LLC
which is in the U.S. Federal Government
IT contracts business.
As
of December 31, 2016, the Company has a working capital deficiency of approximately $21.0 million. For the year ended December
31, 2016, the Company incurred a net loss of approximately $27.5 million and utilized cash in operations of approximately $2.8
million.
The aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary
should the Company be unable to continue as a going concern within one year after the date the financial statements are issued.
On
August 9, 2016, the Company entered into a Securities Purchase Agreement with Hillair Capital Investments L.P. pursuant to which
it issued and sold (i) an 8% Original Issue Discount Senior Convertible Debenture in an aggregate principal amount of $5,700,000
due on August 9, 2018 and (ii) 2,250 shares of newly created Series 1 Convertible Preferred Stock, par value $0.001 per share
(the “Preferred Stock”, together with the Debenture, the “Securities”), for an aggregate purchase price
of $5,000,000 (the “Transaction”). The Company also has a
credit facility
for up to $10 million which we borrow against based on eligible assets of which approximately $6.7 million is utilized
.
The credit facility has a maturity date of November 14, 2018
. During the third quarter of 2016 the Company implemented
a cost cutting program that would reduce operating expenses by approximately $1.8 million on an annual basis.
The Company’s capital resources as of
December 31, 2016, including increased credit facility, net proceeds from our stock offering, convertible debenture offering,
and recent contract awards, including prepayments anticipated to be received may not be sufficient to fund planned operations
during 2017. While the Company also has an effective registration statement on Form S-3 which will allow it to raise additional
capital from the sale of its securities, subject to certain limitations for registrants with a market capitalization of less than
$75 million, if additional financing is needed we anticipate such financing will come from an increase in our credit facility
rather than through a sale of equity, however, our decision will be based on our capital requirements and the terms of the various
types of financing that will be available to us when we need it. The information in these consolidated financial statements concerning
the Company’s Form S-3 registration statement does not constitute an offer of any securities for sale. If these sources
do not provide the capital necessary to fund the Company’s operations during the next twelve months, the Company may need
to further reduce costs and curtail certain aspects of our expansion activities or consider other means of obtaining additional
financing, such as through a sale of its assets or a business segment, although there is no guarantee that the Company could obtain
the financing necessary to continue its operations.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements have been prepared using the accounting records of Inpixon and its wholly-owned subsidiaries
in 2016, Inpixon USA, Inpixon Federal, Inpixon Canada and its majority-owned subsidiary, Sysorex Arabia. All material inter-company
balances and transactions have been eliminated.
The Company owns 50.2% of Sysorex Arabia.
As of December 31, 2016 there is $23,000 reported as assets held for sale and $2,041,000 as liabilities held for sale. The Company’s
Board of Directors authorized management on October 29, 2015 to close its Saudi Arabia legal entity at an appropriate time and
manner as business activities have been shifted to resellers and strategic partners in the region. During the years ended December
31, 2016 and 2015 Sysorex Arabia had immaterial operations. The Company plans to close down the Sysorex Arabia entity during the
year ended December 31, 2017.
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 the assets and liabilities acquired of Lightminer and Integrio Technologies,
LLC as described in Note 3 and Note 4, respectively, as well as the valuation of the
Company’s common shares issued in the transaction;
|
|
|
|
|
●
|
The
valuation of stock-based compensation;
|
|
|
|
|
●
|
The
allowance for doubtful accounts;
|
|
|
|
|
●
|
The
valuation allowance for the deferred tax asset; and
|
|
|
|
|
●
|
Impairment
of long-lived assets and goodwill.
|
Business
Combinations
The
Company accounts for business combinations under Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and
liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition,
the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash, checking accounts, money market accounts and temporary investments with maturities of three
months or less when purchased. As of December 31, 2016 and 2015 the Company had no cash equivalents.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Restricted
Cash
In
connection with certain transactions, the Company may be required to deposit assets, including cash or investment shares, in escrow
accounts. The assets held in escrow are subject to various contingencies that may exist with respect to such transactions. Upon
resolution of those contingencies or the expiration of the escrow period, some or all the escrow amounts may be used and the balance
released to the Company. As of December 31, 2016 the Company had $280,000 deposited in escrow as restricted cash for the Shoom
acquisition, of which any amounts not subject to claims shall be released to the Shoom Stockholders, on a pro-rata basis, on each
of the next (4) anniversary dates of the Closing Date. $70,000 of that amount is current and included in Prepaid Assets and Other
Current Assets and $210,000 is non-current and included in Other Assets on the balance sheet. As of December 31, 2015 the Company
had $350,000 deposited in escrow of which $70,000 was part of Prepaid Assets and Other Current Assets
and the non-current portion of $282,000 was part of Other Assets on the consolidated balance sheet.
Accounts
Receivable, net and Allowance for Doubtful Accounts
Accounts
receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for doubtful accounts
to ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers
based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability
to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in the customers’ operating
results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would
be further adjusted. The Company has recorded an allowance for doubtful accounts of $378,000 and $285,000 as of December 31, 2016
and 2015, respectively.
Inventory
Inventory
is stated at the lower of cost or market utilizing the first-in, first-out method. The Company continually analyzes its slow-moving,
excess and obsolete inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company establishes
reserves. If the Company does not meet its sales expectations, these reserves are increased. Products that are determined to be
obsolete are written down to net realizable value. As of December 31, 2016 and 2015, the Company deemed any such allowance nominal.
Deferred
Financing Costs
Cost incurred in conjunction with the credit line has been capitalized and will be amortized to
interest expense using the straight line method, which approximates the interest rate method, over the term of the credit line
and is included as a component of other assets. The Company incurred $341,000 of deferred financing costs and amortized $14,000
of those costs during the year ended December 31, 2016. As of December 31, 2016 accumulated amortization approximated $14,000.
During the year ended December 31, 2015 the Company amortized $23,000 of remaining deferred financing costs from the $144,000
incurred in the year ended December 31, 2013. Costs incurred with our debt financings have been presented as a direct deduction
from the carrying amount of the debt obligation, consistent with debt discounts.
Prepaid
Licenses and Maintenance Contracts
Prepaid
licenses and maintenance contracts represent payments made by the Company directly to the manufacturer. The Company acts as the
principal and the primary obligor in the transaction and amortizes the capitalized costs ratably over the term of the contract
to cost of revenues, generally one to five years.
Property
and Equipment, net
Property
and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment
for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from
3 to 7 years. Leasehold improvements are amortized over the lesser of the useful life of the asset, or the initial lease term.
Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations
as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed
of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal
is recognized.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Intangible
Assets
Intangible
assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, export license and trade
names/trademarks. They are amortized ratably over a range of one to seven years which approximates customer attrition rate and
technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment each year. Based on its
assessments, the Company did not incur any impairment charges for the years ended December 31, 2016 and 2015.
Goodwill
Purchased goodwill is not amortized,
but instead are tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison
of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative
or quantitative assessment. A reporting unit is defined as an operating segment or one level below an operating segment (also
known as a component). If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying
amount exceeds the estimated fair value, then a second step is performed to determine the amount of impairment, if any. An impairment
charge is the amount by which the carrying amount of goodwill exceeds the estimated implied fair value of goodwill. We estimate
the implied fair value of goodwill as the excess of the estimated fair value of the reporting unit over the estimated fair value
of its identifiable net assets. This is the same manner we use to recognize goodwill from a business combination. Goodwill impairment
testing involves judgment, including the identification of reporting units, the estimation of the fair value of each reporting
unit and, if necessary, the estimation of the implied fair value of goodwill. We have multiple operating segments, which
are the same as our reportable segments. These operating segments are comprised of divisions (components), for which discrete financial
information is available. Components are aggregated into reporting units for purposes of goodwill impairment testing to the extent
that they share similar economic characteristics.
Fair value can be determined using market,
income or cost-based approaches. Our determination of estimated fair value of the reporting units is based on a combination of
the income-based and market-based approaches. Under the income-based approach, we use a discounted cash flow model in which cash
flows anticipated over several future periods, plus a terminal value at the end of that time horizon, are discounted to their present
value using an appropriate risk-adjusted rate of return. We use our internal forecasts to estimate future cash flows and include
an estimate of long-term growth rates based on our most recent views of the long-term outlook for each reporting unit. Actual results
may differ materially from those used in our forecasts. We use discount rates that are commensurate with the risks and uncertainty
inherent in the respective reporting units and in our internally-developed forecasts. Under the market-based approach, we determine
fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in
public markets. To further confirm fair value, we compare the aggregate fair value of our reporting units to our total market capitalization. Estimating
the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors
including actual operating results. The use of alternate estimates and assumptions or changes in the industry or peer groups could
materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment. We performed
annual impairment testing in fiscal 2016 and 2015 and, with the exception of our Mobile, IoT & Big Data Products division which
was fully impaired in fiscal 2016, we concluded that there were no other impairments of goodwill, as the estimated fair value of
each of the remaining reporting units exceeded its carrying value. As discussed further in Note 12 of the “Notes to Consolidated
Financial Statements”, during the fourth quarter of fiscal 2016 we recognized a $7.4 million non-cash goodwill impairment
charge (net of tax). The impairment charge was primarily precipitated by the continued decline in stock price in the latter part
of the year, accumulated losses in AirPatrol and the stepped up needs for liquidity more than expected in conjunction with the
acquisition and integration of Integrio.
Software
Development Costs
The
Company develops and utilizes internal software for the processing of data provided by its customers. Costs incurred in this effort
are accounted for under the provisions of FASB ASC 350-40, Internal Use Software and ASC 985-20, Software – Cost of Software
to be Sold, Leased or Marketed, whereby direct costs related to development and enhancement of internal use software is capitalized,
and costs related to maintenance are expensed as incurred. The Company capitalizes its direct internal costs of labor and associated
employee benefits that qualify as development or enhancement. These software development costs are amortized over the estimated
useful life which management has determined ranges from one to five years.
Research
and Development
Research
and development costs consist primarily of professional fees and compensation expense. All research and development costs
are expensed as incurred.
Impairment
of Long-Lived Assets
The
Company assesses the recoverability of its long-lived assets, including property and equipment and intangible assets, when there
are indications that the assets might be impaired. When evaluating assets for potential impairment, the Company compares the carrying
value of the asset to its estimated undiscounted future cash flows. If an asset’s carrying value exceeds such estimated
cash flows (undiscounted and with interest charges), the Company records an impairment charge for the difference.
Based
on its assessments, the Company did not record any impairment charges for the years ended December 31, 2016 and 2015.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change
is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance
is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company
is able to realize the benefit, or that future deductibility is uncertain.
Non-Controlling
Interest
The
Company has a 50.2% equity interest in Sysorex Arabia as of December 31, 2016 and 2015. The portion of the Company’s deficiency
attributable to this third-party non-controlling interest was approximately $2.0 million and $1.6 million as of December 31, 2016
and 2015, respectively.
Deferred
Rent Expense
The
Company has operating leases which contain predetermined increases and rent holidays in the rentals payable during the term of
such leases. For these leases, the aggregate rental expense over the lease term is recognized on a straight-line basis over the
lease term. The difference between the expense charged to operations in any year and the amount payable under the lease during
that year is recorded as deferred rent expense on the Company’s balance sheet, which will reverse to the statement of operations
over the lease term.
Foreign
Currency Translation
Assets
and liabilities related to the Company’s foreign operations are calculated using the Saudi Riyal and Canadian Dollar and
are translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates
prevailing during the period. Translation adjustments are recorded as a separate component of consolidated stockholders’
equity and were an income of $21,000 and an income of $49,000 for the years ended December 31, 2016 and 2015, respectively. Gains
or losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated
statements of operations. The Company engages in foreign currency denominated transactions with customers that operate in functional
currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were not material for the years ended
December 31, 2016 and 2015, respectively.
Comprehensive
Income (Loss)
The
Company reports comprehensive income (loss) and its components in its consolidated financial statements. Comprehensive loss consists
of net loss, foreign currency translation adjustments and unrealized gains and losses from marketable securities, affecting stockholders’
equity that, under US GAAP, are excluded from net loss.
Revenue
Recognition
The
Company provides IT solutions and services to customers and derives revenues primarily from the sale of third-party hardware and
software products, software, assurance, licenses and other consulting services, including maintenance services and recognizes
revenue once the following four criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed and
determinable, (3) shipment (software and hardware) or fulfillment (maintenance) has occurred, and (4) there is reasonable assurance
of collection of the sales proceeds (the “Revenue Recognition Criteria”). In addition, the Company also records revenues
in accordance with Accounting Standards Codification (“ASC”) Topic 605-45 “Principal Agent Consideration”
(“ASC 605-45”). The Company evaluates the sales of products and services on a case by case basis to determine whether
the transaction should be recorded gross or net, including, but not limited to, assessing whether or not the Company: 1) is the
primary obligor in the transaction; 2) has inventory risk with respect to the products and/or services sold; 3) has latitude in
pricing; and 4) changes the product or performs part of the services sold. The Company evaluates whether revenues received from
the sale of hardware and software products, licenses, and services, including maintenance and professional consulting services,
should be recognized on a gross or net basis on a transaction by transaction basis. As of December 31, 2016, the Company has determined
that all revenues received should be recognized on a gross basis in accordance with applicable standards.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Cooperative reimbursements from vendors, which
are earned and available, are recorded during the period the related transaction has occurred. Cooperative reimbursements are
recorded as a reduction of cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including
reseller) for Certain Consideration Received from a Vendor.” Provisions for returns are estimated based on historical
collections and credit memo analysis for the period. The Company receives Marketing Development Funds (MDF) from vendors
based on quarterly or annual sales performance to promote the marketing of vendor products and services. The Company must
file claims with vendors for these cooperative reimbursements by providing invoices and receipts for marketing expenses.
Reimbursements are recorded as a reduction of marketing expenses and other applicable selling, general and administrative
expenses ratably over the period in which the expenses are expected to occur. The Company receives vendor rebates which are
recorded to cost of sales.
The
Company also enters into sales transactions whereby customer orders contain multiple deliverables, and reports its multiple deliverable
arrangements under ASC 605-25 “Revenue Arrangements with Multiple Deliverables” (“ASC-605-25”). These
multiple deliverable arrangements primarily consist of the following deliverables: the Company’s design, configuration,
installation, integration, warranty/maintenance and consulting services; and third-party computer hardware, software and warranty
maintenance services. In situations where the Company bundles all or a portion of the separate elements, Vendor Specific Objective
Evidence (“VSOE”) is determined based on prices when sold separately. For the years ended December 31, 2016 and 2015
revenues recognized as a result of customer contracts requiring the delivery of multiple elements was $19.7 million and $33.7
million, respectively.
Hardware,
Software and Licensing Revenue Recognition
Generally,
the Revenue Recognition Criteria are met with respect to the sales of hardware and software products when they are shipped to
the customer. The delivery of products to our customers occurs in a variety of ways, including (i) as a physical product shipped
from the Company’s warehouse, (ii) via drop-shipment by a third-party vendor, or (iii) via electronic delivery with respect
to software licenses. The Company leverages drop-ship arrangements with many of its vendors and suppliers to deliver products
to customers without having to physically hold the inventory at its warehouse. In such arrangements, the Company negotiates the
sale price with the customer, pays the supplier directly for the product shipped, bears credit risk of collecting payment from
its customers and is ultimately responsible for the acceptability of the product and ensuring that such product meets the standards
and requirements of the customer. As a result, the Company recognizes the sale of the product and the cost of such upon receiving
notification from the supplier that the product has shipped. Vendor rebates and price protection are recorded when earned as a
reduction to cost of sales or merchandise inventory, as applicable. Vendor product price discounts are recorded when earned as
a reduction to cost of sales.
Maintenance
and Professional Services Revenue Recognition
With
respect to sales of our maintenance, consulting and other service agreements including our digital advertising and
electronic services, the Revenue Recognition Criteria is met once the service has been provided. Revenue on time and material
contracts is recognized based on a fixed hourly rate as direct labor hours are expended. The fixed rate includes direct
labor, indirect expenses, and profits. Materials, or other specified direct costs, are reimbursed as actual costs and may
include markup. Anticipated losses are recognized as soon as they become known. For the three and
twelve
months
ended
December 31
, 2016 and 2015, the Company did not incur any such
losses. These amounts are based on known and estimated factors. Revenues from time and material or firm fixed price
long-term and short-term contracts are derived principally with various United States
government
agencies and commercial customers.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
The
Company recognizes revenue for sales of all services billed as a fixed fee ratably over the term of the arrangement as such services
are provided. Billings for such services that are made in advance of the related revenue recognized are recorded as deferred revenue
and recognized as revenue ratably over the billing coverage period. Amounts received as prepayments for services to be rendered
are recognized as deferred revenue. Revenue from such prepayments is recognized when the services are provided.
The
Company’s storage and computing segment maintenance services agreements permit customers to obtain technical support from
the Company and/or the manufacturer and to update, at no additional cost, to the latest technology when new software updates are
introduced and available during the period that the maintenance agreement is in effect. Since the Company assumes certain responsibility
for product staging, configuration, installation, modification, and integration with other client systems, or retains general
inventory risk upon customer return or rejection and is most familiar with the customer and its required specifications, it generally
serves as the initial contact with the customer with respect to any storage and computing maintenance services required and therefore
will perform all or part of the required service.
Typically,
the Company sells maintenance contracts for a separate fee with initial contractual periods ranging from one to three years with
renewal for additional periods thereafter. The Company generally bills maintenance fees in advance and records the amounts received
as deferred revenue with respect to any portion of the fee for which services have not yet been provided. The Company recognizes
the related revenue ratably over the term of the maintenance agreement as services are provided. In situations where the Company
bundles all or a portion of the maintenance fee with products, VSOE for maintenance is determined based on prices when sold separately.
Customers
that have purchased maintenance/warranty services have a right to cancel and receive a refund of the amounts paid for unused services
at any time during the service period upon advance written notice to the Company. Cancellation and refund privileges with respect
to maintenance/warranty services lapse as to any period during the term of the agreement for which such services have already
been provided. Customers do not have the right to a refund of paid fees for maintenance/warranty services that the Company has
earned and recognized as revenue. Invoices issued for maintenance/warranty services not yet rendered are recorded as deferred
revenue and then recognized as revenue ratably over the service period. As a result (1) the warranty and maintenance service fees
payable by each customer are separately accounted for in each customer purchase order as a separate line item, and (2) upon the
Company’s receipt and acceptance of a request for refund of maintenance/warranty services not yet provided, the Company’s
obligation to perform any additional maintenance/warranty services will end. Sales are recorded net of discounts and returns.
Shipping
and Handling Costs
Shipping
and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be nominal during each of
the reporting periods.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were deemed
to be nominal during each of the reporting periods.
Stock-Based
Compensation
The
Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity
instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized
as expense over the period during which the recipient is required to provide services in exchange for that award.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Options
and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted
to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments,
as adjusted, is expensed over the related vesting period.
The Company incurred stock-based compensation
charges, net of estimated forfeitures of $1.4 million for each of the years ended December 31, 2016 and 2015 which is
included in general and administrative expenses. The following table summarizes the nature of such charges for the periods then
ended (in thousands):
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Compensation and related benefits
|
|
$
|
1,306
|
|
|
$
|
956
|
|
Professional and legal fees
|
|
|
71
|
|
|
|
468
|
|
Totals
|
|
$
|
1,377
|
|
|
$
|
1,424
|
|
Net
Loss Per Share
The
Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding
during the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant
to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.
The
following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net
loss per common share for the years ended December 31, 2016 and 2015:
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Options
|
|
|
366,859
|
|
|
|
316,870
|
|
Warrants
|
|
|
287,417
|
|
|
|
37,417
|
|
Shares accrued but not issued
|
|
|
18,905
|
|
|
|
122,800
|
|
Convertible preferred stock
|
|
|
100,000
|
|
|
|
--
|
|
Convertible debenture
|
|
|
253,333
|
|
|
|
--
|
|
Totals
|
|
|
1,026,514
|
|
|
|
477,087
|
|
Preferred
Stock
The
Company applies the accounting standards for distinguishing liabilities from equity under U.S. GAAP when determining the classification
and measurement of its convertible preferred stock. Preferred shares subject to mandatory redemption are classified as liability
instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified
as permanent equity.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
Fair
Value of Financial Instruments
Financial instruments consist of cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, and short term
debt. The Company determines the estimated fair value of such financial instruments presented in these financial statements
using available market information and appropriate methodologies. These financial instruments
,
except
for short term debt
,
are stated at their respective historical carrying
amounts which approximate fair value due to their short term nature. Short-term debt approximates market value based on
similar terms available to the
Company
in the market place.
Segment
Reporting
In
accordance with ASC 280 “Segment Reporting”, operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making
group, in making decisions how to allocate resources and assess performance. Our chief decision maker, as defined under the FASB’s
guidance, is the Chief Executive Officer. It is determined that the Company operates in four business segments and three geographic
segments, Saudi Arabia, Canada and the United States.
Reclassification
Certain
accounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation
in the current year’s financial statements. These reclassifications have no effect on previously reported earnings.
Derivative
Liabilities
During
the year ended December 31, 2016, the Company issued a convertible debenture that included reset provisions considered to be
down-round protection.
In addition the company issued a warrant that includes a fundamental transaction clause which
provided for the warrant holder to be paid in cash the fair value of the warrants as computed under a black scholes
valuation model. The Company determined that the conversion feature and warrants are derivative instruments pursuant to FASB
ASC 815 “Derivatives and Hedging.” The accounting treatment of derivative financial instruments requires that the
Company bifurcate the conversion feature and record it as a liability at fair value and the fair value of the warrants were
computed as defined in the agreement. The instruments are marked-to-market at fair value as of each balance sheet date. Any
change in fair value is recorded as a change in the fair value of derivative liabilities for each reporting period. The fair
value of the conversion feature was determined using the Binomial Lattice model. The Company reassesses the classification at
each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified
as of the date of the event that caused the reclassification. As of December 31, 2016 the fair value of the derivative
liability was $210,000 and included in accrued liabilities.
Recent
Accounting Standards
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,”
(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition and
most industry-specific guidance throughout the ASC. The standard requires that an entity recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled
in exchange for those goods or services. ASU 2014-09 should be applied retrospectively to each prior reporting period presented
or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.
To allow entities additional time to implement systems, gather data and resolve implementation questions, the FASB issued ASU
No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, in August 2015, to defer the effective
date of ASU No. 2014-09 for one year, which is fiscal years beginning after December 15, 2017. The Company is currently evaluating
the impact of the adoption of ASU 2014-09 on its financial statements or disclosures. In addition, the FASB issued ASU 2016-08
in March 2016, to help provide interpretive clarifications on the new guidance in ASC Topic 606. The Company is currently evaluating
the accounting, transition, and disclosure requirements of the standard to determine the impact, if any, on its financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of
Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern” (“ASU 2014-15”). ASU 2014-15 explicitly requires management to evaluate, at each annual or
interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity’s
ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after
December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. The adoption of ASU No. 2014-15 impacted
disclosure in the Company’s financial statements, but did not have any impact on the Company’s financial position or
results of operations.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation
of Debt Issuance Costs, (“ASU 2015-03”). This standard amends existing guidance to require the presentation of debt
issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred
charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The adoption
of ASU 2015-03 did not have a material impact on the Company’s financial statements.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330):
Simplifying the Measurement of Inventory,” (“ASU 2015-11”). ASU 2015-11 amends the existing guidance to require
that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent
measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently
evaluating the effects of ASU 2015–11 on its financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The FASB issued ASU 2015-17 as part of
its ongoing Simplification Initiative, with the objective of reducing complexity in accounting standards. The amendments in ASU
2015-17 require entities that present a classified balance sheet to classify all deferred tax liabilities and assets as a noncurrent
amount. This guidance does not change the offsetting requirements for deferred tax liabilities and assets, which results in the
presentation of one amount on the balance sheet. Additionally, the amendments in ASU 2015-17 align the deferred income tax presentation
with the requirements in International Accounting Standards (IAS) 1, Presentation of Financial Statements. The amendments in ASU
2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. The Company does not anticipate that the adoption of ASU 2015-17 will have a material impact on its
financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic
842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease
for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors
and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU
2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently
evaluating ASU 2016-02 and its impact on its financial statements.
In March 2016, the FASB issued ASU No. 2016-08,
“Revenue from Contracts with Customers - Principal versus Agent Considerations.” This update provides clarifying
guidance regarding the application of ASU No. 2014-09 - Revenue from Contracts with Customers when another party, along with
the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is
required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the
entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the
entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent
considerations. The update is effective, along with ASU 2014-09, for annual and interim periods beginning after December 15,
2017. The company is evaluating it's impact on it's financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation –
Stock Compensation (Topic 718)” (“ASU 2016-09”). ASU 2016-09 requires an entity to simplify several aspects of
the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after
December 15, 2016, with early adoption permitted. The Company is currently evaluating ASU 2016-09 and its impact on its financial statements or disclosures.
On May 9, 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts
with Customers (Topic 606)” (“ASU 2016-12”). ASU 2016-12 provides clarifying guidance in a few narrow areas and
adds some practical expedients to the guidance. The effective date and transition requirements for this ASU are the same as the
effective date and transition requirements for ASU 2014-09. The Company is evaluating the effect of ASU 2014-09, if any, on its
financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash Payments,” which addresses the diversity in practice in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows with respect to eight specific cash
flow issues. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. The amendments should be applied using a retrospective transition method to each period presented, if practical. Early
adoption is permitted, including the interim period, and any adjustments should be reflected as of the beginning of the fiscal
period. The Company is currently evaluating ASU 2016-15 and its impact on its financial statements or disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement
of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)”, which clarifies how entities
should present restricted cash and restricted cash equivalents in the statement of cash flows, and as a result, entities will
no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement
of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information
about the nature of the restrictions. The new standard is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017. Early adoption is permitted and the new guidance must be applied retroactively to all
periods presented. The company is evaluating the new guidance’s impact on its financial statements.
In January 2017, the FASB issued ASU 2017-01 “Business Combinations
(Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business to assist entities with
evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces
a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input
and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years
beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the impact
this pronouncement will have on the consolidated financial statement and disclosures.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
2 - Summary of Significant Accounting Policies (continued)
In January 2017, the Financial Accounting
Standard Board (the “FASB”) issued Accounting Standards Update (ASU) 2017-04: “Intangibles — Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which removes Step 2 from
the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1, 2017.
The Company is currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.
Reverse
Stock Split
The
board of directors was authorized by the Company’s stockholders to effect a 1 for 15 reverse stock split of its common stock
which was effective March 1, 2017. The financial statements and accompanying notes give effect to the 1 for 15 reverse stock split
as if it occurred at the beginning of the first period presented.
Subsequent
Events
The
Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the condensed
consolidated financial statements to determine if any of those events and/or transactions requires adjustment to or disclosure
in the consolidated financial statements.
Note
3 - LightMiner Systems, Inc. Asset Acquisition
On
April 24, 2015, in accordance with the terms and conditions of an asset purchase agreement, the Company completed the acquisition
of substantially all of the assets of LightMiner Systems, Inc. (“LightMiner”), which is in the business of developing
and commercializing in-memory SQL databases for manipulation. At closing, the Company paid $19,000 in cash to the owner of approximately
19% of LightMiner’s outstanding securities prior to closing
(the “Owner”)
and agreed to issue to LightMiner or its designees upon the one year anniversary of the closing, shares of the Company’s
common stock in an amount equal to the quotient of (A) $3,200,000 divided by (B) the Sysorex Weighted Average Price (as defined
below) as of the fifth trading day prior to the First Anniversary, less a hold back of Seller Stock Consideration having an aggregate
value of $567,150, as determined by the Sysorex Weighted Average Price, for the purpose of satisfying indemnification obligations
of LightMiner. The Sysorex Weighted Average Price means the volume-weighted daily average of the price of the Company’s
Common Stock for the twenty (20) trading days immediately prior to the date of determination; however, the price may not be less
than $30.00 per share.
The
Company also agreed to issue to the Owner (i) on the first anniversary of the date of closing,
an
aggregate of 127,000 restricted shares of the Company’s common stock with a fair value of $286,000 at the date of closing
and (ii)
an option to purchase up to 100,000
shares of Company’s
common stock
in accordance with the terms and conditions
of the Company’s 2011 Employee Stock Incentive Plan, as amended, pursuant to an at-will employment offer letter. In addition,
the Company agreed to issue to another pre-acquisition principal of LightMiner additional shares of the Company’s common
stock equal to $200,000 divided by the Sysorex Weighted Average Price, however the price may not be less than $30.00 per share.
The Company
evaluated the common stock to be issued in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the common
stock to be issued is recorded as a liability at fair value as of each reporting date and marked to market through earnings. The
number of shares to be issued under this arrangement was limited to a price of not less than $30.00 per share.
The Company acquired LightMiner to provide
analytics to its indoor positioning customers. LightMiner’s in-memory columnar database is optimized for speed which now
allows Inpixon to process very large volumes of data rapidly and deliver real-time or near real-time alerts and/or information
to its customers. LightMiner is now integrated with Inpixon’s indoor positioning technology formerly known as AirPatrol and
is sold together.
The
total recorded purchase price for the transaction was $3,705,000 which consisted of the cash paid of $19,000 and $3,686,000 representing
the value of the stock to be issued upon the one year anniversary of the closing.
Assets Acquired (in thousands):
|
|
|
|
|
|
|
|
Fixed Assets
|
|
$
|
225
|
|
Export License
|
|
|
14
|
|
Developed Technology
|
|
|
3,466
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
3,705
|
|
On August 2, 2016 the Company issued 102,895
shares of common stock for the settlement of $2,896,000 of the amount payable. As of December 31, 2016 the fair value of $567,000
remained accrued and in escrow which represented 18,905 shares of common stock. Subsequent to December 31, 2016 the escrow was
released and the Company issued the shares to settle the liability.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
4 - Integrio Technologies, LLC Asset Acquisition
On November 14, 2016, the Company and
its wholly-owned subsidiary, Sysorex Government Services, Inc. (collectively, the “Buyer”), entered into an
Asset Purchase Agreement with Integrio Technologies, LLC (“Integrio”) and Emtec Federal, LLC, a wholly-owned
subsidiary of Integrio, (collectively, the “Seller”) which are in the business of providing IT integration and
engineering services to customers, primarily government agencies. The transaction closed on November 21, 2016. The
consideration paid for the assets included an aggregate of (A) $1,800,000 in cash, of which $1,400,000 minus the
Seller’s Cash On Hand (as defined in the Purchase Agreement) and certain amounts payable to creditors of the Seller
were paid upon the closing of the Acquisition (the “Closing”) and $400,000 will be paid in two annual
installments of $200,000 each on the respective anniversary dates of the Closing, subject to certain set offs and recoupment
by Buyer; (B) 35,333 unregistered restricted shares of the Company’s voting common stock valued at $22.50 per share;
(C) the aggregate amount of certain specified assumed liabilities; and (D) up to an aggregate of $1,200,000 in earnout
payments, of which up to $400,000 shall be payable to the Seller per year for the three years following the Closing. Inpixon acquired these assets to pursue its previously stated strategy to expand its business into the federal government
sector because of the large long-term contracts that the government sector offers. Inpixon started with bidding
on government contracts directly and this acquisition provided an opportunity to accelerate this expansion. In addition,
the acquisition allows Inpixon to offset the revenue softening in the commercial vertical for this business segment that it
experienced in 2016.
The total recorded purchase price for the transaction
was $2,332,000 which consisted of the cash paid at Closing of $753,000, $400,000 cash that will be paid in two annual installments
of $200,000 each on the respective anniversary dates of the Closing, $1,078,000 in contingent earnout payments and $101,000 representing
the fair value of the stock issued upon closing.
The
purchase price is allocated as follows (in thousands):
|
|
|
|
|
|
|
|
Assets
Acquired:
|
|
|
|
Cash
|
|
$
|
189
|
|
Accounts
receivable
|
|
|
2,365
|
|
Other
receivables
|
|
|
377
|
|
Prepaid
assets
|
|
|
4,164
|
|
Fixed
assets
|
|
|
64
|
|
Other
assets
|
|
|
34
|
|
Customer
Relationships
|
|
|
1,873
|
|
Supplier
Relationships
|
|
|
2,985
|
|
Goodwill (A)
|
|
|
3,261
|
|
|
|
|
15,312
|
|
Liabilities
Assumed:
|
|
|
|
|
Accounts
payable
|
|
$
|
8,341
|
|
Accrued
liabilities
|
|
|
344
|
|
Deferred
revenue
|
|
|
4,252
|
|
Other
long term liabilities
|
|
|
43
|
|
|
|
|
12,980
|
|
Total
Purchase Price
|
|
$
|
2,332
|
|
(A)
|
The goodwill will be deductible for tax purposes once the contingent and assumed liabilities
are settled.
|
Note
5 – Proforma Financial Information
The following unaudited proforma financial
information presents the consolidated results of operations of the Company and Integrio for the years ended December 31, 2016
and 2015, as if the acquisition of Integrio had occurred on January 1, 2015 instead of November 21, 2016. The proforma information
does not necessarily reflect the results of operations that would have occurred had the entities been a single company during
those periods. The financial information for LightMiner was deminimis.
|
|
For the Years Ended
December 31,
|
|
(in thousands, except share amounts )
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
103,955
|
|
|
$
|
149,155
|
|
Net Loss Attributable to Common Shareholder
|
|
$
|
(27,276
|
)
|
|
$
|
(12,775
|
)
|
Weighted Average Number of Common Shares Outstanding, Basic and Diluted
|
|
|
1,772,454
|
|
|
|
1,447,330
|
|
Loss Per Common Share - Basic and Diluted
|
|
$
|
(15.39
|
)
|
|
$
|
(8.83
|
)
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
6 – Related Party
Due
from Related Parties
Non-interest
bearing amounts due on demand from a related party
were
$666,000 as of December
31, 2016 and 2015, and
consist
primarily of amounts due from Sysorex Consulting,
Inc. (SCI). Subsequent to December 31, 2014, SCI is no longer a direct shareholder or investor in the Company. The amounts due
from SCI as of December 31, 2016 and 2015 have been classified in and as a reduction of stockholders’ equity. Subsequent
to December 31, 2016 the Company is in negotiations with SCI for the repayment and settlement of this receivable through the purchase
of Sysorex India, a wholly owned subsidiary of SCI. The Company cannot provide assurance it will be successful in the consummation
of the arrangement.
Consulting
Services Ordering Agreement Amendment
On
March 25
, 2016 but effective as of March 16
, 2016, the Company entered into
an Amendment No. 3 to its Consulting Services Ordering Agreement with Mr. A Salam Qureishi, who served as Chairman of the Board
and a Director of the Company (the “Consultant”) until September 30, 2016 (the “Amended Agreement”), pursuant
to which the Company agreed to pay the Consultant a fee of $20,000 per month for all consulting services performed during the
term of the Consulting Services Ordering Agreement. In addition, the Amended Agreement provided for an extension of the original
term
of the Consulting Services Ordering Agreement
for an additional nine months
from March 31, 2016 to December 31, 2016. For the years ended December 31, 2016 and 2015 the Company recorded a charge of $270,000
and $360,000, respectively.
Note
7 - Notes and Other Receivables
Notes
and other receivables at December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Notes receivable
|
|
$
|
--
|
|
|
$
|
900
|
|
Other receivables
|
|
|
362
|
|
|
|
440
|
|
Total Notes and Other Receivables
|
|
$
|
362
|
|
|
$
|
1,340
|
|
Note
Receivable
On
July 17, 2014, the Company loaned $900,000 to a third party pursuant to the terms of a promissory note. The promissory note
accrues interest at a rate of 8% per annum. The Company and the third party are negotiating an extension of the note. A
recoverability reserve has been placed against the receivable and accrued interest as of December 31, 2016.
Other
Receivables
Other
receivables primarily consist of receivables for cooperative reimbursements from vendors; marketing development funds from vendors;
interest receivables; and revenue earned under contracts in advance of billings.
Note
8 - Inventory
Inventory
at December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
326
|
|
|
$
|
153
|
|
Work in process
|
|
|
238
|
|
|
|
64
|
|
Finished goods
|
|
|
497
|
|
|
|
538
|
|
Total Inventory
|
|
$
|
1,061
|
|
|
$
|
755
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
9 - Property and Equipment, net
Property
and equipment at December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer and office equipment (1)
|
|
$
|
2,662
|
|
|
$
|
1,528
|
|
Furniture and fixtures (1)
|
|
|
378
|
|
|
|
274
|
|
Leasehold improvements
|
|
|
53
|
|
|
|
68
|
|
Software
|
|
|
163
|
|
|
|
253
|
|
Total
|
|
|
3,256
|
|
|
|
2,123
|
|
Less: accumulated depreciation and amortization (1)
|
|
|
(1,871
|
)
|
|
|
(731
|
)
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Net
|
|
$
|
1,385
|
|
|
$
|
1,392
|
|
(1)
Includes assets under capital lease arrangements (see Note
16
).
Depreciation
and amortization expense was $543,000 and $480,000 for the years ended December 31, 2016 and 2015, respectively.
Note
10 - Software Development Costs
Capitalized
software development costs as of December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Capitalized software development costs
|
|
$
|
3,044
|
|
|
$
|
1,468
|
|
Accumulated amortization
|
|
|
(986
|
)
|
|
|
(187
|
)
|
Software development costs, net
|
|
$
|
2,058
|
|
|
$
|
1,281
|
|
The
weighted average remaining amortization period for the Company’s software development costs is 3.146 years.
Amortization
expense for internally-developed and externally marketed computer software was $790,000 and $173,000 for the years ended December
31, 2016 and 2015, respectively.
Future
amortization expense on the computer software is anticipated to be as follows (in thousands):
Years Ending December 31,
|
|
Amount
|
|
2017
|
|
$
|
870
|
|
2018
|
|
|
578
|
|
2019
|
|
|
230
|
|
2020
|
|
|
208
|
|
2021
|
|
|
172
|
|
Total
|
|
$
|
2,058
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
11 - Intangible Assets
Intangible
assets at December 31, 2016 and 2015 consisted of the following (in thousands):
Amortized Intangible Assets
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Trade Name/Trademarks
|
|
$
|
4,030
|
|
|
$
|
4,030
|
|
|
$
|
(2,396
|
)
|
|
$
|
(1,517
|
)
|
Customer Relationships
|
|
|
6,623
|
|
|
|
4,750
|
|
|
|
(2,705
|
)
|
|
|
(2,054
|
)
|
Supplier Relationships
|
|
|
2,985
|
|
|
|
--
|
|
|
|
(83
|
)
|
|
|
--
|
|
Developed Technology
|
|
|
15,696
|
|
|
|
15,696
|
|
|
|
(6,503
|
)
|
|
|
(3,915
|
)
|
Non-compete Agreements
|
|
|
400
|
|
|
|
400
|
|
|
|
(364
|
)
|
|
|
(240
|
)
|
Export License - LMS
|
|
|
13
|
|
|
|
13
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Totals
|
|
$
|
29,747
|
|
|
$
|
24,889
|
|
|
$
|
(12,056
|
)
|
|
$
|
(7,728
|
)
|
During the year ended December 31, 2016 the Company through the
acquisition of Integrio has added approximately $1,426,000 of customer relationships and approximately $2,985,000 of supplier
relationships These assets were determined to have a life of 6 and 3 years, respectively.
Aggregate
Amortization Expense:
Aggregate
amortization expense for the years ended December 31, 2016 and 2015 were $4,328,000 and $3,994,000, respectively.
Future
amortization expense on intangibles assets is anticipated to be as follows (in thousands):
Years Ending December 31,
|
|
Amount
|
|
2017
|
|
|
5,013
|
|
2018
|
|
|
4,616
|
|
2019
|
|
|
4,533
|
|
2020
|
|
|
2,450
|
|
2021
|
|
|
793
|
|
2022
|
|
|
287
|
|
Total
|
|
$
|
17,691
|
|
The weighted average
remaining amortization periods for the Company’s trade names/trademarks, customer relationships, supplier
relationships, developed technology, non-compete agreements, and export license are 0.37, 0.93, 0.48, 2.06, 0, and 0 years,
respectively.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
12 - Goodwill
The following table summarizes the changes
in the carrying amount of Goodwill, by segment and in total for the years ended December 31, 2016 and 2015 (in thousands):
|
|
Mobile, IoT & Big Data Products
|
|
|
Storage and Computing
|
|
|
SaaS Revenues
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
7,400
|
|
|
$
|
4,543
|
|
|
$
|
1,223
|
|
|
$
|
13,166
|
|
Goodwill acquired, net of purchase price adjustment
|
|
|
--
|
|
|
|
3,262
|
|
|
|
--
|
|
|
|
3,262
|
|
Goodwill impairment (level 3 fair value adjustment)
|
|
|
(7,400
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(7,400
|
)
|
Balance at December 31, 2016
|
|
$
|
--
|
|
|
$
|
7,805
|
|
|
$
|
1,223
|
|
|
$
|
9,028
|
|
The increase in the Storage and Computing segment goodwill during the year
ended December 31, 2016 was in connection with the Integrio acquisition. Goodwill in connection with this acquisition primarily
represents the expected benefits from synergies of integrating this business, the existing workforce of the acquired entity, and
expected growth from new customers and new products. See Note 4 for further discussion on this acquisition. During the fourth quarter of 2016, we recognized a $7.4 million impairment charge for our Mobile, IoT &
Big Data products division.
Note
13 - Discontinued Operations
As
of December 31, 2015, the Company’s management decided to close its Saudi Arabia legal entity as business activities and
operations have been strategically shifted according to the business plan of the Company.
In
accordance with ASC topic 360 “Property, Plant and Equipment”, the Company has elected to classify the assets and
liabilities as discontinued assets and liabilities in the accompanying consolidated financial statements.
The
major categories of assets and liabilities held for sale in the consolidated balance sheets at December 31, 2016 and 2015
(in thousands):
|
|
December
31,
2016
|
|
|
December
31, 2015
|
|
Assets
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
1
|
|
|
|
1
|
|
Notes
and other receivables
|
|
|
8
|
|
|
|
8
|
|
Other
assets
|
|
|
14
|
|
|
|
763
|
|
Total
Current Assets
|
|
|
23
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
--
|
|
|
|
--
|
|
Total
Assets
|
|
$
|
23
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
178
|
|
|
$
|
178
|
|
Accrued
liabilities
|
|
|
904
|
|
|
|
888
|
|
Deferred
revenue
|
|
|
236
|
|
|
|
236
|
|
Due
to related party
|
|
|
1
|
|
|
|
2
|
|
Short-term
debt
|
|
|
722
|
|
|
|
722
|
|
Total
Current Liabilities
|
|
|
2,041
|
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
$
|
2,041
|
|
|
$
|
2,026
|
|
The
Company has entered into surety bonds with a financial institution in Saudi Arabia which guaranteed performance on certain contracts.
Deposits for surety bonds amounted to $0 and $749,000 (which was a significant portion of the loss from discontinued operations)
as of December 31, 2016 and 2015,
respectively
. During the year ended December
31, 2016 a reserve was placed against the deposit balance due to the uncertainty of when the bond will be released. Deposits are
included on the consolidated balance sheets in assets held for sale during the year ended December 31, 2015.
The
Company did not recognize any depreciation or amortization expense related to discontinued operations during the years ended December
31, 2016 or 2015. There were no significant capital expenditures or non-cash operating or investing activities of discontinued
operations during the periods presented. The operations of Sysorex Arabia were insignificant for the years ended December 31,
2016 and 2015.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
13 - Discontinued Operations (continued)
End
of Service Indemnity Provision
In
accordance with local labor laws, Sysorex Arabia LLC is required to accrue benefits payable to the employees of the Company at
the end of their services with the Company. For the years ended December 31, 2016 and 2015, no amounts were required to be accrued
under this provision.
Note
14 - Deferred Revenue
Deferred
revenue as of December 31, 2016 and 2015 consisted of the following:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Deferred Revenue, Current
|
|
|
|
|
|
|
Maintenance agreements
|
|
$
|
14,873
|
|
|
$
|
9,025
|
|
Service agreements
|
|
|
170
|
|
|
|
70
|
|
Total Deferred Revenue, Current
|
|
|
15,043
|
|
|
|
9,095
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue, Non-Current
|
|
|
|
|
|
|
|
|
Maintenance agreements
|
|
|
5,960
|
|
|
|
7,666
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Revenue
|
|
$
|
21,003
|
|
|
$
|
16,761
|
|
The
fair value of the deferred revenue approximates the services to be rendered.
Note
15 – Debt
Debt
as of December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Short-Term Debt
|
|
|
|
|
|
|
Notes payable
|
|
$
|
170
|
|
|
$
|
170
|
|
Revolving line of credit (A)
|
|
|
6,717
|
|
|
|
8,580
|
|
Term loan (B)
|
|
|
--
|
|
|
|
667
|
|
Total Short-Term Debt
|
|
$
|
6,887
|
|
|
$
|
9,417
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
212
|
|
|
$
|
282
|
|
Term loan, non-current portion (B)
|
|
|
--
|
|
|
|
944
|
|
Senior secured convertible debenture, less debt discount of $1,865 (C)
|
|
|
3,835
|
|
|
|
--
|
|
Total Long-Term Debt
|
|
$
|
4,047
|
|
|
$
|
1,226
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
15 – Debt (continued)
|
(A)
|
Revolving
Lines of Credit
|
Western
Alliance Revolving Line of Credit
On
May 4, 2015 (effective as of April 29, 2015), the Company and Bridge Bank entered into Amendment 4 to Bridge Bank’s Business
Financing Agreement (“BFA”) dated March 15, 2013 to add the Company, Sysorex Federal, AirPatrol and Shoom as borrowers
under the agreement (collectively, the “Borrowers”), amend certain financial covenants, increase the credit limit
to $10.0 million and provide for a second term loan of $2 million which
was scheduled
to mature
on April 29, 2018.
Effective
as of September 30, 2015 the Borrowers, entered into Amendment 5 (the “Amendment”), dated October 7, 2015, to the
BFA, with Western Alliance Bank, as successor in interest (“Western Alliance”) to Bridge Bank. Pursuant to Amendment
5, Western Alliance assumed the rights and obligations of Bridge Bank as successor in interest to Bridge Bank and
as
the lender under the Agreement. The Amendment also amended certain financial covenants of the Borrowers required by the
Agreement.
Western
Alliance Amendment
On
March 25, 2016, Inpixon, together with Inpixon USA and Inpixon Federal (collectively, the “Borrowers”) entered into
an amendment and waiver (the “Amendment”) to the BFA with Western Alliance (the “Lender”), pursuant to
which the Lender waived any non-compliance by the Borrowers with respect to the minimum adjusted EBITDA requirements as of December
31, 2015. In addition, the Lender and the Borrowers agreed that the adjusted EBITDA for the six months ended March 31, 2016 would
not be less than $(2,200,000) and on or before April 30, 2016, the Borrowers and Lender
were
to
agree to additional financial covenants for the fiscal quarters ended June 30, 2016, September 30, 2016 and December
31, 2016. The
Lender
agreed to extend the April 30, 2016 deadline and the parties
negotiated
the additional financial covenants
in
Amendments No. 6 and No. 7 (as described below).
Western
Alliance Amendment No. 6
On
June 3, 2016, the Borrowers entered into Amendment No. 6 to Business Financing Agreement and Forbearance Agreement (the “Amendment”)
with Western Alliance Bank, as successor in interest to Bridge Bank National Association (the “Lender”). Pursuant
to the Amendment, the Lender agreed to (i) amend the Financing Agreement dated March 15, 2013 (the “Original Agreement”)
as described below, (ii) forbear from the exercise of its rights and remedies under the Original Agreement until June 30, 2016,
subject to compliance by the Borrowers with certain other conditions as set forth in the Amendment, and (iii) waive certain defaults
of the Borrowers, including the Borrowers’ failure to repay over advances, as defined in the Original Agreement.
Material
changes made to the Original Agreement by the Amendment
included
, but
were
not limited to: (i) agreement by the Lender to allow the Company to finance a receivable from a customer outside of the
United States for a limited period of time; (ii) modification of the date for the repayment of the Term Advance to June 30, 2016;
(iii) agreement by the Borrowers to maintain, beginning on June 30, 2016, an Asset Coverage Ratio of not less than 1.25 to 1;
and (iv) revisions to the definition of certain terms that are included in the Original Agreement and providing definitions for
certain terms that are included in the Amendment.
Western
Alliance Financing Agreement Amendment No. 7
On
August 5, 2016, the Borrowers entered into Amendment No. 7 to Business Financing Agreement with Western Alliance Bank, as successor
in interest to Bridge Bank National Association (the “Lender”). Pursuant to the 7th Amendment the Lender agreed to
(among other things), (1) waive any non-compliance by the Borrowers with respect to any defaults and consented to the
sale
to an institutional investor of (i) an 8% Original Issue Discount Senior Convertible Debenture in an aggregate principal amount
of $5,700,000 due on August 9, 2018 and (ii) 2,250 shares of newly created Series 1 Convertible Preferred Stock for an aggregate
purchase price of $5,000,000 (the “Transaction”)
and (2) the Borrowers agreed to pay the outstanding principal
amount of the Term Advance upon the earlier of the closing of the Transaction and August 10, 2016. In addition, the Company agreed
to pay a fee of $200,000 in lieu of issuing an additional warrant to the Lender and agreed to negotiate in good faith to further
amend the Agreement to provide for certain financial covenants for periods after August 31, 2016.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
15 – Debt (continued)
GemCap
Lending Loan Agreement
The
Company and its wholly-owned subsidiaries, Inpixon USA and Inpixon Federal (jointly and severally, the “Borrower”),
entered into a Loan and Security Agreement (the “Loan Agreement”) with GemCap Lending I, LLC, a Delaware limited liability
company (the “Lender”) dated as of November 14, 2016.
Under
the terms of the Loan Agreement, and subject to the satisfaction of certain conditions to funding, the Lender has agreed to make
revolving credit loans to the Borrower in an aggregate principal amount which does not exceed 85% of Eligible Accounts (as defined
in the
Loan
Agreement) at any one time outstanding, net of all taxes, discounts,
allowances and credits given or claimed, provided that in no event can the aggregate amount of the revolving credit loans outstanding
at any time exceed $10 million (subject to certain conditions). All amounts due under the Loan Agreement upon funding will be
secured by the assets of the Company.
Borrowings pursuant to the Loan Agreement bears
interest at an annual rate equal to the greater of (a) 9.5% and (b) the sum of (i) the Prime Rate, adjusted as and when such Prime
Rate changes, plus (ii) 6%. The interest rate on borrowings is subject to increase by 4% if an event of default has occurred and
is continuing. The Loan Agreement includes in its definition of an event of default the failure to pay any principal when due within
two business days, the termination, winding up, liquidation or dissolution of borrower, the filing of a tax lien by a governmental
agency against borrower, and any reduction in ownership of its wholly owned subsidiaries Inpixon USA and Inpixon Federal.
In
connection with the Loan Agreement, the Borrower
paid
to the Lender
a $100,000 closing fee. The Lender will also receive (a) an annual line fee equal to $100,000; (b) an unused line fee equal to
0.5% of the daily average unused portion of the maximum amount of Availability (as defined in the Loan Agreement), calculated
on an annualized basis, due and payable monthly; (c) a loan administration and monitoring fee equal to 0.5% of the daily average
used portion of Availability calculated on a monthly basis, due and payable monthly; and (d) certain other audit and wire fees.
Upon
closing, the Loan Agreement
provided
the Borrower with a revolving
line of credit, the proceeds of which were used to repay in full the existing indebtedness owed to Western Alliance Bank, as successor
in interest to Bridge Bank, N.A.
and to
pay certain expenses related to obtaining
the revolving line of credit and for general working capital purposes.
GemCap
Loan Agreement and Loan Schedule Amendment 1
On
December 9, 2016, the Borrower entered into that certain Amendment Number 1 to the Loan and Security Agreement and to the Loan
Agreement Schedule (the “Amendment”), to amend
the
Loan Agreement
and Loan Agreement Schedule (the “Loan Schedule”), both dated as of November 14, 2016, with
the
Lender including:
|
●
|
Amending
the definition of “Borrowing Base” in the Loan Agreement, under which Borrower Base will be calculated at any
time as the sum of (i) at any time as the product obtained by multiplying the outstanding amount of all Eligible Accounts
(not including and specifically excluding Eligible Unbilled Accounts), net of all taxes, discounts, allowances and credits
given or claimed, by up to eighty-five percent (85%), and (ii) (A) for the period from December 9, 2016 through and including
January 9, 2017, the product obtained by multiplying the amount of only Eligible Unbilled Accounts net of all taxes, discounts,
allowances and credits given or claimed, by up to eighty- five percent (85%), (B) for the period from January 10, 2017 through
and including February 8, 2017, the product obtained by multiplying the amount of only Eligible Unbilled Accounts net of all
taxes, discounts, allowances and credits given or claimed, by up to seventy percent (70%), (C) for the period from February
9, 2017 through and including March 9, 2017, the product obtained by multiplying the amount of only Eligible Unbilled Accounts
net of all taxes, discounts, allowances and credits given or claimed, by up to fifty percent (50%), and (D) from and after
March 10, 2017, the product obtained by multiplying the amount of only Eligible Unbilled Accounts net of all taxes, discounts,
allowances and credits given or claimed, by zero percent (0%), it being the understanding of Borrower, that on and after March
10, 2017, Lender shall not make advances against Eligible Unbilled Accounts; provided, that, at all times, the aggregate amount
of Eligible Unbilled Accounts shall not exceed twenty percent (20%) of the aggregate amount of Eligible Accounts.
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
15 – Debt (continued)
|
●
|
Adding
the definition of “Eligible Unbilled Accounts” to the Loan Agreement, which means accounts (i) for which goods
are to be provided to an account debtor or work or services are to be performed for an account debtor and the Borrower has
not invoiced the account debtor within thirty (30) days after such accounts are first included on the Borrowing Certificate,
and (ii) which otherwise satisfy (1), (3), (5) through and including (12) and (14) through and including (22) of the definition
of Eligible Accounts as provided in the Loan Agreement.
|
|
●
|
Amending
the deadline for Borrower to deliver Monthly Financial Statements (as defined in the Loan Schedule) to Lender from not later
than twenty (20) days after the end of each calendar month to not later than thirty (30) days after the end of each calendar
month.
|
|
●
|
Adding
“Inventory schedules” to the definition of “Other Weekly Reports” under the Loan Schedule.
|
In
connection with the Amendment, Lender agreed to (i) waive any default of Borrower under the Loan Agreement and the Loan Schedule
arising from Borrower’s failure to deposit Collections of Accounts (as defined in the Loan Agreement) received by Borrower
in the account designated by Lender for the period from November 21, 2016 through and including December 6, 2016 and (ii) provide
Borrower with additional availability for unbilled accounts in accordance with the Amendment.
In
consideration of Lender’s consent to waive the default and accommodation to provide additional availability, Borrower agreed
to pay all of Lender’s fees and costs including Lender’s attorneys’ fees and costs in respect of the transactions
regarding the Amendment and an accommodation fee of $50,000.
|
(B)
|
Western
Alliance Term Loan
|
On
May 4, 2015 (effective as of April 29, 2015), the Company and Western Alliance Bank f/k/a Bridge Bank entered into Amendment 4
to the BFA dated March 15, 2013 which provided for a second term loan of $2 million which matures on April 29, 2018 of which $167,000
was used to pay off the balance of the initial term loan. The term loan
accrued
interest
at Western Alliance’s prime rate plus 2%. At December 31, 2015 the interest rate was 5.5%. The Company
was
required to
make payments of $56,000 on the term loan on the first day of each month commencing on May 1, 2015 until the
loan amount
was
paid in full. The balance due on the term loan was scheduled
to be paid in full during the year ending December 31, 2018.
In accordance with
Amendment
7 of the Western Alliance banking arrangements as described above
,
the term
loan was paid in full
in August 2016
with the closing of the
sale
to an institutional lender of a
convertible debenture
,
as described below.
|
(C)
|
Convertible
Debenture and Preferred Stock Financing
|
On August 9, 2016, the Company entered into a
Purchase Agreement with Hillair Capital Investments L.P. pursuant to which it issued and sold (i) an 8% Original Issue
Discount Senior Convertible Debenture in an aggregate principal amount of $5,700,000 due on August 9, 2018 and (ii) 2,250
shares of newly created Series 1 Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”,
together with the Debenture, the “Securities”), for an aggregate purchase price of $5,000,000. The original issue
discount of $700,000 has been included as a component of the debt discount. The Company allocated the fair value of the debt
and preferred stock under a relative fair value methodology.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
15 – Debt (continued)
The
debenture is due on August 9, 2018 and interest is payable quarterly on February 9, May 9, August 9 and November 9, commencing
on May 9, 2017, as well as the dates on which principal payments are made, as described in the
debenture
in cash, or upon notice to the holder and compliance with certain equity conditions as set forth in the
debenture
in shares of the Company’s common stock. The debenture is convertible any time at the option of the holder at a conversion
price of $22.50 per share, subject to adjustments provided in the debenture. Subject to certain equity conditions, the Company
has the option to redeem the debenture before its maturity by payment in cash of 120% or 110% (depending on the timing of the
redemption) of the then outstanding principal amount plus accrued interest and other charges. The Company is required to redeem
25% of the initial principal amount of the debenture plus accrued unpaid interest and other charges in November 2017, February
2018, May 2018, and August 2018.
The
debenture is convertible into common stock at any time by the
holder
at $22.50
per share. In addition
,
under the terms of the
debenture
if, at any time following the six month anniversary of the original issue date or, in the event the Company sells or grants
any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any shares of common stock
or common stock equivalents at an effective price per share that is lower than the conversion price then the conversion price
is reduced to equal the lower price.
The Company included approximately $189,000 of related debt issuance cost, which
was primarily professional fees, as a component of the debt discount which will be amortized to interest over the term of the debt.
The Company evaluated the embedded conversion
feature within the debenture in accordance with FASB ASC 815 “Derivatives and Hedging.” The conversion price was
deemed to have a reset provision with down round protection and was recorded as a derivative liability. The Company
calculated the fair value of $51,000 for the embedded conversion feature using the Binomial Lattice Model which was recorded
as a discount to the debenture using the residual method. The debt discount is charged to interest expense ratably over the
term of the debenture and the derivative liability will be marked to market through earnings at the end of each
reporting period. For the year ended December 31, 2016 the Company recorded amortization of the debt discount of
$491,000.
The
weighted-average assumptions used to apply this pricing model were as follows:
Risk-free interest rate
|
|
0.71%
|
Expected life of the debt
|
|
2 years
|
Expected volatility
|
|
49%
|
Dividends assumption
|
|
$ --
|
The
expected volatility was calculated using comparable companies, the risk free interest rate was obtained from US Treasury rates
for the applicable period and the dividend assumption was $0 as the Company historically has not declared any dividends and does
not expect to.
The
proceeds from the sale of the Securities
were and are
used for the repayment
of the outstanding balance on the Company’s term loan with Western Alliance Bank, as successor in interest to Bridge Bank
National Association in an amount equal to approximately $1.4 million, the repayment of accounts payable of at least $1 million,
business development activities, capital expenditures, working capital and general and administrative expenses.
Note
16 - Capital Lease Obligations
During
the year ended December 31, 2014, the Company entered into a lease arrangement for furniture with Madison Funding. The lease term
is from March 2014 through February 2019. Monthly minimum lease payments are $3,000 and the lease required a security deposit
of $14,000. The Company exercised the buy-out option and the lease was paid in full on January 27, 2016.
During
the year ended December 31, 2014, the Company entered into a lease arrangement for equipment with Cambridge TelCom Services, Inc.
The lease term is from November 2014 through April 2019. Monthly minimum lease payments are $13,000.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
16 - Capital Lease Obligations (continued)
The
following is an analysis of the property under capital leases included in property and equipment (see Note 9) (in thousands):
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Furniture and fixtures
|
|
$
|
--
|
|
|
$
|
127
|
|
Accumulated depreciation
|
|
|
--
|
|
|
|
(45
|
)
|
Net furniture and fixtures
|
|
$
|
--
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
Computer and office equipment
|
|
$
|
649
|
|
|
$
|
649
|
|
Accumulated depreciation
|
|
|
(281
|
)
|
|
|
(151
|
)
|
Net computer and office equipment
|
|
$
|
368
|
|
|
$
|
498
|
|
Depreciation
expense for leased property and equipment for the years ended December 31, 2016 and 2015 were $130,000 and $156,000, respectively.
Future
minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31,
2016 (in thousands):
Years Ending December 31,
|
|
Equipment
|
|
2017
|
|
|
161
|
|
2018
|
|
|
161
|
|
2019
|
|
|
54
|
|
Total Minimum Lease Payments
|
|
|
376
|
|
Less: Imputed interest
|
|
|
(32
|
)
|
Capital Lease Obligations (A)
|
|
$
|
344
|
|
(A)
|
Capital
lease obligations are included on the Consolidated Balance Sheets in Accrued liabilities for the current portion due and Other
liabilities for the non-current portion due as of December 31, 2016.
|
Note
17 - Preferred Stock
The
Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences,
privileges and restrictions as to be determined by the Company’s Board of Directors. There were
2,250
and 0
shares of preferred stock issued and outstanding as of December 31, 2016 and 2015
,
respectively
.
Note
18 - Equity Raise
September
2015 Equity Raise
On September 25, 2015, the Company entered
into an underwriting agreement with B. Riley & Co., LLC, as representative of the several underwriters named therein, relating
to the issuance and sale of 350,000 shares of the Company common stock, par value $0.001 per share. The price to the public in
this offering was $15.00 per share. Under the terms of the Underwriting Agreement, the Company also granted the Underwriters an
option, exercisable for 30 days from the closing date, to purchase up to an additional 52,500 shares at the public offering price.
The offering was made pursuant to the Company’s registration statement on Form S-3 (Registration Statement No. 333-204159)
filed with the Securities and Exchange Commission and declared effective May 28, 2015 and a related prospectus supplement filed
with the Securities and Exchange Commission.
The
offering closed September 30, 2015. After deducting underwriting discounts and commissions and offering expenses, the net proceeds
from the offering were approximately $4.7 million.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
18 - Equity Raise (continued)
December
2016 Equity Raise
On
December 12, 2016, the Company entered into a Securities Purchase Agreement with certain investors (the
“Investors”) for the sale by the Company of 333,333 shares (the “Common Shares”) of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price of $6.00 per
share. Concurrently with the sale of the Common Shares, pursuant to the Purchase Agreement the Company also sold warrants to
purchase up to 250,000 shares of Common Stock (the “Warrants”). The aggregate gross proceeds for the sale of the
Common Shares and Warrants
was
approximately $2.0 million. Subject to
certain ownership limitations, the Warrants will be exercisable on the 6-month anniversary of the issuance date at an
exercise price equal to $6.75 per share of Common Stock (the “Exercise Price”), subject to adjustments as
provided under the terms of the Warrants. The Warrants are exercisable for five and a half years from the initial issuance
date.
The warrants included a fundamental transaction clause which provided for the warrant holder to be paid in cash
upon an event as defined in the warrant. The cash payment is to be computed under a Black-Scholes valuation model for the
unexercised portion of the warrant. Accordingly under ASC 815 Derivatives and Hedging the warrants were deemed to be
derivative liability and are marked to market at each reporting period.
The
net proceeds to the Company from the transactions, after deducting the placement agent’s fees and expenses but before paying
the Company’s estimated offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants was approximately
$1.8 million. The Company used the net proceeds from the
transaction
for
general corporate purposes, which included business development activities, capital expenditures, working capital and general
and administrative expenses.
The
Common Shares (but not the Warrants or shares issuable upon exercise of the Warrants) were offered and sold by the Company pursuant
to a prospectus supplement dated as of December 12, 2016, which was filed with the Securities and Exchange Commission (the “SEC”),
in connection with a takedown from the Company’s effective shelf registration statement on Form S-3, which was filed with
the SEC on May 14, 2016 and subsequently declared effective on May 28, 2016 (File No. 333-204159), and a related prospectus dated
as of May 28, 2016 contained in such Registration Statement.
Note
19 - Common Stock
On
July 1, 2015, the Company issued 91 shares of common stock to employees who had exercised employee stock options in a cashless
exercise.
On September 30, 2015, and as more fully described
in Note 18, the Company issued 350,000 of common stock at $15.00 per share for proceeds of approximately $4.7 million, after deducting
the underwriting discounts, fees and commissions.
During
the year ended December 31, 2015, the Company issued 23,416 shares of common stock for services which were fully vested upon the
date of grant. The Company recorded an expense of $455,000 for the fair value of those shares.
During
the year ended December 31, 2016, the Company issued 13,000 shares of common stock for services which were fully vested upon the
date of issuance. The Company recorded an expense of $371,000 for the fair value of those shares.
During the year ended December 31, 2016, the Company issued an aggregate of 102,895 shares of common stock
for the settlement of $2,895,000 of amounts accrued in accordance with the terms of the LightMiner Asset Purchase Agreement, dated
April 24, 2015. As of December 31, 2016 the fair value of $567,000 was accrued and held in escrow which represented 18,905 shares
of common stock. Subsequent to December 31, 2016 the escrow was released and the Company issued the shares for settlement of the
liability.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
19 - Common Stock (continued)
On December 12, 2016, and as more fully
described in Note 18, the Company issued 333,333 of common stock at $6.00 per share for proceeds of approximately $1.8
million, after deducting the underwriting discounts, fees and commissions.
On November 21, 2016, and as more fully described
in Note 4, the Company issued 35,333 shares of restricted common stock in connection with the purchase of Integrio Technologies,
LLC. The Company recorded the $101,000 value of the shares as part of the purchase price of the assets during the year ended December
31, 2016.
Note
20 - Convertible Series 1 Preferred Stock
On August 9, 2016, the Company entered into
a Securities Purchase Agreement pursuant to which it issued and sold (i) an 8% Original Issue Discount Senior Convertible Debenture
in an aggregate principal amount of $5,700,000 and (ii) 2,250 shares of newly created Series 1 Convertible Preferred Stock for
an aggregate purchase price of $5,000,000. (See Note 15) The Company allocated the fair value of the debt and preferred stock
under a relative fair value methodology.
The
Series 1 Convertible Preferred Stock authorized has a stated price of $1,000 per share, par value of $0.001. The Series 1 Convertible
Preferred Stock is not cumulative, has no redemption features outside the control of the Company and has a liquidation preference
of $2,250,000 and is subject to certain typical anti-dilution provisions, such as stock dividend or stock splits.
The Series 1 Convertible Preferred Stock
is convertible at any time by the shareholder. The number of shares of common stock to be issued is computed by dividing
the Stated Value of the share of Preferred Stock, defined as $15,000, by the Conversion Price, defined as $22.50
.
In
addition under the terms of the agreement if, at any time following the six month anniversary of the original issue date
or, in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise
disposes of or issues any shares of common stock or common stock equivalents at an effective price per share that is lower
than the conversion price, then the conversion price is reduced to equal the lower price. The holders of the Company’s
Series 1 Convertible Preferred Stock have no voting rights. Because the conversion option associated with the Series 1
Convertible Preferred Stock is clearly and closely related to the host instrument, the conversion option does not require
bifurcation and classification as a derivative liability.
Note
21 - Stock Options
In
September 2011, the Company adopted the
2011 Employee
Stock Incentive Plan which
provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee
directors, consultants and independent contractors. The plan was amended and restated in May 2014. Incentive stock options are
granted at exercise prices not less than 100% of the estimated fair market value of the underlying common stock at date of grant.
The exercise price per share for incentive stock options may not be less than 110% of the estimated fair value of the underlying
common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company.
Unless terminated sooner by the Board of Directors, this Plan will terminate on August 31, 2021.
Options
granted under the Company’s plan vest over periods ranging from immediately to four years and are exercisable over periods
not exceeding ten years. The aggregate number of shares that may be awarded under the Company’s plan as of December 31,
2016 is 450,402. As of December 31, 2016 83,543 options were available for future grant.
During
the three months ended March 31, 2015, the Company granted options for the purchase of 15,767 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of $23.40 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
$162,000. The fair value of the common stock as
of the grant date was determined to be $23.40 per share.
During
the three months ended June 30, 2015, the Company granted options for the purchase of 43,367 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and exercise prices that ranged from $32.10
to $34.80 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
$654,000. The fair value of the common stock
as of the grant date was determined to range from $32.10 to $34.80 per share.
During
the three months ended September 30, 2015, the Company granted options for the purchase of 90,529 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and exercise
prices
that ranged from $23.70 to $26.25 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
$1,243,000. The
fair value of the common stock as of the grant date was determined to range from $23.70 to $26.25 per share.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
21 - Stock Options (continued)
During
the three months ended December 31, 2015, the Company granted options for the purchase of 28,100 shares of common stock to employees
of the Company. These options are one hundred percent vested or vest pro-rata over 48 months, have a life of ten years and exercise
prices
that ranged from $10.05 to $14.85 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
$199,000. The fair value of the common stock as of the grant date was determined to range from $10.05 to $14.85 per
share.
During
the three months ended March 31, 2016, the Company granted options for the purchase of 6,833 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of $7.80 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
$27,000. The fair value of the common stock as of
the grant date was determined to be $7.80 per share.
During
the three months ended June 30, 2016, the Company granted options for the purchase of 75,460 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of $7.80 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
$292,000. The fair value of the common stock as
of the grant date was determined to be $7.80 per share.
During
the three months ended September 30, 2016, the Company granted options for the purchase of 23,167 shares of common stock to employees
of the Company. These options vest pro-rata over 48 months and have a life of ten years and an exercise price of $7.05 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
$81,000. The fair value of the common stock as of
the grant date was determined to be $7.05 per share.
During the year ended December 31, 2016 and
2015 the Company recorded a charge of $1,377,000 and $1,424,000, respectively, for the amortization of employee stock options.
As
of December 31, 2016, the fair value of non-vested options totaled $2,262,000 which will be amortized to expense over the weighted
average remaining term of 1.33 years.
The
fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key
weighted-average assumptions used to apply this pricing model during the years ended December 31, 2016 and 2015 were as follows:
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
1.35-1.47 %
|
|
1.73-2.27 %
|
Expected life of option grants
|
|
7 years
|
|
7 years
|
Expected volatility of underlying stock
|
|
47.47%-49.02 %
|
|
39.4%-51.45 %
|
Dividends assumption
|
|
$ --
|
|
$ --
|
The
expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry
peers and used an average of those volatilities. The Company attributes the value of stock-based compensation to operations on
the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.
The dividends assumptions was $0 as the Company historically has not declared any dividends and does not expect to.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
21 - Stock Options (continued)
The
following table summarizes the changes in options outstanding during the years ended December 31, 2016 and 2015:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Outstanding at January 1, 2015
|
|
|
183,969
|
|
|
$
|
39.30
|
|
|
$
|
14,820
|
|
Granted
|
|
|
177,763
|
|
|
|
25.65
|
|
|
|
--
|
|
Exercised
|
|
|
(188
|
)
|
|
|
--
|
|
|
|
--
|
|
Expired
|
|
|
(8,694
|
)
|
|
|
--
|
|
|
|
--
|
|
Forfeitures
|
|
|
(35,980
|
)
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2015
|
|
|
316,870
|
|
|
$
|
30.00
|
|
|
$
|
1,815
|
|
Granted
|
|
|
105,460
|
|
|
|
7.64
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Expired
|
|
|
(28,500
|
)
|
|
|
--
|
|
|
|
--
|
|
Forfeitures
|
|
|
(26,971
|
)
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2016
|
|
|
366,859
|
|
|
$
|
24.87
|
|
|
$
|
(116,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
108,536
|
|
|
$
|
28.20
|
|
|
$
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
158,120
|
|
|
$
|
29.99
|
|
|
$
|
(62,454
|
)
|
Note
22 - Warrants
On
November 17, 2015, the Company granted warrants for the purchase of 3,333
shares
of
common stock to a consultant. The warrants were fully vested upon grant, have a three year life and an exercise price of
$15.00 per share. The Company valued the warrants using the Black-Scholes option valuation model and the fair value of the
award was
determined to be
$11,400.
On
December 12, 2016, the Company granted warrants for the purchase of 250,000
shares
of common stock in connection with a securities purchase agreement and as more fully described in Note 18. The warrants
are exercisable on the 6-month anniversary of the issuance date at an exercise price equal to $6.75 per share of
common
stock
, subject to adjustments as provided under the terms of the
warrants
.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
22 - Warrants (continued)
The following table summarizes the changes in warrants
outstanding during the years ended December 31, 2016 and 2015:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate Intrinsic
Value
(in thousands)
|
|
Outstanding at January 1, 2015
|
|
|
34,084
|
|
|
$
|
30.60
|
|
|
|
--
|
|
Granted
|
|
|
3,333
|
|
|
|
15.00
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2015
|
|
|
37,417
|
|
|
$
|
29.24
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
250,000
|
|
|
|
6.75
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at December 31, 2016
|
|
|
287,417
|
|
|
$
|
9.68
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
37,417
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
37,417
|
|
|
|
--
|
|
|
|
--
|
|
Note 23 - Income Taxes
The domestic and foreign components of income (loss)
before income taxes from continuing operations for the years ended December 31, 2016 and 2015 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Domestic
|
|
$
|
(24,847
|
)
|
|
$
|
(13,691
|
)
|
Foreign
|
|
|
(1,885
|
)
|
|
|
1,963
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations before Provision for Income Taxes
|
|
$
|
(26,732
|
)
|
|
$
|
(11,728
|
)
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 23 - Income Taxes (continued)
The income tax provision (benefit) for the years ended
December 31, 2016 and 2015 consists of the following (in thousands):
|
|
2016
|
|
|
2015
|
|
Foreign
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(1,295
|
)
|
|
|
1,786
|
|
U.S. federal
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(5,247
|
)
|
|
|
(5,706
|
)
|
State and Local
|
|
|
|
|
|
|
|
|
Current
|
|
|
(1
|
)
|
|
|
--
|
|
Deferred
|
|
|
(1,845
|
)
|
|
|
(1,073
|
)
|
|
|
|
(8,388
|
)
|
|
|
(4,993
|
)
|
Change in valuation allowance
|
|
|
8,387
|
|
|
|
4,993
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
The reconciliation between the U.S. statutory federal
income tax rate and the Company’s effective rate for the years ended December 31, 2016 and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
U.S. federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.4
|
|
|
|
6.3
|
|
Impairment of goodwill
|
|
|
(9.4
|
)
|
|
|
|
|
Incentive stock options
|
|
|
(1.0
|
)
|
|
|
(2.3
|
)
|
State rate change and other
|
|
|
1.1
|
|
|
|
(0.2
|
)
|
US-Foreign income tax rate difference
|
|
|
(0.6
|
)
|
|
|
1.3
|
|
Other permanent items
|
|
|
3.9
|
|
|
|
3.5
|
|
Change in valuation allowance
|
|
|
(31.4
|
)
|
|
|
(42.6
|
)
|
Effective Rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
As of December 31, 2016 and 2015, the Company’s
deferred tax assets consisted of the effects of temporary differences attributable to the following:
(in 000s)
|
|
2016
|
|
|
2015
|
|
Deferred Tax Asset
|
|
|
|
|
|
|
Net operating loss carryovers
|
|
$
|
18,293
|
|
|
$
|
13,149
|
|
Deferred revenue
|
|
|
4,663
|
|
|
|
2,732
|
|
Stock based compensation
|
|
|
556
|
|
|
|
606
|
|
Deb debenture
|
|
|
130
|
|
|
|
--
|
|
Research credits
|
|
|
159
|
|
|
|
159
|
|
Accrued compensation
|
|
|
296
|
|
|
|
130
|
|
Reserves
|
|
|
846
|
|
|
|
--
|
|
Other
|
|
|
887
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Tax Asset
|
|
|
25,830
|
|
|
|
17,004
|
|
Less: valuation allowance
|
|
|
(19,472
|
)
|
|
|
(11,085
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset, Net of Valuation Allowance
|
|
$
|
6,358
|
|
|
$
|
5,919
|
|
Deferred Tax Liabilities
|
|
2016
|
|
|
2015
|
|
Intangible assets
|
|
$
|
(5,312
|
)
|
|
$
|
(4,917
|
)
|
Fixed assets
|
|
|
(312
|
)
|
|
|
(209
|
)
|
Other
|
|
|
(12
|
)
|
|
|
(80
|
)
|
Prepaid maintenance
|
|
|
(20
|
)
|
|
|
(145
|
)
|
Capitalized research
|
|
|
(702
|
)
|
|
|
(568
|
)
|
Total deferred tax liabilities
|
|
|
(6,358
|
)
|
|
|
(5,919
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
|
$
|
--
|
|
|
$
|
--
|
|
As of December 31, 2016 and 2015, the Company had approximately
$41.1 million and $32.3 million, respectively, of U.S. federal and state net operating loss (“NOL”) carryovers available
to offset future taxable income. These NOLs, if not utilized, begin expiring in the year 2023.
In accordance with Section 382 of the Internal Revenue
Code, deductibility of the Company’s net operating loss carryover may be subject to an annual limitation in the event of
a change of control, as defined by the regulations. On April 18, 2014, the Company acquired 100% of the outstanding capital stock
of AirPatrol Corporation. As of April 18, 2014, AirPatrol had approximately $17.2 million of U.S. federal and state NOL carryovers
available to offset future taxable income. In accordance with Section 382, these NOL carryovers are subject to an annual limitation
of approximately $978,000. The Company also performed a preliminary evaluation as to whether a change of control has taken place
and concluded that Softlead, Inc. experienced a change of ownership upon the completion of the reverse merger transaction in July
2011. It is estimated that Softlead’s NOLs are subject to an annual limitation of $331,000 for NOLs generated up through
the date of the reverse merger in July 2011.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
As of December 31, 2016 and 2015, the Company had approximately
$1,233,000 and $1,199,000 respectively of Saudi Arabian NOL carryovers available to offset future taxable income. Although the
carryover period is unlimited, only 25% of taxable income in any given year may be offset by the Company’s NOL carryovers.
As of December 31, 2016 and 2015, AirPatrol Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement,
had approximately $7,405,000 and $3,924,000 respectively, of Canadian NOL carryovers available to offset future taxable income.
These NOLs, if not utilized, begin expiring in the year 2026. As of December 31, 2015 the Company’s management decided to
close its Saudi Arabia legal entity. This may impact our carry forward of the NOL upon the completion of our plans.
No provision was made for U.S. taxes on
the undistributed earnings of AirPatrol Canada, as such earnings are considered to be permanently reinvested. Such earnings have
been, and will continue to be, reinvested, but could become subject to additional tax, if they were remitted as dividends, loaned
to the Company, or if the Company should sell its stock in AirPatrol Canada. It is not practicable to determine the amount of additional
tax, if any, that might be payable on the undistributed foreign earnings.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely
than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing
net future deductible amounts become deductible.
ASC 740, “Income Taxes” requires that a
valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets
will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all
the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets
and has, therefore, established a full valuation allowance as of December 31, 2016 and 2015. As of December 31, 2016 and December
31, 2015, the change in valuation allowance was $8,387,000 and $4,993,000, respectively.
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For
those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.
ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company is required to file income tax returns in the United States (federal), Canada, Saudi
Arabia and in various state jurisdictions in the United States. Based on the Company’s evaluation, it has been concluded
that there are no material uncertain tax positions requiring recognition in the Company’s financial statements for the years
ended December 31, 2016 and 2015.
The Company’s policy for recording interest and
penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component
of selling, general and administrative expense, respectively. There were no amounts accrued for interest or penalties for
the years ended December 31, 2016 and 2015. Management does not expect any material changes in its unrecognized tax benefits
in the next year.
The Company operates in multiple tax jurisdictions
and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations
may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning
with the year ended December 31, 2013. In general, the Canadian Revenue Authority may reassess taxes four years from the date the
original notice of assessment was issued. The tax years that remain open and subject to Canadian reassessment are 2012- 2016. The
Company is also subject to examination in Saudi Arabia for five years following the filing of the income tax return.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 24 – Fair Value
The Company measures the fair value of financial assets
and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”)
which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices available in active markets
for identical assets or liabilities trading in active markets.
Level 2 - Observable inputs other than quoted prices
included in Level 1, such as quotable prices for similar assets and liabilities in active markets; quoted prices for identical
or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data.
Level 3 - Unobservable inputs that are supported by
little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs.
Financial instruments, including accounts
receivable, accounts payable, and deferred revenues are carried at cost, which management believes approximates fair value
due to the short-term nature of these instruments. The Company’s other financial instruments include debt payable, the
carrying value of which approximates fair value, as the notes bear terms and conditions comparable to market for obligations
with similar terms and maturities, as well as warrant and embedded conversion liabilities that are accounted
for at fair value on a recurring basis as of December 31, 2016, by level within the fair value hierarchy (in thousands):
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets or Liabilities
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Total
|
|
Embedded Conversion Feature
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Warrant liability
|
|
|
--
|
|
|
|
--
|
|
|
|
209
|
|
|
|
209
|
|
Derivative liability – December 31, 2016
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
210
|
|
|
$
|
210
|
|
Financial assets are considered Level 3 when their fair values are
determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption
or input is unobservable. The Company’s level 3 liabilities shown in the above table consist of warrants that contain a
cashless exercise feature that provides for their net share settlement at the option of the holder. Settlement at fair value upon
the occurrence of a fundamental transaction would be computed using the Black Scholes Option Pricing Model.
Assumptions utilized in the valuation of Level 3 liabilities are described
as follows:
|
|
For
the Year Ended December 31,
2016
|
|
Risk-free interest rate
|
|
|
2.10
|
%
|
Expected life of option grants
|
|
|
5 years
|
|
Expected volatility of underlying stock
|
|
|
47.09
|
%
|
Dividends assumption
|
|
$
|
--
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 24 – Fair Value (continued)
The expected stock price volatility for the Company’s
stock options was determined by the historical volatilities for industry peers and used an average of those volatilities. Risk
free interest rates were obtained from U.S. Treasury rates for the applicable periods. The expected term used is the contractual
life of the instrument being valued. The dividends assumptions was $0 as the Company historically has not declared any dividends
and does not expect to.
The following table presents the fair value reconciliation
of Level 3 liabilities measured at fair value during the year ended December 31, 2016 (in thousands):
|
|
Warrant
Liability
|
|
|
Embedded Conversion
Feature
|
|
|
Total Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Included in Debt Discount
|
|
|
--
|
|
|
|
52
|
|
|
|
52
|
|
Reclassification of warrants to derivative liabilities
|
|
|
209
|
|
|
|
--
|
|
|
|
209
|
|
Change in fair value of derivative
|
|
|
--
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
Balance at December 31, 2016
|
|
$
|
209
|
|
|
$
|
1
|
|
|
$
|
210
|
|
Note
25 - Credit Risk and Concentrations
Financial
instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents.
The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to
credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of
its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The
Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash
is also maintained at foreign financial institutions for its Canadian subsidiary and its majority-owned Saudi Arabia subsidiary.
Cash in foreign financial institutions as of December 31, 2016 and 2015 was immaterial. The Company has not experienced any losses
and believes it is not exposed to any significant credit risk from cash.
The
following table sets forth the percentages of revenue derived by the Company from those customers which accounted for at least
10% of revenues during the years ended December 31, 2016 and 2015 (in thousands):
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
|
$
|
|
%
|
|
$
|
|
%
|
Customer A
|
|
11,650
|
|
28%
|
|
16,705
|
|
25%
|
Customer B
|
|
--
|
|
--
|
|
7,492
|
|
11%
|
As
of December 31, 2016, Customer C represented approximately 29%, Customer A represented approximately 18%, and Customer B represented
approximately 14% of total accounts receivable. As of December 31, 2015, Customer A represented approximately 12%, Customer E
represented approximately 12%, Customer G represented approximately 12% and Customer B represented approximately 11% of total
accounts receivable.
As of December 31, 2016, one vendor represented approximately
43% of total gross accounts payable. Purchases from this vendor during the year ended December 31, 2016 were $16.3 million. As
of December 31, 2015, two vendors represented approximately 40% and 22% of total gross accounts payable. Purchases from this vendor
during the year ended December 31, 2015 were $24.6 million and $2.8 million.
For
the year ended December 31, 2016, one vendor represented approximately 50% of total purchases. For the year ended December 31,
2015, two vendors represented approximately 56% and 11% of total purchases.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
26 - Segment Reporting and Foreign Operations
The
Company operates in the following business segments:
|
●
|
Mobile,
IoT & Big Data Products: This segment currently includes our Inpixon product (formerly
AirPatrol and Lightminer but now integrated as one). Inpixon’s
indoor
positioning and data analytics
is based on a unique and proprietary sensor technology
that finds all accessible cellular, Wi-Fi and Bluetooth signals and then uses a lightning
fast data mining engine to deliver visibility and business intelligence based on the
industry.
|
|
|
|
|
●
|
Storage
and Computing: This segment includes third party hardware, software and related maintenance/warranty products and services
that Inpixon resells. It includes but is not limited to products for enterprise computing; storage; virtualization; networking;
etc.
|
|
|
|
|
●
|
SaaS
Revenues: These are Software-as-a-Services (SaaS) or internet based hosted services including the Shoom product line and other
data science services;
|
|
|
|
|
●
|
Professional
Services: These are general IT services including but not limited to: custom application/software design; architecture and
development; project management; C4I system consulting; strategic outsourcing; staff augmentation; data center design and
operations services; data migration services and other non-SaaS services.
|
The
following tables present key financial information of the Company’s reportable segments before unallocated corporate expenses
(in thousands):
|
|
Mobile, IoT & Big Data Products
|
|
|
Storage
and Computing
|
|
|
SaaS Revenues
|
|
|
Professional Services
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,617
|
|
|
$
|
36,071
|
|
|
$
|
3,258
|
|
|
$
|
12,221
|
|
|
$
|
53,167
|
|
Cost of net revenues
|
|
$
|
(553
|
)
|
|
$
|
(28,472
|
)
|
|
$
|
(938
|
)
|
|
$
|
(8,277
|
)
|
|
$
|
(38,240
|
)
|
Gross profit
|
|
$
|
1,064
|
|
|
$
|
7,599
|
|
|
$
|
2,320
|
|
|
$
|
3,944
|
|
|
$
|
14,927
|
|
Gross margin %
|
|
|
66
|
%
|
|
|
21
|
%
|
|
|
71
|
%
|
|
|
32
|
%
|
|
|
28
|
%
|
Depreciation and amortization
|
|
$
|
474
|
|
|
$
|
832
|
|
|
$
|
24
|
|
|
$
|
3
|
|
|
$
|
1,333
|
|
Amortization of intangibles
|
|
$
|
2,913
|
|
|
$
|
871
|
|
|
$
|
544
|
|
|
$
|
--
|
|
|
$
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,651
|
|
|
$
|
49,978
|
|
|
$
|
3,692
|
|
|
$
|
11,636
|
|
|
$
|
66,957
|
|
Cost of net revenues
|
|
$
|
(510
|
)
|
|
$
|
(40,295
|
)
|
|
$
|
(824
|
)
|
|
$
|
(5,999
|
)
|
|
$
|
(47,628
|
)
|
Gross profit
|
|
$
|
1,141
|
|
|
$
|
9,683
|
|
|
$
|
2,868
|
|
|
$
|
5,637
|
|
|
$
|
19,329
|
|
Gross margin %
|
|
|
69
|
%
|
|
|
19
|
%
|
|
|
78
|
%
|
|
|
48
|
%
|
|
|
29
|
%
|
Depreciation and amortization
|
|
$
|
164
|
|
|
$
|
122
|
|
|
$
|
111
|
|
|
$
|
2
|
|
|
$
|
399
|
|
Amortization of intangibles
|
|
$
|
2,681
|
|
|
$
|
769
|
|
|
$
|
544
|
|
|
$
|
--
|
|
|
$
|
3,994
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
26 - Segment Reporting and Foreign Operations (continued)
Reconciliation
of reportable segments’ combined income from operations to the consolidated loss before income taxes is as follows (in thousands):
|
|
For the Years
Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income from operations of reportable segments
|
|
$
|
14,927
|
|
|
$
|
19,329
|
|
Unallocated operating expenses
|
|
|
(38,650
|
)
|
|
|
(30,741
|
)
|
Interest expense
|
|
|
(1,743
|
)
|
|
|
(448
|
)
|
Other income (expense)
|
|
|
(1,279
|
)
|
|
|
151
|
|
Loss from discontinued operations
|
|
|
(758
|
)
|
|
|
(20
|
)
|
Consolidated net loss
|
|
$
|
(27,503
|
)
|
|
$
|
(11,729
|
)
|
The
Company’s operations are located primarily in the United States, Canada and Saudi Arabia. Revenues by geographic area are
attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands):
|
|
United
|
|
|
|
|
|
Saudi
|
|
|
|
|
|
|
|
|
|
States
|
|
|
Canada
|
|
|
Arabia
|
|
|
Eliminations
|
|
|
Total
|
|
Year
Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
by geographic area
|
|
$
|
53,348
|
|
|
$
|
54
|
|
|
$
|
--
|
|
|
$
|
(235
|
)
|
|
$
|
53,167
|
|
Operating
loss by geographic area
|
|
$
|
(21,838
|
)
|
|
$
|
(1,860
|
)
|
|
$
|
(25
|
)
|
|
$
|
--
|
|
|
$
|
(23,723
|
)
|
Net
loss by geographic area
|
|
$
|
(24,861
|
)
|
|
$
|
(1,860
|
)
|
|
$
|
(782
|
)
|
|
$
|
--
|
|
|
$
|
(27,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
by geographic area
|
|
$
|
66,916
|
|
|
$
|
41
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
66,957
|
|
Operating
loss by geographic area
|
|
$
|
(10,412
|
)
|
|
$
|
(1,000
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
(11,412
|
)
|
Net
loss by geographic area
|
|
$
|
(13,691
|
)
|
|
$
|
1,983
|
|
|
$
|
(21
|
)
|
|
$
|
--
|
|
|
$
|
(11,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets by geographic area
|
|
$
|
66,050
|
|
|
$
|
400
|
|
|
$
|
23
|
|
|
$
|
--
|
|
|
$
|
66,473
|
|
Long
lived assets by geographic area
|
|
$
|
29,843
|
|
|
$
|
319
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
30,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets by geographic area
|
|
$
|
67,538
|
|
|
$
|
405
|
|
|
$
|
772
|
|
|
$
|
--
|
|
|
$
|
68,715
|
|
Long
lived assets by geographic area
|
|
$
|
32,759
|
|
|
$
|
241
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
33,000
|
|
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
27 - Commitments and Contingencies
Operating
Leases
The
Company leases facilities located in California, Washington State, Oregon, Virginia, Maryland, Hawaii, and Canada for its office
space under non-cancelable operating leases that expire at various times through 2022. The total amount of rent expense under
the leases is recognized on a straight-line basis over the term of the leases. As of December 31, 2016 and 2015, deferred rent
payable was $139,000 and $135,000, respectively. Rent expense under the operating leases for the years ended December 31, 2016
and 2015 was $1.4 million and $1.4 million, respectively. The Company receives rental income from subleasing the Maryland office
space. The rental income is recorded as a contra account to rent expense.
Future
minimum lease payments under the above operating lease commitments at December 31, 2016 are as follows (in thousands):
For the Years Ending December 31,
|
|
Operating Lease Amounts
|
|
|
Sublease Income
|
|
|
Minimum Payments
|
|
2017
|
|
$
|
1,427
|
|
|
$
|
(129
|
)
|
|
$
|
1,298
|
|
2018
|
|
|
1,161
|
|
|
|
(129
|
)
|
|
|
1,032
|
|
2019
|
|
|
658
|
|
|
|
--
|
|
|
|
658
|
|
2020
|
|
|
490
|
|
|
|
--
|
|
|
|
490
|
|
2021
|
|
|
444
|
|
|
|
--
|
|
|
|
444
|
|
Thereafter
|
|
|
55
|
|
|
|
--
|
|
|
|
55
|
|
Total
|
|
$
|
4,235
|
|
|
$
|
(258
|
)
|
|
$
|
3,977
|
|
Litigation
Certain
conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company,
but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable
but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would
be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business,
financial position, and results of operations or cash flows.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
27 - Commitments and Contingencies (continued)
During
the year ended December 31, 2011, a judgment in the amount of $936,000 was levied against Sysorex Arabia LLC in favor of Creative
Edge, Inc. in connection with amounts advanced for operations. Of that amount, $214,000 has been repaid, and the remaining $722,000 has been accrued and is included as a component of liabilities held for sale
as of December 31, 2016 and 2015 in the consolidated balance sheets.
Employee
Benefit Plans
On
January 1, 2015 all of the defined contribution retirement plans were merged into one plan under Inpixon (“The Inpixon 401(k)
Plan”). The Inpixon
401(k)
Plan covered all of its eligible employees
after their completion of six months of service and upon attaining the age of 21. The Inpixon
401(k)
Plan provides that employees can contribute a percentage of their compensation limited to amounts prescribed by the Internal
Revenue Service, adjusted annually. Matching contributions are made at the discretion of management. No employer-matching contributions
were made to the Inpixon
401(k)
Plan for the years ended December 31, 2016 or
2015.
Contingent
Consideration
Under
the terms of the Lilien Asset Purchase Agreement, the Company was liable for the payment of additional cash consideration to the
extent that the recipients of the
200,000
shares of the Company’s common
stock receive less than $6.0 million from the sale of those shares, less customary commissions, on or before March 20, 2015. This
obligation expired on March 31, 2015 with no payment from the Company required.
Under
the terms of the AirPatrol Agreement and Plan of Merger (the “AirPatrol Agreement”), the AirPatrol Merger Consideration
also includes an earn-out, half of the value of which shall be in stock and the other half in cash (unless otherwise agreed or
required pursuant to the AirPatrol Agreement) payable to the former stockholders of AirPatrol in 2015 in accordance with the following
formula: if for the five quarter period ending March 31, 2015, AirPatrol Net Income meets or exceeds $3.5 million, the Company
shall pay to the former AirPatrol stockholders an earn-out payment equal to two times AirPatrol Net Income, provided that the
total earn-out payment shall not exceed $10,000,000. AirPatrol did not meet or exceed the required threshold and nothing is owed
for the earn-out.
Under the terms of the Integrio Technologies
Purchase Agreement, the Integrio acquisition consideration includes up to an aggregate of $1,200,000 in earnout payments, of which
up to $400,000 shall be payable to the seller per year for the three years following the Closing. The present value of the expected
earnout payment has been calculated by the Company as $1,078,000. The Company also may pay up to an additional $170,000 in commissions
on the Integrio acquisition based on the earnout earned by the seller.
Quasi-Reorganization
On
June 30, 2009, Sysorex Government Services, Inc., in connection with the Company’s expansion into the government services
industry, performed a deficit reclassification quasi-reorganization whereby $2,441,960 of the Company’s accumulated deficit
was reduced by a transfer from the Company’s additional paid in capital. Therefore, the Sysorex Government Services’
portion of Retained Earnings on the balance sheet are those Retained Earnings accumulated since July 1, 2009.
Note
28 - Subsequent Events
GemCap
Loan and Security Agreement Amendment 2
On
January 24, 2017, the Company, and its U.S. wholly-owned subsidiaries, Inpixon USA and Inpixon Federal, entered into Amendment
Number 2 to the Loan and Security Agreement to amend that certain Loan and Security Agreement and Loan Agreement Schedule, both
dated as of November 14, 2016, with GemCap Lending I, LLC whereby Section (21) of the definition of “Eligible Accounts”
in Section 1.29 of the Loan Agreement was deleted and restated in its entirety as follows: Accounts that satisfy the criteria
set forth in the foregoing items (1) – (20), which are owed by any other single Account Debtor or its Affiliates so long
as such Accounts, in the aggregate, constitute no more than twenty percent (20%) of all Eligible Accounts, provided, that only
for the period commencing on January 24, 2017 through and including April 24, 2017, Accounts in the aggregate only from and owed
by Centene Corporation or its Affiliates may exceed twenty percent (20%) of all Eligible Accounts by an amount not to exceed $500,000,
provided, further, that, from and after April 25, 2017, Accounts in the aggregate that are owed by Centene Corporation or its
Affiliates that satisfy the criteria set forth in the foregoing items (1) – (20) shall not exceed twenty percent (20%) of
all Eligible Accounts; and Borrower shall have paid to Lender an accommodation fee in the amount of $5,000 on February 2, 2017.
INPIXON
AND SUBSIDIARIES
(f/k/a
SYSOREX GLOBAL AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Note
28 - Subsequent Events (continued)
Company
Name Change and Stock Split
On
February 27, 2017, Sysorex Global, n/k/a Inpixon, entered into an Agreement and Plan of Merger with Inpixon, its wholly-owned
Nevada subsidiary formed solely for the purpose of changing the Company’s corporate name from Sysorex Global to Inpixon.
In accordance with the Merger Agreement, effective as of March 1, 2017, the subsidiary was merged with and into the Company with
the Company as the surviving corporation.
As
part of the Company’s Name Change, each of the Company’s subsidiaries also amended their corporate charters to change
their names from Sysorex USA, Sysorex Government Services, Inc., and Sysorex Canada Corp. to Inpixon USA, Inpixon Federal, Inc.,
and Inpixon Canada, Inc., respectively, effective as of March 1, 2017.
Also
on the Effective Date, 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-15 reverse stock split of the Company’s common stock, par value $0.001 per share.
Pursuant to the Amendment, every 15 shares of the issued and outstanding Common Stock were converted into one share of Common
Stock, without any change in the par value per share.
Through and including , 2017 (the 25th
day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters with respect to their unsold allotments or subscriptions.
Class A Units Consisting of Common
Stock and Warrants
Class B Units Consisting of Series
2 Convertible Preferred Stock and Warrants
PROSPECTUS
Aegis
Capital Corp.
,
2017