INPIXON - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 001-36404
INPIXON
(Exact name of registrant as specified in its charter)
| Nevada | 88-0434915 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
2479 E. Bayshore Road
Suite 195
Palo Alto, CA 94303
(Address of principal executive offices)
(Zip Code)
(408) 702-2167
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which each is registered | ||||||||||||
| Common Stock, par value $0.001 | INPX | The Nasdaq Stock Market LLC | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | ||||||||
| Non-accelerated filer | x | Smaller reporting company | x | ||||||||
| Emerging growth company | ¨ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Stock, Par Value $0.001 | 26,665,373 | |||||||
| (Class) | Outstanding at May 15, 2023 | |||||||
INPIXON
TABLE OF CONTENTS
| Page No. | ||||||||||||||
| Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report | ||||||||||||||
| PART I - FINANCIAL INFORMATION | ||||||||||||||
| Item 1. | Financial Statements | |||||||||||||
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 | ||||||||||||||
Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 | ||||||||||||||
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023 and 2022 | ||||||||||||||
Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity for the three months ended March 31, 2023 and 2022 | ||||||||||||||
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 | ||||||||||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||||||||||
| Item 4. | Controls and Procedures | |||||||||||||
| PART II - OTHER INFORMATION | ||||||||||||||
| Item 1. | Legal Proceedings | |||||||||||||
| Item 1A. | Risk Factors | |||||||||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||||||||
| Item 3. | Defaults Upon Senior Securities | |||||||||||||
| Item 4. | Mine Safety Disclosures | |||||||||||||
| Item 5. | Other Information | |||||||||||||
| Item 6. | Exhibits | |||||||||||||
| Signatures | ||||||||||||||
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
•our history of losses;
•our ability to achieve profitability;
•our limited operating history with recent acquisitions;
•the possibility that anticipated tax treatment and benefits of the spin-off of our enterprise apps business and subsequent Business Combination (defined below) may not be achieved;
•risks related to our recent acquisitions, the spin-off of our enterprise apps business and subsequent Business Combination that recently closed or any other strategic transactions that we may undertake;
•our ability to successfully integrate companies or technologies we acquire;
•emerging competition and rapidly advancing technology in our industry that may outpace our technology;
•customer demand for the products and services we develop;
•the impact of competitive or alternative products, technologies and pricing;
•our ability to manufacture or deliver any products we develop;
•general economic conditions and events and the impact they may have on us and our potential customers, including, but not limited to increases in inflation rates and rates of interest, supply chain challenges, increased costs for materials and labor, cybersecurity attacks, other lingering impacts resulting from COVID-19, and the Russia/Ukraine conflicts;
•our ability to obtain adequate financing in the future as needed;
•our ability to consummate strategic transactions which may include acquisitions, mergers, dispositions involving us and any of our business units or other strategic investments;
•our ability to attract, retain and manage existing customers;
•our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market;
•lawsuits and other claims by third parties or investigations by various regulatory agencies that we may be subjected to and are required to report, including but not limited to, the U.S. Securities and Exchange Commission;
•our success at managing the risks involved in the foregoing items;
•impact of any changes in existing or future tax regimes; and
ii
•other factors discussed in this Form 10-Q.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless otherwise stated or the context otherwise requires, the terms “Inpixon” “we,” “us,” “our” and the “Company” refer collectively to Inpixon and, where appropriate, its subsidiaries.
Note Regarding Reverse Stock Split
The Company effected a reverse stock split of its authorized and issued and outstanding common stock, par value $0.001, at a ratio of 1-for-75, effective as of October 7, 2022 (the "Reverse Stock Split"), for the purpose of complying with Nasdaq Listing Rule 5550(a)(2). We have reflected the Reverse Stock Split herein, unless otherwise indicated.
PART I — FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended March 31, 2023 are not necessarily indicative of the results of operations for the full year. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 included in the annual report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 17, 2023.
iii
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value data)
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 15,254 | $ | 10,235 | |||||||
Accounts receivable, net of allowances of $268 and $272, respectively | 2,999 | 1,889 | |||||||||
| Notes and other receivables | 430 | 86 | |||||||||
| Inventory | 2,179 | 2,442 | |||||||||
| Note receivable | — | 150 | |||||||||
| Prepaid expenses and other current assets | 2,797 | 2,803 | |||||||||
| Current assets of discontinued operations | — | 12,261 | |||||||||
| Total Current Assets | 23,659 | 29,866 | |||||||||
| Property and equipment, net | 1,052 | 1,064 | |||||||||
| Operating lease right-of-use asset, net | 484 | 531 | |||||||||
| Software development costs, net | 1,313 | 1,265 | |||||||||
| Investments in equity securities | 364 | 330 | |||||||||
| Long-term investments | 50 | 716 | |||||||||
| Intangible assets, net | 2,810 | 2,994 | |||||||||
| Other assets | 175 | 158 | |||||||||
| Non-current assets of discontinued operations | — | 20,711 | |||||||||
| Total Assets | $ | 29,907 | $ | 57,635 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
1
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except number of shares and par value data)
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,767 | $ | 1,503 | |||||||
| Accrued liabilities | 5,112 | 2,619 | |||||||||
| Operating lease obligation, current | 199 | 211 | |||||||||
| Deferred revenue | 1,382 | 1,323 | |||||||||
| Short-term debt | 14,971 | 13,643 | |||||||||
| Acquisition liability | — | 197 | |||||||||
| Current liabilities of discontinued operations | — | 5,218 | |||||||||
| Total Current Liabilities | 23,431 | 24,714 | |||||||||
| Long Term Liabilities | |||||||||||
| Operating lease obligation, noncurrent | 297 | 334 | |||||||||
| Non-current liabilities of discontinued operations | — | 472 | |||||||||
| Total Liabilities | 23,728 | 25,520 | |||||||||
| Commitments and Contingencies | — | — | |||||||||
| Stockholders’ Equity | |||||||||||
Preferred Stock -$0.001 par value; 5,000,000 shares authorized | |||||||||||
Series 4 Convertible Preferred Stock - 10,415 shares authorized; 1 issued and 1 outstanding as of March 31, 2023 and December 31, 2022 | — | — | |||||||||
Series 5 Convertible Preferred Stock - 12,000 shares authorized; 126 issued and 126 outstanding as of March 31, 2023 and December 31, 2022 | — | — | |||||||||
Common Stock - $0.001 par value; 500,000,000 shares authorized; 16,478,253 and 3,570,894 issued and 16,478,252 and 3,570,893 outstanding as of March 31, 2023 and December 31, 2022, respectively. | 16 | 4 | |||||||||
| Additional paid-in capital | 339,148 | 346,668 | |||||||||
Treasury stock, at cost, 1 share | (695) | (695) | |||||||||
| Accumulated other comprehensive (loss) income | (198) | 1,061 | |||||||||
| Accumulated deficit | (330,586) | (313,739) | |||||||||
| Stockholders’ Equity Attributable to Inpixon | 7,685 | 33,299 | |||||||||
| Non-controlling Interest | (1,506) | (1,184) | |||||||||
| Total Stockholders’ Equity | 6,179 | 32,115 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 29,907 | $ | 57,635 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
2
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Unaudited) | |||||||||||
| Revenues | $ | 3,104 | $ | 2,649 | |||||||
| Cost of Revenues | 791 | 797 | |||||||||
| Gross Profit | 2,313 | 1,852 | |||||||||
| Operating Expenses | |||||||||||
| Research and development | 1,983 | 2,124 | |||||||||
| Sales and marketing | 1,115 | 1,169 | |||||||||
| General and administrative | 5,613 | 7,334 | |||||||||
| Acquisition-related costs | 164 | 115 | |||||||||
| Transaction costs | 1,400 | — | |||||||||
| Amortization of intangibles | 220 | 347 | |||||||||
| Total Operating Expenses | 10,495 | 11,089 | |||||||||
| Loss from Operations | (8,182) | (9,237) | |||||||||
| Other (Expense)/Income | |||||||||||
| Interest (expense)/income, net | (1,725) | 1 | |||||||||
| Other income/(expense), net | 29 | (44) | |||||||||
| Unrealized gain/(loss) on equity securities | 34 | (1,503) | |||||||||
| Total Other Expense | (1,662) | (1,546) | |||||||||
| Net Loss from Continuing Operations, before tax | (9,844) | (10,783) | |||||||||
| Income tax provision | (2,478) | — | |||||||||
| Net Loss from Continuing Operations | (12,322) | (10,783) | |||||||||
| Loss from Discontinued Operations, Net of Tax | (4,856) | (774) | |||||||||
| Net Loss | (17,178) | (11,557) | |||||||||
| Net Loss Attributable to Non-controlling Interest | (305) | (346) | |||||||||
| Net Loss Attributable to Stockholders of Inpixon | (16,873) | (11,211) | |||||||||
| Accretion of Series 7 Preferred Stock | — | (4,555) | |||||||||
| Accretion of Series 8 Preferred Stock | — | (548) | |||||||||
| Deemed dividend for the modification related to Series 8 Preferred Stock | — | (2,627) | |||||||||
| Deemed contribution for the modification related to Warrants issued in connection with Series 8 Preferred Stock | — | 1,469 | |||||||||
| Amortization premium- modification related to Series 8 Preferred Stock | — | 110 | |||||||||
| Net Loss Attributable to Common Stockholders | $ | (16,873) | $ | (17,362) | |||||||
3
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
| Net Loss Per Share - Basic and Diluted | $ | (1.38) | $ | (9.05) | |||||||
| Weighted Average Shares Outstanding | |||||||||||
| Basic and Diluted | 12,238,684 | 1,917,629 | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
4
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Unaudited) | |||||||||||
| Net Loss | $ | (17,178) | $ | (11,557) | |||||||
| Unrealized foreign exchange loss from cumulative translation adjustments | (1,259) | (102) | |||||||||
| Comprehensive Loss | $ | (18,437) | $ | (11,659) | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
5
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share and per share data)
| Series 4 Convertible Preferred Stock | Series 5 Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Non-Controlling Interest | Total Stockholders’ (Deficit) Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 | 1 | $ | — | 126 | $ | — | 3,570,894 | $ | 4 | $ | 346,668 | (1) | $ | (695) | $ | 1,061 | $ | (313,739) | $ | (1,184) | $ | 32,115 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for extinguishment of debt | — | — | — | — | 1,547,234 | 1 | 1,425 | — | — | — | — | — | 1,426 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for net cash proceeds of a public offering | 9,655,207 | 10 | 14,956 | — | — | — | — | — | 14,966 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options and restricted stock awards granted to employees for services | — | — | — | — | — | — | 329 | — | — | — | — | — | 329 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of CXApp business as result of spin off | — | — | — | — | — | — | (24,230) | 1 | — | — | — | — | — | (24,230) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for net proceeds from warrants exercised | — | — | — | — | 1,380,000 | 1 | — | — | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for exchange of warrants | — | — | — | — | 324,918 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | — | — | — | — | (1,259) | 26 | (17) | (1,250) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | (16,873) | (305) | (17,178) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | 1 | $ | — | 126 | $ | — | 16,478,253 | $ | 16 | $ | 339,148 | (1) | $ | (695) | $ | (198) | $ | (330,586) | $ | (1,506) | $ | 6,179 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
1
6
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share and per share data)
| Series 7 Preferred Stock | Series 8 Preferred Stock | Series 4 Convertible Preferred Stock | Series 5 Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Non-Controlling Interest | Total Stockholders’ (Deficit) Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | 49,250 | 44,695 | — | — | 1 | $ | — | 126 | $ | — | 1,730,140 | $ | 2 | $ | 332,761 | (1) | $ | (695) | 44 | $ | (250,309) | $ | 1,688 | $ | 83,491 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for extinguishment of debt | — | — | — | — | — | — | — | — | 57,472 | — | 1,500 | — | — | — | — | — | 1,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options and restricted stock awards granted to employees for services | — | — | — | — | — | — | — | — | — | — | 1,533 | — | — | — | — | — | 1,533 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series 7 Preferred redeemed for cash | (49,250) | (49,250) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series 8 Preferred stock issued for cash | — | — | 53,198 | 41,577 | — | — | — | — | — | — | 5,329 | — | — | — | — | — | 5,329 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion Discount- Series 7 Preferred Shares | — | 4,555 | — | — | — | — | — | — | — | — | (4,555) | — | — | — | — | — | (4,555) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion Discount- Series 8 Preferred Shares | — | — | — | 548 | — | — | — | — | — | — | (548) | — | — | — | — | — | (548) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend for the modification related to Series 8 Preferred Stock | — | — | — | 2,627 | — | — | — | — | — | — | (2,627) | — | — | — | — | — | (2,627) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed contribution for the modification related to Warrants issued in connection with Series 8 Preferred Stock | — | — | — | (1,469) | — | — | — | — | — | — | 1,469 | — | — | — | — | — | 1,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization Premium- modification related to Series 8 Preferred Stock | — | — | — | (110) | — | — | — | — | — | — | 110 | — | — | — | — | — | 110 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock grants withheld for taxes | — | — | — | — | — | — | — | — | (12,802) | — | (336) | — | — | — | — | — | (336) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for CXApp earnout | — | — | — | — | — | — | — | — | 144,986 | — | 3,697 | — | — | — | — | — | 3,697 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued for exchange of warrants | — | — | — | — | — | — | — | — | 184,153 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | — | (102) | (15) | 15 | (102) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (11,211) | (346) | (11,557) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | — | $ | — | 53,198 | $ | 43,173 | 1 | $ | — | 126 | $ | — | 2,103,949 | $ | 2 | $ | 338,333 | (1) | $ | (695) | $ | (58) | $ | (261,535) | $ | 1,357 | $ | 77,404 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
7
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash Flows Used in Operating Activities | (Unaudited) | ||||||||||
| Net loss | $ | (17,178) | $ | (11,557) | |||||||
| Adjustment to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 429 | 317 | |||||||||
| Amortization of intangible assets | 1,025 | 1,489 | |||||||||
| Amortization of right of use asset | 110 | 169 | |||||||||
| Stock based compensation | 329 | 1,533 | |||||||||
| Earnout expense valuation benefit | — | (2,827) | |||||||||
| Amortization of debt discount | 834 | — | |||||||||
| Unrealized loss on foreign currency transactions | (205) | (167) | |||||||||
| Distribution of equity method investment shares to employees as compensation | 666 | — | |||||||||
| Deferred income tax | 2,478 | — | |||||||||
| Unrealized loss on equity securities | (34) | 1,503 | |||||||||
| Other | — | 146 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable and other receivables | (1,994) | (239) | |||||||||
| Inventory | 283 | 181 | |||||||||
| Prepaid expenses and other current assets | 274 | (3,607) | |||||||||
| Other assets | (4) | 41 | |||||||||
| Accounts payable | (534) | (1,345) | |||||||||
| Accrued liabilities | 3,545 | (109) | |||||||||
| Income tax liabilities | (2) | (40) | |||||||||
| Deferred revenue | 584 | (666) | |||||||||
| Operating lease obligation | (109) | (141) | |||||||||
| Net Cash Used in Operating Activities | (9,503) | (15,319) | |||||||||
| Cash Flows Used in Investing Activities | |||||||||||
| Purchase of property and equipment | (6) | (81) | |||||||||
| Investment in capitalized software | (220) | (107) | |||||||||
| Sales of treasury bills | — | 28,001 | |||||||||
| Proceeds from repayment of note receivable | 150 | — | |||||||||
| Issuance of note receivable | (300) | — | |||||||||
| Net Cash (Used in) Provided By Investing Activities | (376) | 27,813 | |||||||||
| Cash From Financing Activities | |||||||||||
| Net proceeds from issuance of preferred stock and warrants | — | 46,906 | |||||||||
| Net proceeds from promissory note | 125 | 364 | |||||||||
| Net proceeds for registered direct offering | 14,966 | — | |||||||||
| Cash paid for redemption of preferred stock series 7 | — | (49,250) | |||||||||
8
INPIXON AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
| Taxes paid related to net share settlement of restricted stock units | — | (336) | |||||||||
| Repayment of CXApp acquisition liability | (197) | (1,787) | |||||||||
| Common shares issued for net proceeds from warrants | 1 | — | |||||||||
| Distribution to shareholders related to spin-off of CXApp | (10,003) | — | |||||||||
| Net Cash Provided By (Used In) Financing Activities | 4,892 | (4,103) | |||||||||
| Effect of Foreign Exchange Rate on Changes on Cash | 6 | (19) | |||||||||
| Net (Decrease)/Increase in Cash and Cash Equivalents | (4,981) | 8,372 | |||||||||
| Cash and Cash Equivalents - Beginning of period | 20,235 | 52,480 | |||||||||
| Cash and Cash Equivalents - End of period | $ | 15,254 | $ | 60,852 | |||||||
| Supplemental Disclosure of cash flow information: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | — | $ | 1 | |||||||
| Income Taxes | $ | — | $ | 100 | |||||||
| Non-cash investing and financing activities | |||||||||||
| Common shares issued for extinguishment of debt | $ | 1,426 | $ | 1,500 | |||||||
| Common shares issued for CXApp Earnout Payment | $ | — | $ | 3,697 | |||||||
| Common shares issued in exchange for warrants | $ | — | $ | 14 | |||||||
| Noncash net assets distribution to shareholders related to spin-off of CXApp | $ | 14,227 | $ | — | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
9
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 1 - Organization and Nature of Business
Inpixon is the Indoor Intelligence™ company. Our solutions and technologies help organizations create and redefine exceptional experiences that enable smarter, safer and more secure environments. Inpixon customers can leverage our real-time positioning, mapping and analytics technologies to achieve higher levels of productivity and performance, increase safety and security, improve worker and employee satisfaction rates and drive a more connected work environment. We have focused our corporate strategy on being the primary provider of the full range of foundational technologies needed to form a comprehensive suite of solutions that make indoor data available and actionable to organizations and their employees. Together, our technologies allow organization to create and utilize the digital twin of a physical location and to deliver enhanced experiences in their current environment and in the metaverse.
Inpixon specializes in providing real-time location systems (RTLS) for the industrial sector. As the manufacturing industry has evolved, RTLS technology has become a crucial aspect of Industry 4.0. Our RTLS solution leverages cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments. With our RTLS, businesses can achieve improved operational efficiency, enhanced safety, and reduced costs. By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations. With our RTLS, industrial businesses can transform their operations and stay ahead of the curve in the digital age.
Inpixon's full-stack industrial IoT solution provides end-to-end visibility and control over a wide range of assets and devices. It's designed to help organizations optimize their operations and gain a competitive edge in today's data-driven world. The turn-key platform integrates a range of technologies, including RTLS, sensor networks, edge computing, and big-data analytics, to provide a comprehensive view of an organizations's operations. We help organizations to track the location and status of assets in real-time, identify inefficiencies, and make decisions that drive business growth. Our IoT stack covers all the technology layers, from the edge devices to the cloud. It includes hardware components such as sensors and gateways, a robust software platforms for data management and analysis, and a user-friendly dashboard for real-time monitoring and control. Our solutions also offer robust security features to help ensure the protection of sensitive data. Additionally, Inpixon's RTLS provides scalability and flexibility, allowing organizations to easily integrate it with their existing systems and add new capabilities as their needs evolve.
In addition to our Indoor Intelligence technologies and solutions, we also offer:
•Digital solutions (eTearsheets; eInvoice, and adDelivery) or cloud-based applications and analytics for the advertising, media and publishing industries through our advertising management platform referred to as Shoom by Inpixon; and
•A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists referred to as SAVES by Inpixon.
We report financial results for three segments: Indoor Intelligence, Shoom and SAVES. For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services. For Shoom and SAVES, we generate revenue from the sale of software licenses.
Enterprise Apps Spin-off and Business Combination
On March 14, 2023, we completed the Enterprise Apps Spin-off and subsequent Business Combination (the "Closing") In connection with the Closing, KINS was renamed CXApp Inc. (“New CXApp”). Pursuant to the Transaction Agreements, Inpixon contributed to CXApp cash and certain assets and liabilities constituting the Enterprise Apps Business, including certain related subsidiaries of Inpixon, to CXApp (the “Contribution”). In consideration for the Contribution, CXApp issued to Inpixon additional shares of CXApp common stock such that the number of shares of CXApp common stock then outstanding equaled the number of shares of CXApp common stock necessary to effect the Distribution. Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of CXApp common stock for each share of Inpixon common stock held as of such date. Pursuant to the Merger Agreement, each share of Legacy CXApp common stock was thereafter exchanged for the right to receive 0.09752221612415190 of a share of New CXApp Class A common stock (with fractional shares rounded down to the nearest whole share) and 0.3457605844401750 of a share of New CXApp Class C common stock (with fractional shares rounded down to the nearest whole share). New CXApp Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00
10
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
per share for any 20 trading days within any 30-trading day period following the closing of the Merger. Upon the closing of the Transactions, Inpixon’s existing security holders held approximately 50.0% of the shares of New CXApp common stock outstanding. The transaction is expected to be tax-free to Inpixon and its stockholders for U.S. federal income tax purposes. On March 15, 2023, New CXApp began regular-way trading on NASDAQ under the ticker symbol “CXAI.” Inpixon continues to trade under the ticker symbol “INPX.”
In accordance with applicable accounting guidance, the results of CXApp are presented as discontinued operations in the Condensed Consolidated Statements of Income and, as such, have been excluded from both continuing operations and segment results for all periods presented prior to the completion of the Enterprise Apps Spin-off. The Condensed Consolidated Statements of Cash Flows are presented on a consolidated basis for both continuing operations and discontinued operations. See Note 24 of the Notes to the Condensed Consolidated Statements of Operations for additional information on the Enterprise Apps Spin-off.
Reverse Stock Split
On October 7, 2022, the Company effected a 1-for-75 reverse stock split. All historical share and per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split.
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 in the United States of America (“GAAP”), for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). 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. Interim results for the three months ended March 31, 2023 are not necessarily indicative of the results for the full year ending December 31, 2023. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes for the years ended December 31, 2022 and 2021 included in the annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 17, 2023.
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 year ended December 31, 2022.
Liquidity
As of March 31, 2023, the Company has a working capital surplus of approximately $0.2 million, and cash of approximately $15.3 million. For the three months ended March 31, 2023, the Company had a net loss of approximately $17.2 million. During the three months ended March 31, 2023, the Company used approximately $9.5 million of cash for operating activities.
Risks and Uncertainties
The Company cannot assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. In order to continue our operations, we have supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines. While the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to remain uncertain. While we were able to continue operations remotely throughout the pandemic, we have experienced supply chain cost increases and constraints and delays in the receipt of certain components of our hardware products impacting delivery times for our products. In addition, to the extent that certain customers continue to be challenged by the lasting effects of the pandemic, including delays in returning employees to the office, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders.
11
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 3 - Summary of Significant Accounting Policies (continued)
Certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, market volatility and other general economic factors that are beyond our control may impact our results of operations. These factors can include interest rates; recession; inflation; unemployment trends; the threat or possibility of war, terrorism or other global or national unrest; political or financial instability; and other matters that influence our customers spending. Increasing volatility in financial markets and changes in the economic climate could adversely affect our results of operations. We also expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business. While we have been able to realize growth in the three months ended March 31, 2023 as compared to the same period in 2022, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain. There are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.
The Company's recurring losses and utilization of cash in its operations are indicators of going concern however with the Company's current liquidity position, including $15.3 million cash on hand plus the $4.1 million raised under the ATM Offering since April 1, 2023, approximately $3.8 million in additional funds available under the ATM Offering, and additional financing available to the Company, we believe we have the ability to mitigate such concerns for a period of at least one year from the date these financial statements are issued.
Consolidations
The consolidated financial statements have been prepared using the accounting records of Inpixon, Inpixon GmbH, Inpixon Limited, Nanotron Technologies, GmBh, Intranav GmbH, Inpixon India Limited and Game Your Game, Inc. The consolidated financial statements also include financial data of Inpixon Canada, Inc., Design Reactor, Inc. and Inpixon Philippines, Inc. through March 14, 2023, which is the date those entities were spun off in the Enterprise Apps Spin-off and Business Combination transaction discussed above. All material inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
•the valuation of stock-based compensation;
•the valuation of the Company’s common stock issued in transactions, including acquisitions;
•the allowance for credit losses;
•the valuation of equity securities;
•the valuation allowance for deferred tax assets; and
•impairment of long-lived assets and goodwill.
Business Combinations
The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
Investment in equity securities- fair value
Investment securities—fair value consist primarily of investments in equity securities and are carried at fair value in accordance with ASC 321, "Investments-Equity Securities". These securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity. These securities transactions are recorded on a trade date basis. Any unrealized appreciation or depreciation on investment securities is reported in the Condensed Consolidated Statement of Operations within Unrealized Loss on Equity Securities. The unrealized gain on equity securities for the three months ended March 31, 2023 was approximately $0.03 million, and for the three months ended March 31, 2022 was a unrealized loss of approximately $1.5 million.
12
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 3 - Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems.
Hardware and Software Revenue Recognition
For sales of hardware and software products, the Company’s performance obligation is satisfied at a point in time when they are shipped to the customer. This is when the customer has title to the product and the risks and rewards of ownership. The delivery of products to Inpixon's 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. Accordingly, the Company is the principal in the transaction with the customer and records revenue on a gross basis. The Company receives fixed consideration for sales of hardware and software products. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The Company has elected the practical expedient to expense the costs of obtaining a contract when they are incurred because the amortization period of the asset that otherwise would have been recognized is less than a year.
Software As A Service Revenue Recognition
With respect to sales of the Company’s maintenance, consulting and other service agreements including the Company’s digital advertising and electronic services, customers pay fixed monthly fees in exchange for the Company’s service. The Company’s performance obligation is satisfied over time as the digital advertising and electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service.
Professional Services Revenue Recognition
The Company’s professional services include milestone, fixed fee and time and materials contracts.
Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the consolidated statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.
Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts including maintenance service provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the three months ended March 31, 2023 and 2022, the Company did not incur any such losses. These amounts are based on known and estimated factors.
License Revenue Recognition
13
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 3 - Summary of Significant Accounting Policies (continued)
The Company enters into contracts with its customers whereby it grants a non-exclusive on-premise license for the use of its proprietary software. The contracts provide for either (i) a one year stated term with a one year renewal option, (ii) a perpetual term or (iii) a two year term with the option to upgrade to a perpetual license at the end of the term. The contracts may also provide for yearly on-going maintenance services for a specified price, which includes maintenance services, designated support, and enhancements, upgrades and improvements to the software (the “Maintenance Services”), depending on the contract. Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.
The timing of the Company's revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a good or service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. A software arrangement that is provided through an access code or key represents the transfer of a good. Licenses for on-premises software represents a good and provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer.
Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. Therefore, the Company recognizes revenue resulting from renewal of licensed software at a point in time, specifically, at the beginning of the license renewal period.
The Company recognizes revenue related to Maintenance Services evenly over the service period using a time-based measure because the Company is providing continuous service and the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are performed.
Contract Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had deferred revenue of approximately $1.4 million and $1.3 million as of March 31, 2023 and December 31, 2022, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months.
Stock-Based Compensation
The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over the period during which the recipient is required to provide services in exchange for that award.
Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period.
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the award is measured on the grant date and recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Forfeitures of unvested stock options are recorded when they occur.
14
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 3 - Summary of Significant Accounting Policies (continued)
The Company incurred stock-based compensation charges of approximately $0.3 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively, which are included in general and administrative expenses. Stock-based compensation charges are related to employee compensation and related benefits.
Net Income (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, 2023 and 2022:
| For the Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Options | 341,034 | 379,418 | ||||||||||||
| Warrants | 3,847,109 | 1,737,627 | ||||||||||||
| Convertible preferred stock | 13 | 1,503,728 | ||||||||||||
| Rights to common stock | — | 52,513 | ||||||||||||
| Total | 4,188,156 | 3,673,286 | ||||||||||||
Preferred Stock
The Company relies on the guidance provided by ASC 480, "Distinguishing Liabilities from Equity" ("ASC 480"), to classify certain redeemable and/or convertible instruments. 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.
The Company also follows the guidance provided by ASC 815, "Derivatives and Hedging" (“ASC 815”), which states that contracts that are both, (1) indexed to its own stock and (2) classified in stockholders’ equity in its statement of financial position, are not classified as derivative instruments, and to be recorded under stockholder's equity on the balance sheet of the financial statements. Management assessed the preferred stock and determined that it did meet the scope exception under ASC 815, and would be recorded as equity, and not a derivative instrument, on the balance sheet of the Company's financial statements.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, investments in equity securities, short-term investment, 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 and investments in equity securities, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity, as necessary. Short-term debt approximates market value based on similar terms available to the Company in the market place.
Recently Issued and Adopted Accounting Standards
The Company reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.
15
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 3 - Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no material effect on the reported results of operations or cash flows. The condensed consolidated financial statements included approximately $1.1 million of earnings reclassified from controlling accumulated deficit to non-controlling interest. This reclassification did not effect the Company’s total stockholders’ equity.
16
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 4 - Disaggregation of Revenue
Disaggregation of Revenue
The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its Indoor Intelligence systems, and professional services for work performed in conjunction with its systems recognition policy. Revenues consisted of the following (in thousands):
| For the Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Recurring revenue | ||||||||||||||
| Software | 1,014 | 1,051 | ||||||||||||
| Total recurring revenue | $ | 1,014 | $ | 1,051 | ||||||||||
| Non-recurring revenue | ||||||||||||||
| Hardware | $ | 1,305 | $ | 820 | ||||||||||
| Software | 42 | 410 | ||||||||||||
| Professional services | 743 | 368 | ||||||||||||
| Total non-recurring revenue | $ | 2,090 | $ | 1,598 | ||||||||||
| Total Revenue | $ | 3,104 | $ | 2,649 | ||||||||||
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue recognized at a point in time | |||||||||||
| Indoor Intelligence (1) | $ | 1,656 | $ | 820 | |||||||
| SAVES (1) | 393 | 368 | |||||||||
| Total | $ | 2,049 | $ | 1,188 | |||||||
| Revenue recognized over time | |||||||||||
| Indoor Intelligence (2) (3) | $ | 253 | $ | 577 | |||||||
| SAVES (3) | 325 | 366 | |||||||||
| Shoom (3) | 477 | 518 | |||||||||
| Total | $ | 1,055 | $ | 1,461 | |||||||
| Total Revenue | $ | 3,104 | $ | 2,649 | |||||||
(1) Hardware and Software's performance obligation is satisfied at a point in time where when they are shipped to the customer.
(2) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time.
(3) Software As A Service Revenue's performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and service is recognized over time.
17
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 5- Goodwill and Intangible Assets
The Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company’s significant assumptions in these analyses include, but are not limited to, project revenue, the weighted average cost of capital, the terminal growth rate, derived multiples from comparable market transactions and other market data.
As of March 31, 2023, the Company's cumulative impairment charges are approximately $13.5 million with approximately $11.6 million related to the Indoor Intelligence reporting unit, approximately $1.2 million related to the Shoom reporting unit and approximately $0.7 million related to the SAVES reporting unit.
Intangibles assets at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
| March 31, 2023 | ||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Spin-Off | Net Carrying Amount | Remaining Weighted Average Useful Life | ||||||||||||||||||||||
| IP Agreement | $ | 165 | $ | (103) | $ | — | $ | 62 | 1.50 | |||||||||||||||||
| Trade Name/Trademarks | 1,792 | (306) | (1,367) | 119 | 3.75 | |||||||||||||||||||||
| Customer Relationships | 6,211 | (843) | (4,454) | 914 | 2.61 | |||||||||||||||||||||
| Developed Technology | 14,772 | (1,690) | (11,466) | 1,616 | 4.97 | |||||||||||||||||||||
| Non-compete Agreements | 1,837 | (534) | (1,204) | 99 | 0.49 | |||||||||||||||||||||
| Totals | $ | 24,777 | $ | (3,476) | $ | (18,491) | $ | 2,810 | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Impairment | Spin-Off | Net Carrying Value | ||||||||||||||||||||||
| IP Agreement | $ | 162 | $ | (91) | $ | — | $ | — | $ | 71 | ||||||||||||||||
| Trade Name/Trademarks | 3,590 | (1,414) | (593) | (1,458) | 125 | |||||||||||||||||||||
| Webstores & Websites | 404 | (258) | (146) | — | — | |||||||||||||||||||||
| Customer Relationships | 9,121 | (2,776) | (749) | (4,636) | 960 | |||||||||||||||||||||
| Developed Technology | 21,777 | (5,385) | (2,921) | (11,781) | 1,690 | |||||||||||||||||||||
| Non-compete Agreements | 4,270 | (2,488) | (220) | (1,414) | 148 | |||||||||||||||||||||
| Totals | $ | 39,324 | $ | (12,412) | $ | (4,629) | $ | (19,289) | $ | 2,994 | ||||||||||||||||
Amortization Expense:
Amortization expense from continuing operations for the three months ended March 31, 2023 and 2022 was approximately $0.2 million and $0.7 million respectively.
18
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 5 - Goodwill and Intangible Assets (continued)
Future amortization expense on intangibles assets is anticipated to be as follows (in thousands):
| Amount | |||||
| December 31, 2023 (for 9 months) | $ | 627 | |||
| December 31, 2024 | 688 | ||||
| December 31, 2025 | 605 | ||||
| December 31, 2026 | 413 | ||||
| December 31, 2027 | 326 | ||||
| December 31, 2028 and thereafter | 151 | ||||
| $ | 2,810 | ||||
19
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 6 - Inventory
Inventory as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Raw materials | $ | 376 | $ | 351 | |||||||
| Work-in-process | 126 | 127 | |||||||||
| Finished goods | 1,677 | 1,964 | |||||||||
| Inventory | $ | 2,179 | $ | 2,442 | |||||||
Note 7 - Investments in Equity Securities
Investment securities—fair value consist of investments in the Company’s investment in shares and rights of equity securities. The composition of the Company’s investment securities—fair value was as follows (in thousands):
As of March 31, 2023 | ||||||||||||||
| Cost | Fair Value | |||||||||||||
| Investments in equity securities- fair value | ||||||||||||||
| Equity shares | $ | 54,237 | $ | 362 | ||||||||||
| Equity rights | 11,064 | 2 | ||||||||||||
| Total investments in equity securities- fair value | $ | 65,301 | $ | 364 | ||||||||||
For the three months ended March 31, 2023 and 2022, the Company recognized a net unrealized gain on equity securities of $0.03 million and an unrealized loss of $1.5 million, respectively, in the other income/expense section of the condensed consolidated statements of operations.
On April 27, 2022, the Company purchased a 10% convertible note in aggregate principal amount of approximately $6.1 million for a purchase price of $5.5 million from FOXO Technologies Operating Company, formerly FOXO Technologies Inc. (“FOXO Legacy”), pursuant to the terms of a securities purchase agreement between FOXO Legacy and the Company (the “April 2022 Purchase Agreement”). Interest on the convertible note accrues at 12% per annum. The term of the convertible note is twelve months, however FOXO Legacy has the ability to extend the maturity date for an additional 3 months. The convertible note is subject to certain conversion features which include qualified financing, and/or qualified transaction, as defined in the April 2022 Purchase Agreement. The Company can voluntarily convert the note after 270 days. The note is required to convert upon FOXO Legacy completing a qualified offering.
On September 15, 2022, FOXO Legacy consummated a business combination with Delwinds Insurance Acquisition Corp., now known as FOXO Technologies Inc. ("FOXO"), which qualified as a qualified offering as defined in the April 2022 Purchase Agreement. This qualified offering triggered a mandatory conversion of the convertible note to FOXO Legacy common stock which was then automatically converted into 891,124 shares of FOXO Class A common stock, par value $0.0001 (“FOXO common stock”) upon closing of the business combination. The Company recognized an unrealized gain on conversion of $0.8 million recognized in the income statement for the year ended December 31, 2022.
FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American. FOXO common stock is accounted for as available-for-sale equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings. The fair value was determined by the closing trading price of the security as of March 31, 2023. The Company recognized an unrealized gain on FOXO common stock of $0.03 million and zero on the income statement for the three months ended March 31, 2023 and 2022, respectively.
Note 8 - Other Long Term Investments
20
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
In 2020, the Company paid $1.8 million for 599,999 Class A Units and 2,500,000 Class B Units of Cardinal Venture Holdings LLC (“CVH”). The Company is a member of CVH. CVH owns certain interests in KINS Capital, LLC, the sponsor entity (the “Sponsor”) to KINS Technology Group Inc., a Delaware corporation and special purpose acquisition company with which the Company entered into the Business Combination (see “Enterprise Apps Spin-off and Business Combination” under Note 1 above and “Recent Events - Enterprise Apps Spin-off and Business Combination” section under Part I, Item 2 herein for more details). The $1.8 million purchase price was paid on October 12, 2020 and therefore is the date the purchase of the Units was closed. On December 16, 2020, the Company increased its capital contribution by $0.7 million in exchange for an additional 700,000 Class B Units. The capital contribution was used by CVH to fund the Sponsor's purchase of securities in KINS. The underlying subscription agreement provides that each Class A Unit and each Class B Unit represents the right of the Company to receive any distributions made by the Sponsor on account of the Class A Interests and Class B Interests, respectively, of the Sponsor.
The Company generally records its share of earnings in its equity method investments using a three-month lag methodology and within net investment income. During the period January 1, 2021 to December 31, 2021 and January 1, 2022 to March 31, 2023, CVH had no operating results as CVH is a holding company. CVH only contains units and has not been allocated shares of KINS, therefore CVH is not allocating any portion of income or expense incurred by KINS. As such, there was no share of earnings recognized by the Company in its statement of operations on its proportional equity investment.
The following component represents components of Other long-term investments as of March 31, 2023:
| Ownership interest as of March 31, | Ownership interest as of December 31, | |||||||||||||||||||
| 2023 | 2022 | Instrument Held | ||||||||||||||||||
| Investee | ||||||||||||||||||||
| CVH Class A | — | % | 14.1 | % | Units | |||||||||||||||
| CVH Class B | 38.4 | % | 38.4 | % | Units | |||||||||||||||
Inpixon’s investment in equity method eligible entities are represented on the balance sheet as an asset of approximately $0.1 million as of March 31, 2023 and approximately $0.7 million as of December 31, 2022.
On July 1, 2022, the Company loaned $150,000 to CVH. The loan bears no interest and is due and payable in full on the earlier of: (i) the date by which KINS has to complete a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “business combination”), and (ii) immediately prior to the date of consummation of the business combination of KINS, unless accelerated upon the occurrence of an event of default. Nadir Ali, the Company’s Chief Executive Officer and director, is also a member in CVH through 3AM, LLC, which is a member of CVH, and which may, in certain circumstances, be entitled to manage the affairs of CVH. As a result of the closing of the Business Combination, on March 15, 2023, the $150,000 loan was repaid.
On February 27, 2023, the Company entered into Limited Liability Company Unit Transfer and Joinder Agreements with certain of the Company’s employees and directors (the “Transferees”), pursuant to which (i) the Company transferred all of its Class A Units of CVH (the “Class A Units”), an aggregate of 599,999 Class A Units, to the Transferees as bonus consideration in connection with each Transferee’s services performed for and on behalf of the Company as an employee, as applicable, and (ii) each Transferee became a member of CVH and a party to the Amended and Restated Limited Liability Company Agreement of CVH, dated as of September 30, 2020. The Company recorded approximately $0.7 million of compensation expense for the fair market value of the shares transferred to the Transferees which is included in the operating expenses section of the condensed consolidated statements of operations in the quarter ended March 31, 2023.
Note 9 - Accrued Liabilities
Accrued liabilities as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
21
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Accrued compensation and benefits | $ | 1,354 | $ | 655 | |||||||
| Accrued interest expense | 234 | 1,197 | |||||||||
| Accrued bonus and commissions | 381 | 426 | |||||||||
| Accrued transaction costs | 2,075 | — | |||||||||
| Accrued other | 855 | 105 | |||||||||
| Accrued sales and other indirect taxes payable | 213 | 236 | |||||||||
| $ | 5,112 | $ | 2,619 | ||||||||
Note 10 - Debt
Debt as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
| Short-Term Debt | Maturity | March 31, 2023 | December 31, 2022 | |||||||||||
March 2020 10% Note | 3/18/2023 | $ | — | $ | — | |||||||||
July 2022 Promissory Note, less debt discount of $398 and $760, respectively. | 7/22/2023 | 6,776 | 6,045 | |||||||||||
December 2022 Promissory Note , less debt discount of $1,409 and $1,880, respectively. | 12/30/2023 | 6,992 | 6,520 | |||||||||||
| Third Party Note Payable | 6/30/2023 | 1,203 | 1,078 | |||||||||||
| Total Short-Term Debt | $ | 14,971 | $ | 13,643 | ||||||||||
Interest expense on the short-term debt totaled approximately $1.7 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, which was amortized to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the Short Term Debt.
Notes Payable
March 2020 10% Note Purchase Agreement and Promissory Note
On March 18, 2020, the Company entered into a note purchase agreement with Iliad Research and Trading, L.P. ("Iliad"), pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “March 2020 10% Note”) in an aggregate initial principal amount of $6.5 million, which is payable on or before the date that is 12 months from the issuance date. The initial principal amount includes an original issue discount of $1.5 million and $0.02 million that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.
In exchange for the March 2020 10% Note, the holder paid an aggregate purchase price of $5.0 million. Interest on the March 2020 10% Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the March 2020 10% Note. The Company may pay all or any portion of the amount owed earlier than it is due; provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay.
Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the March 2020 10% Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the March 2020 10% Note each month by providing written notice delivered to the Company; provided, however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption amount.
Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption Notice. The March 2020 10% Note
22
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 10- Debt (continued)
includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings, the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10% Note to be immediately due and payable. Upon the occurrence of a bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the March 2020 10% Note will become immediately due and payable at the mandatory default amount. On September 17, 2020, the Company amended the one time monitoring fee applicable in the event the note was outstanding on the date that was 6 months from the issuance date, from 10% to 5%. The monitoring fee of approximately $0.3 million was added to the March 2020 10% Note balance as of that date. On March 17, 2021, the Company extended the maturity date of the March 2020 10% Note from March 18, 2021 to March 18, 2022 for which the Company agreed to pay an extension fee of approximately $0.1 million which was added to the outstanding balance of the March 2020 10% Note.
Effective as of March 16, 2022, we entered into a third amendment (the “Third Amendment”) to the March 2020 10% Note which was accounted for as a modification. Pursuant to the terms of the Third Amendment, the maturity date of the March 2020 10% Note was extended from March 18, 2022 to March 18, 2023 (the “Maturity Date Extension”). In exchange for the Maturity Date Extension, we agreed to pay a 2% extension fee in the amount of approximately $0.1 million (the “Extension Fee”), which was added to the outstanding balance of the March 2020 10% Note.
During the year ended December 31, 2022, the Company entered into exchange agreements with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition new promissory notes in the form of the March 2020 10% Note equal to approximately $3.7 million and then cause the outstanding balance of the March 2020 10% Note to be reduced by approximately $3.7 million; and (ii) exchange the partitioned notes for the delivery of 287,802 shares of the Company’s common stock, at effective prices between $4.78 and $31.47 per share. The Company analyzed the exchange of the principal under the March 2020 10% Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity.
During the quarter ended March 31, 2023, the Company entered into exchange agreements with Iliad, pursuant to which the Company and Iliad agreed to: (i) partition new promissory notes in the form of the March 2020 10% Note equal to approximately $0.9 million and then cause the outstanding balance of the March 2020 10% Note to be reduced by approximately $0.9 million; and (ii) exchange the partitioned note for the delivery of 611,258 shares of the Company's common stock at effective prices between $1.09 and $1.68 per share. The Company analyzed the exchange of the principal under the March 2020 10% Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity.
July 2022 Note Purchase Agreement and Promissory Note
On July 22, 2022, the Company entered into a note purchase agreement (the "Purchase Agreement") with Streeterville Capital, LLC (the “Holder” or "Streeterville"), pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “July 2022 Note”) in an aggregate initial principal amount of $6.5 million (the “Initial Principal Amount”), which is payable on or before the date that is 12 months from the issuance date (the “Maturity Date”). The Initial Principal Amount includes an original issue discount of $1.5 million and $0.02 million that the Company agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the Note, the Holder paid an aggregate purchase price of $5.0 million (the “Transaction”). Interest on the Note accrued at a rate of 10% per annum, which is payable on the maturity date. We may pay all or any portion of the amount owed earlier than it is due; provided that in the event we may elect to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding balance we may elect to prepay. Beginning on the date that is 6 months from the issue date and at the intervals indicated below until the Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the Note for cash each month. The July 2022 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon the occurrence of an event of default (except default due to the occurrence of bankruptcy or insolvency proceedings), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the July 2022 Note to be immediately due and payable. Upon the occurrence of bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the July 2022 Note will become immediately due and payable at the mandatory default amount. Under the terms of the July 2022 Note, if the note is still outstanding after 6 months from the issuance date, or as of January 22, 2023, a 10% monitoring fee would be added to the balance of the note. On January 31, 2023, the Holder agreed to reduce the one time monitoring fee from 10% to 5%.
23
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 10- Debt (continued)
During the quarter ended March 31, 2023, the Company entered into exchange agreements with Streeterville, pursuant to which the Company and Streeterville agreed to: (i) partition new promissory notes in the form of the July 2022 Note equal to approximately $0.5 million and then cause the outstanding balance of the July 2022 Note to be reduced by approximately $0.5 million; and (ii) exchange the partitioned notes for the delivery of 935,976 shares of the Company’s common stock, at effective prices between $0.37 and $0.915 per share. The Company analyzed the exchange of the principal under the July 2022 Note as an extinguishment and compared the net carrying value of the debt being extinguished to the reacquisition price (shares of common stock being issued) and there was no loss on the exchange for debt for equity.
December 2022 Note Purchase Agreement and Promissory Note
On December 30, 2022, we entered into a note purchase agreement with Streeterville Capital, LLC (the "Holder"), pursuant to which we agreed to issue and sell to the Holder an unsecured promissory note (the "December 2022 Note") in an aggregate initial principal amount of $8.4 million, which is payable on or before the date that is 12 months from the issuance date. The initial principal amount of includes an original issue discount of $1.9 million and $0.02 million that we agreed to pay to the Holder to cover the Holder's legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the Note, the Holder paid an aggregate purchase price of $6.5 million.
Interest on the December 2022 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the December 2022 Note. We may pay all or any portion of the amount owed earlier than it is due; provided that in the event we may elect to prepay all or any portion of the outstanding balance, it shall pay to the Holder 115% of the portion of the outstanding balance we may elect to prepay. Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the December 2022 Note is paid in full, the Holder shall have the right to redeem up to an aggregate of 1/6th of the initial principal balance of the December 2022 Note plus any interest accrued thereunder each month by providing written notice delivered to us; provided, however, that if the Holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the Holder to redeem in any further month in addition to such future month's monthly redemption amount.
Upon receipt of any monthly redemption notice, we shall pay the applicable monthly redemption amount in cash to the Holder within five (5) business days of the Company's receipt of such monthly redemption notice. The December 2022 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon the occurrence of an event of default (except default due to the occurrence of bankruptcy or insolvency proceedings), the Holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the December 2022 Note to be immediately due and payable. Upon the occurrence of bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the December 2022 Note will become immediately due and payable at the mandatory default amount.
Third Party Note Payable
Game Your Game entered into promissory notes with an individual whereby it received approximately $0.2 million on October 29, 2021, approximately $0.2 million on January 18, 2022, approximately $0.1 million on March 22, 2022, approximately $0.1 million on August 26, 2022, approximately $0.1 million on September 16, 2022, approximately $0.1 million on October 26, 2022, approximately $0.1 million on November 29, 2022, approximately $0.1 million on December 22, 2022, approximately $0.03 million on January 18, 2023 and approximately $0.1 million on March 30, 2023 for funding of outside liabilities and working capital needs. All of the promissory notes have an interest rate of 8% and are due on or before June 30, 2023. As of March 31, 2023, the balance owed under the notes was $1.2 million.
Note 11 - Capital Raises
Registered Direct Offerings
On March 22, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors named therein, pursuant to which the Company sold in a registered direct offering (i) 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock. Each share of Series 8 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $940, representing an original issue discount of 6% of the stated value of each share of Series 8 Convertible Preferred Stock for an aggregate subscription amount of $50.0 million. In connection with this offering, the Company filed a Certificate of Designation for the Series 8 Convertible Preferred Stock with the Nevada Secretary of State. Each share of Series 8 Convertible Preferred Stock has
24
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 11- Capital Raises (continued)
a par value of $0.001 per share and stated value of $1,000 per share. The shares of Series 8 Convertible Preferred Stock are convertible into shares of the Company’s common stock, at a conversion price of $35.38 per share. Each share of Series 8 Convertible Preferred Stock is entitled to receive cumulative dividends, payable in the same form as dividends paid on shares of the Company’s common stock. At any time beginning on October 1, 2022 and ending ninety 90 days thereafter, the holders of the Series 8 Convertible Preferred Stock have the right to redeem all or part of the shares held by such holder in cash for the redemption price equal to the stated value of such share, plus all accrued but unpaid dividends thereon and all liquidated damages and other costs, expenses or amounts due. Upon redemption, the holder of the Series 8 Convertible Preferred Stock will forfeit 50% of the warrants issued in connection therewith. The holders of the Series 8 Convertible Preferred Stock shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. The Series 8 Convertible Preferred Stock and related warrants subject to forfeiture are recorded as Mezzanine Equity in the accompanying balance sheets as the holder has the option to redeem these shares for cash and the warrants are an embedded feature for the Series 8 Convertible Preferred Stock. The remaining warrants that are not subject to forfeiture are recorded within Stockholders' Equity as the remaining warrants are classified as freestanding instruments containing a total value of $5.6 million. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $46.9 million. See Note 13 for Preferred Stock and Note 15 for Warrant details. During the quarter ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $53.2 million which were therefore fully redeemed. In conjunction with the redemption, 751,841 warrants were forfeited.
Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $49.3 million. In addition, in accordance with the related purchase agreement, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75% of the related warrants that were issued. Therefore, as of March 22, 2022, 49,250 shares of Series 7 Convertible Preferred Stock were redeemed and 394,000 related warrants were forfeited. The Company noted about 71% of the Series 7 Preferred Stock holders that redeemed shares also participated as Series 8 Convertible Preferred Stock holders (“shared holders”). The Company accounted for proceeds of the shared holders as a modification to the Series 7 and Series 8 Convertible Preferred Stock, as well as the related embedded warrants. The total change in fair value as a result of modification related to the Preferred Stock amounted to $2.6 million which were recognized as a deemed dividend at the date of the modification, upon which was amortized until the redemption period began on October 1, 2022. The total change in fair value as a result of modification related to the embedded warrants amounted to $1.5 million which was recognized as a deemed contribution at the date of the modification, upon which was accreted until the redemption period began on October 1, 2022.
On July 22, 2022, the Company entered into an Equity Distribution Agreement (the "Sales Agreement") with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $25 million (the “Shares”) from time to time through Maxim, acting exclusively as the Company’s sales agent (the “ATM Offering”). The Company intends to use the net proceeds of the ATM Offering primarily for working capital and general corporate purposes. During the quarter ended March 31, 2023, the Company sold 9,655,207 shares of common stock at share prices between $1.15 and $1.86 per share under the Sales Agreement for gross proceeds of approximately $15.4 million or net proceeds of $15.0 million after deducting the placement agency fees and other offering expenses. The Company is not obligated to make any sales of the Shares under the Sales Agreement and no assurance can be given that the Company will sell any additional Shares under the Sales Agreement, or if it does, as to the price or amount of Shares that the Company will sell, or the date on which any such sales will take place. The Company is currently subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by the Company under the Sales Agreement or other offerings pursuant to the Company’s effective shelf registration statement on Form S-3.
25
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 12 - Common Stock
During the three months ended March 31, 2023, the Company issued 1,547,234 shares of common stock under exchange agreements to settle outstanding balance and interest totaling approximately $1.4 million under partitioned notes. See Note 10.
During the three months ended March 31, 2023, the Company issued 9,655,207 shares of common stock in connection with the ATM Offering at per share prices between $1.15 and $1.86, resulting in gross proceeds to the Company of approximately $15.4 million and net proceeds of $15.0 million after subtracting sales commissions and other offering expenses. See Note 11.
During the three months ended March 31, 2023, the Company issued 1,380,000 shares of common stock in connection with the exercise of 1,380,000 pre-funded warrants at $0.001 per share in connection with the October 2022 registered direct offering.
During the three months ended March 31, 2023, the Company issued 324,918 shares of common stock in connection with a warrant amendment to exchange all of the then outstanding September 2021 warrants and March 2022 warrants. See Note 15.
Note 13 - Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.
Series 4 Convertible Preferred Stock
On April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and limitations of the Series 4 Preferred. The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $1,000 per share to be converted by $16,740.
As of March 31, 2023, there was 1 share of Series 4 Preferred outstanding.
Series 5 Convertible Preferred Stock
On January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations of the Series 5 Convertible Preferred Stock. The Series 5 Convertible Preferred Stock is non-voting (except to the extent required by law). The Series 5 Convertible Preferred Stock is convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $1,000 per share to be converted by $11,238.75.
As of March 31, 2023, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
Series 7 Convertible Preferred Stock
On September 13, 2021, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 58,750 shares of Series 7 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 626,667 shares of common stock (the “Warrants”). Each share of Series 7 Convertible Preferred Stock and the related Warrants were sold at a subscription amount of $920, representing an original issue discount of 8% of the stated value for an aggregate subscription amount of $54.1 million. The shares of Series 7 Convertible Preferred Stocks were recorded as Mezzanine Equity as the holder has the option to redeem these shares for cash. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $50.6 million.
26
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 13- Preferred Stock (continued)
Between March 15, 2022 and March 22, 2022, the Company received cash redemption notices from the holders of the Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash paid of approximately $49.3 million.
As of March 31, 2023, there were zero shares of Series 7 Convertible Preferred Stock outstanding.
Series 8 Convertible Preferred Stock
On March 22, 2022, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell in a registered direct offering (i) up to 53,197.7234 shares of Series 8 Convertible Preferred Stock and (ii) related warrants to purchase up to an aggregate of 1,503,726 shares of common stock (the “Warrants”). Each share of Series 8 Convertible Preferred Stock and the related Warrants (see Note 15) were sold at a subscription amount of $940, representing an original issue discount of 6% of the stated value for an aggregate subscription amount of $50.0 million. The shares of Series 8 Convertible Preferred Stocks were recorded as Mezzanine Equity as the holder has the option to redeem these shares for cash. The aggregate net proceeds from the offering, after deducting the placement agent fees and other estimated offering expenses, was approximately $46.9 million.
During the quarter ended December 31, 2022, the Company received cash redemption notices from the holders of the Series 8 Convertible Preferred Stock issued on March 22, 2022, totaling 53,197.72 shares of Series 8 Convertible Preferred Stock for aggregate cash paid of approximately $53.2 million which were therefore fully redeemed.
As of March 31, 2023, there were zero shares of Series 8 Convertible Preferred Stock outstanding.
Note 14 - Stock Award Plans and Stock-Based Compensation
In September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors. The plan was terminated by its terms on August 31, 2021 and no new awards will be issued under the 2011 Plan.
In February 2018, the Company adopted the 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Option Plans”), which is utilized for employees, corporate officers, directors, consultants and other key persons employed. The 2018 Plan provides for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).
Incentive stock options granted under the Option Plans are granted at exercise prices not less than 100% of the estimated fair market value of the underlying common stock at date of grant. The exercise price per share for incentive stock options may not be less than 110% of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company. Options granted under the Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years.
The aggregate number of shares that may be awarded under the 2018 Plan as of March 31, 2023 is 52,000,000. As of March 31, 2023, 341,034 of stock options were granted to employees, directors and consultants of the Company (including 1 share outside of our plan and 57 shares under our 2011 Plan) and 49,330,234 options were available for future grant under the 2018 Plan.
Employee Stock Options
During the three months ended March 31, 2023 and 2022, the Company recorded a charge for the amortization of stock options of approximately $0.3 million and $0.9 million, respectively, which is included in the general and administrative section of the condensed consolidated statement of operations.
As of March 31, 2023, the fair value of non-vested stock options totaled approximately $1.7 million, which will be amortized to expense over the weighted average remaining term of 1.09 years.
27
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 14 - Stock Award Plans and Stock-Based Compensation (continued)
See below for a summary of the stock options granted under the 2011 and 2018 plans:
| 2011 Plan | 2018 Plan | Non Plan | Total | |||||||||||
| Beginning balance as of January 1, 2023 | 57 | 351,529 | 1 | 351,587 | ||||||||||
| Granted | — | — | — | — | ||||||||||
| Exercised | — | — | — | — | ||||||||||
| Expired | — | (1,826) | — | (1,826) | ||||||||||
| Forfeited | — | (8,727) | — | (8,727) | ||||||||||
| Ending balance as of March 31, 2023 | 57 | 340,976 | 1 | 341,034 | ||||||||||
The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model, however there were no stock option grants during the three months ended March 31, 2023.
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.
Restricted Stock Awards
On February 19, 2022, 12,802 restricted stock grants were forfeited for employee taxes.
During the three months ended March 31, 2023 and 2022, the Company recorded a charge of $0.02 million and $0.7 million, respectively, for the amortization of vested restricted stock awards.
The following table summarizes restricted stock based award activity granted:
| Restricted Stock Grants | |||||
| Beginning balance as of January 1, 2023 | 42,968 | ||||
| Granted | — | ||||
| Exercised | — | ||||
| Expired | — | ||||
| Forfeited | — | ||||
| Ending balance as of March 31, 2023 | 42,968 | ||||
The Company determined the fair value of these grants based on the closing price of the Company’s common stock on the respective grant dates. The compensation expense is being amortized over the respective vesting periods.
Note 15 - Warrants
On January 28, 2022, the Company entered into an exchange agreement with the holder of certain existing warrants of the Company which were exercisable for an aggregate of 657,402 shares of the Company’s common stock. Pursuant to the exchange agreement, the Company agreed to issue to the warrant holder an aggregate of 184,153 shares of common stock and rights to receive an aggregate of 52,513 shares of common stock in exchange for the existing warrants. The Company accounted for the exchange agreement as a warrant modification. The Company determined the fair value of the existing warrants as if issued on the exchange agreement date and compared that to the fair value of the common stock issued. The Company calculated the fair value of the existing warrants using a Black-Scholes Option pricing model and determined it to be approximately $12.00 per share. The fair value of the common stock issued was based on the closing stock price of the date of the exchange. The total fair value of the warrants prior to modification was greater than the fair value of the common stock issued, and therefore, there was no incremental fair value related to the exchange.
28
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 15 - Warrants (continued)
Between March 15 and March 22, 2022, we received cash redemption notices from the holders of the Company's Series 7 Convertible Preferred Stock issued on September 15, 2021, totaling 49,250 shares of Series 7 Convertible Preferred Stock for aggregate cash required to be paid of approximately $49.3 million. In addition, upon redemption of the Series 7 Convertible Preferred Stock, each holder forfeited 75% of the related warrants that were issued together with the Series 7 Convertible Preferred Stock (the "Series 7 Warrants"). 394,000 corresponding warrants issued in connection with the issuance of the Series 7 Convertible Preferred Stock have been forfeited and 232,675 related warrants remain outstanding.
On March 22, 2022, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company agreed to issue and sell, in a registered direct offering sold an aggregate of 53,197.7234 shares of the Company’s Series 8 Convertible Preferred Shares, par value $0.001 per share, and warrants to purchase up to 1,503,726 shares of common stock. Each share and related warrants were sold together at a subscription amount of $940, representing an original issue discount of 6% of the stated value for an aggregate subscription amount of $50.0 million.
During the three months ended March 31, 2023, the Company issued 1,380,000 shares of common stock in connection with the exercise of 1,380,000 pre-funded warrants at $0.001 per share in connection with the October 2022 registered direct offering.
Warrant Amendments
On February 28, 2023, the Company entered into warrant amendments (the “Warrant Amendments”) with certain holders (each, including its successors and assigns, a “Holder” and collectively, the “Holders”) of (i) those certain Common Stock Purchase Warrants issued by the Company in April 2018 (the “April 2018 Warrants”) pursuant to the registration statement on Form S-3 (File No. 333-204159), (ii) those certain Common Stock Purchase Warrants issued by the Company in September 2021 (the “September 2021 Warrants”) pursuant to the registration statement on Form S-3 (File No. 333-256827), and (iii) those certain Common Stock Purchase Warrants issued by the Company in March 2022 (the “March 2022 Warrants” and together with the April 2018 Warrants and the September 2021 Warrants, the “Existing Warrants”) pursuant to the registration statement on Form S-3 (File No. 333-256827).
Pursuant to the Warrant Amendments, the Company and the Holders have agreed to amend (i) the September 2021 Warrants and the March 2022 Warrants to provide that all of such outstanding warrants shall be automatically exchanged for shares of common stock of the Company, at a rate of 0.33 shares of Common Stock (the “Exchange Shares”) for each September 2021 Warrant or March 2022 Warrant, as applicable, and (ii) the April 2018 Warrants to remove the obligation of the Company to hold the portion of a Distribution (as defined in the April 2018 Warrants) in abeyance in connection with the Beneficial Ownership Limitation (as defined in the April 2018 Warrants).
In connection with the exchange of 232,675 September 2021 Warrants and 751,867 March 2022 Warrants, which were all of the then outstanding of those warrants as of the effective date of the Warrant Amendments, the Company issued 76,794 Exchange Shares and 248,124 Exchange Shares, respectively, resulting in the issuance of 324,918 Exchange Shares in the aggregate.
The Company accounted for the exchange as a warrant modification. The Company determined the fair value of the Existing Warrants as if issued on the Warrant Amendment date and compared that to the fair value of the common stock issued for the Exchange Shares. The Company calculated the fair value of the Existing Warrants using a Black-Scholes Option pricing model and determined it to be approximately $0.6 million. The fair value of the common stock issued was based on the closing stock price of the date of the Warrant Amendment. The total fair value of the Existing Warrants prior to modification was greater than the fair value of the Exchange Shares issued, and therefore, there was no incremental fair value related to the Warrant Amendments.
Note 16- Income Taxes
There is an income tax expense of approximately $2.5 million and $0.0 million for the three months ended March 31, 2023 and 2022, respectively. The income tax expense in the three months ended March 31, 2023 includes a $2.6 million deferred tax expense to increase the valuation allowance, which is offset by a current tax benefit of $0.1 million, due to the Enterprise Apps Spin-off.
29
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 17 - Credit Risk and Concentrations
Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash is also maintained at foreign financial institutions for its UK subsidiary, German subsidiaries and its majority-owned India subsidiary. Cash in foreign financial institutions as of March 31, 2023 and December 31, 2022 was immaterial. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
During the three months ended March 31, 2023 and 2022, three customers and one customer accounted for at least 10% of revenue, respectively.
As of March 31, 2023, three customers represented approximately 49% of total accounts receivable. As of March 31, 2022, one customer represented approximately 11% of total accounts receivable.
As of March 31, 2023, one vendor represented approximately 21% of total gross accounts payable. Purchases from these vendors during the three months ended March 31, 2023 was approximately $0.4 million. As of March 31, 2022, three vendors represented approximately 48% of total gross accounts payable. Purchases from these vendors during the three months ended March 31, 2022 was approximately $0.8 million.
For the three months ended March 31, 2023, one vendor represented approximately 21%, and one vendor represented approximately 10% of total purchases. For the three months ended March 31, 2022, one vendor represented approximately 48%, and one vendor represented approximately 14% of total purchases.
Note 18 - Segments
The Company’s operations consist of three reportable segments based on similar economic characteristics, the nature of products and production processes, end-use markets, channels of distribution, and regulatory environments: Indoor Intelligence, SAVES, and Shoom.
The Company completed the Enterprise Apps Spin-off during the three months ended March 31, 2023. Design Reactor was entirely part of the Indoor Intelligence business segment. As a result, the Company met the requirements of ASC 205-20 to report the results of the Design Reactor business as discontinued operations. The operating results for Design Reactor have been reclassified to discontinued operations and are no longer reported in the Indoor Intelligence business segment. See Note 24 for further details. There were no changes to the Company's reportable segments as result of the Enterprise Apps Spin-off.
Gross profit is the primary measure of segment profitability used by the Company’s Chief Operating Decision Maker ("CODM").
Revenues and gross profit segments consisted of the following (in thousands):
30
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 18 - Segments (continued)
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue by Segment | |||||||||||
| Indoor Intelligence | $ | 1,909 | $ | 1,397 | |||||||
| SAVES | 718 | 734 | |||||||||
| Shoom | 477 | 518 | |||||||||
| Total segment revenue | $ | 3,104 | $ | 2,649 | |||||||
| Gross profit by Segment | |||||||||||
| Indoor Intelligence | $ | 1,293 | $ | 937 | |||||||
| SAVES | 619 | 493 | |||||||||
| Shoom | 401 | 422 | |||||||||
| Gross profit by Segment | $ | 2,313 | $ | 1,852 | |||||||
| Income (loss) from operations by Segment | |||||||||||
| Indoor Intelligence | $ | (8,116) | $ | (9,013) | |||||||
| Saves | (295) | (404) | |||||||||
| Shoom | 229 | 180 | |||||||||
| Loss from operations by Segment | $ | (8,182) | $ | (9,237) | |||||||
The reporting package provided to the Company's CODM does not include the measure of assets by segment as that information isn't reviewed by the CODM when assessing segment performance or allocating resources.
31
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 19 - Fair Value of Financial Instruments
The Company's estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. We classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy.
The Company's assets measured at fair value consisted of the following at March 31, 2023 and December 31, 2022:
| Fair Value at March 31, 2023 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments in equity securities | 364 | 353 | — | 11 | |||||||||||||||||||
| Total assets | $ | 364 | $ | 353 | $ | — | $ | 11 | |||||||||||||||
| Fair Value at December 31, 2022 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investments in equity securities | 330 | 319 | — | 11 | |||||||||||||||||||
| Total assets | $ | 330 | $ | 319 | $ | — | $ | 11 | |||||||||||||||
The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value.
Investments in equity securities are marked to market based on the respective publicly quoted market prices of the equity securities adjusted for liquidity. The fair value for Level 1 equity investments was determined using quoted prices of the security in active markets. The fair value for Level 3 equity investments was determined using a pricing model with certain significant unobservable market data inputs.
Investments in debt securities are valued using an option pricing model under the income approach methodology as the investment does not have observable inputs of identical or comparable instruments.
The Company noted that there was no change in Level 3 instruments for which significant unobservable inputs were used to determine fair value for the three months ended March 31, 2023. The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value for the three months ended March 31, 2023:
| Level 3 | |||||
| Level 3 Investments | |||||
| Balance at January 1, 2023 | $ | 11 | |||
| — | |||||
| Balance at March 31, 2023 | $ | 11 | |||
32
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 20 - Foreign Operations
The Company’s operations are located primarily in the United States, Canada, India, Germany, Ireland, and the United Kingdom. Revenues by geographic area are attributed by country of domicile of our subsidiaries. The financial data by geographic area are as follows (in thousands):
| United States | Canada | India | Germany | United Kingdom | Ireland | Eliminations | Total | |||||||||||||||||||||||||||||||||||||
| For the Three months ended March 31, 2023: | ||||||||||||||||||||||||||||||||||||||||||||
| Revenues by geographic area | $ | 1,915 | $ | — | $ | 500 | $ | 1,155 | $ | 90 | $ | 1 | $ | (557) | $ | 3,104 | ||||||||||||||||||||||||||||
| Operating (loss) income by geographic area | $ | (7,364) | $ | — | $ | 104 | $ | (830) | $ | (4) | $ | (89) | $ | 1 | $ | (8,182) | ||||||||||||||||||||||||||||
| Net (loss) income from continuing operations by geographic area | $ | (11,532) | $ | — | $ | 104 | $ | (802) | $ | (4) | $ | (89) | $ | 1 | $ | (12,322) | ||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2022: | ||||||||||||||||||||||||||||||||||||||||||||
| Revenues by geographic area | $ | 1,543 | $ | — | $ | 126 | $ | 948 | $ | 118 | $ | 4 | $ | (90) | $ | 2,649 | ||||||||||||||||||||||||||||
| Operating (loss) income by geographic area | $ | (7,670) | $ | — | $ | 39 | $ | (1,418) | $ | 13 | $ | (201) | $ | — | $ | (9,237) | ||||||||||||||||||||||||||||
| Net (loss) income from continuing operations by geographic area | $ | (9,271) | $ | — | $ | 39 | $ | (1,373) | $ | 13 | $ | (201) | $ | 10 | $ | (10,783) | ||||||||||||||||||||||||||||
| As of March 31, 2023: | ||||||||||||||||||||||||||||||||||||||||||||
| Identifiable assets by geographic area | $ | 49,052 | $ | — | $ | 704 | $ | 20,224 | $ | 295 | $ | 14 | $ | (40,382) | $ | 29,907 | ||||||||||||||||||||||||||||
| Long lived assets by geographic area | $ | 2,547 | $ | — | $ | 24 | $ | 3,084 | $ | 1 | $ | 3 | $ | — | $ | 5,659 | ||||||||||||||||||||||||||||
| As of December 31, 2022: | ||||||||||||||||||||||||||||||||||||||||||||
| Identifiable assets by geographic area | $ | 133,382 | $ | 5,484 | $ | 682 | $ | 19,599 | $ | 277 | $ | 19 | $ | (102,223) | $ | 57,635 | ||||||||||||||||||||||||||||
| Long lived assets by geographic area | $ | 2,538 | $ | — | $ | 3 | $ | 3,308 | $ | 1 | $ | 4 | $ | — | $ | 5,854 | ||||||||||||||||||||||||||||
33
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 21 - Related Party Transactions
Cardinal Venture Holdings Investment
Nadir Ali, the Company's Chief Executive Officer and a members of its Board of Directors, is also a controlling member of 3AM, LLC ("3AM"), which is a member of Cardinal Venture Holdings LLC ("CVH"), which may, in certain circumstances, be entitled to manage the affairs of CVH. Mr. Ali’s relationship may create conflicts of interest between Mr. Ali’s obligations to the Company and its shareholders and his economic interests and possible fiduciary obligations in CVH through 3AM. For example, Mr. Ali may be in a position to influence or manage the affairs of CVH in a manner that may be viewed as contrary to the best interests of either the Company or CVH and their respective stakeholders. On July 1, 2022, the Company loaned $150,000 to CVH. See Note 8. The $150,000 loan was repaid on March 15, 2023.
Reimbursable Expenses from New CXApp
In connection with the closing of the Enterprise Apps Spin-off and Business Combination and the terms of the Merger Agreement, New CXAPP was obligated to reimburse the Company for certain transaction expenses related to the Business Combination. As of March 31, 2023, New CXApp owed the Company approximately $1.3 million for reimbursable transaction expenses which is included in the prepaid and other current assets line of the condensed Consolidated Balance Sheets.
During the three months ended March 31, 2023, the Company incurred approximately $0.08 million in reimbursable expenses payable in connection with the terms and conditions of the Transition Services Agreement, which is included in other receivables on the Company’s Condensed Consolidated Balance Sheets. This amount was repaid in April 2023.
Note 22 - Leases
The Company has operating leases for administrative offices in the United States (California), Canada, India, the United Kingdom, Germany, and the Philippines.
The Company entered into two new operating leases for its administrative offices in Ratingen, Germany, both from February 1, 2021 through January 1, 2023. The Company extended the office lease for six months, expiring on July 31, 2023. The monthly lease rate is $5,776 per month.
As part of the acquisition of IntraNav on December 9, 2021. the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office space (the IntraNav office) located in Frankfurt, Germany. This lease expires on January 6, 2025 and the current lease rate is approximately $9,373 per month.
The Company entered into two new operating leases for its administrative office in Hyderabad, India and Manila, Philippines. The Hyderabad, India and Manila, Philippines office lease expires on March 25, 2025 and May 14, 2025, respectively.
The Company early terminated one of its administrative offices in Hyderabad, India which generated an immaterial gain on lease termination which is included in the operating expenses section of the Condensed Consolidated Statements of Operations.
The Company has no other operating or financing leases with terms greater than 12 months.
Right-of-use assets are summarized below (in thousands):
34
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 22 - Leases (continued)
| As of March 31, 2023 | As of December 31, 2022 | |||||||
| Palo Alto, CA Office | $ | 630 | $ | 630 | ||||
| Hyderabad, India Office | 20 | — | ||||||
| Ratingen, Germany Office | 86 | 85 | ||||||
| Berlin, Germany Office | 516 | 508 | ||||||
| Frankfurt, Germany Office | 299 | 294 | ||||||
| Less accumulated amortization | (1,067) | (986) | ||||||
| Right-of-use asset, net | $ | 484 | $ | 531 | ||||
Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our condensed consolidated statement of income for the three months ended March 31, 2023 and 2022 was $0.1 million and $0.2 million, respectively.
Lease liability is summarized below (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | |||||||
| Total lease liability | $ | 496 | $ | 545 | ||||
| Less: short term portion | (199) | (211) | ||||||
| Long term portion | $ | 297 | $ | 334 | ||||
Maturity analysis under the lease agreement is as follows (in thousands):
| Nines months ending December 31, 2023 | $ | 162 | |||
| Year ending December 31, 2024 | 217 | ||||
| Year ending December 31, 2025 | 110 | ||||
| Year ending December 31, 2026 | 41 | ||||
| Year ending December 31, 2027 | — | ||||
| Year ending December 31, 2028 and thereafter | — | ||||
| Total | $ | 530 | |||
| Less: Present value discount | (34) | ||||
| Lease liability | $ | 496 | |||
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of ASC 842, "Leases" ("ASC 842"). As of March 31, 2023, the weighted average remaining lease term is 2.6 years and the weighted average discount rate used to determine the operating lease liabilities was 4.1%.
Note 23 - Commitments and Contingencies
Litigation
Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
35
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 23 - Commitments and Contingencies (continued)
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.
36
INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 24 - Discontinued Operations
On March 14, 2023, the Company completed the Business Combination which divested its Enterprise Apps Business and certain related assets and liabilities through a spin-off of CXApp Holding Corp., a Delaware corporation ("Legacy CXApp") to Inpixon’s shareholders of record as of March 6, 2023 (the “Record Date”) on a pro rata basis. This Enterprise Apps Spin-off was considered a strategic shift that has a major impact on the Company, and therefore, the results of operations are recorded as a component of "Earnings (loss) from discontinued operations, net of income taxes" in the Condensed Consolidated Statements of Operations for all periods presented. The Company noted that Legacy CXApp was part of the Company’s Indoor Intelligence segment. The net assets distributed as a result of the Enterprise Apps Spin-off was $24.2 million. Included within the $24.2 million dividend recorded to Additional Paid in Capital as a result of the deconsolidation of CXApp through distribution to shareholders recorded during the three months ended March 31, 2023, is approximately, $1.2 million in accumulated other comprehensive income that was recognized as a result of those distributed assets and liabilities included in the foreign operations of CXApp.
The following table summarizes certain selected components of discontinued operations for the spun-off entity:
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||||||||||
| Revenues | $ | 1,620 | $ | 2,582 | |||||||
| Cost of Revenues | 483 | 589 | |||||||||
| Gross Profit | 1,137 | 1,993 | |||||||||
| Operating Expenses | |||||||||||
| Research and development | 1,514 | 1,961 | |||||||||
| Sales and marketing | 988 | 1,107 | |||||||||
| General and administrative | 1,644 | 1,446 | |||||||||
| Earnout compensation benefit | — | (2,827) | |||||||||
| Acquisition related costs | — | 6 | |||||||||
| Transaction costs | 1,043 | — | |||||||||
| Amortization of intangibles | 805 | 975 | |||||||||
| Total Operating Expenses | 5,994 | 2,668 | |||||||||
| Loss from Operations | (4,857) | (675) | |||||||||
| Other Income (Expense) | |||||||||||
| Interest (expense)/income, net | 1 | 1 | |||||||||
| Total Other Income (Expense) | 1 | 1 | |||||||||
| Loss from discontinued operations, before tax | (4,856) | (674) | |||||||||
| Income tax provision | $ | — | (100) | ||||||||
| Loss from discontinued operations, net of tax | (4,856) | (774) | |||||||||
Cash used in operating activities by the Enterprise Apps Business totaled approximately $0.8 million and $3.0 million for the three months ended March 31, 2023 and 2022, respectively. Cash provided by investing activities from the Enterprise Apps Business totaled approximately $0.1 million for the three months ended March 31, 2023 and cash used in investing activities by the Enterprise Apps Business totaled approximately $0.04 million for the three months ended March 31, 2022.
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INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 24 - Discontinued Operations (continued)
The following table summarizes certain assets and liabilities of discontinued operations:
| As of December 31, 2022 | |||||
| Current Assets of Discontinued Operations | |||||
| Cash and cash equivalents | $ | 10,000 | |||
| Accounts receivable | 1,338 | ||||
| Prepaid expenses and other current assets | 923 | ||||
| Current Assets of Discontinued Operations | $ | 12,261 | |||
| Long Term Assets of Discontinued Operations | |||||
| Property and equipment, net | $ | 202 | |||
| Operating Lease Right-of-Use Asset, net | 681 | ||||
| Software development costs, net | 487 | ||||
| Intangible assets, net | 19,289 | ||||
| Other Assets | 52 | ||||
| Long Term Assets of Discontinued Operations | $ | 20,711 | |||
| Current Liabilities of Discontinued Operations | |||||
| Accounts payable | $ | 1,054 | |||
| Accrued liabilities | 1,736 | ||||
| Operating lease obligation, current | 266 | ||||
| Deferred revenue | 2,162 | ||||
| Current Liabilities of Discontinued Operations | $ | 5,218 | |||
| Long Term Liabilities of Discontinued Operations | |||||
| Operating lease obligation, noncurrent | $ | 444 | |||
| Other Liabilities, noncurrent | 28 | ||||
| Long Term Liabilities of Discontinued Operations | $ | 472 | |||
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INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 25 - Subsequent Events
From April 1, 2023 through the date of this filing, the Company exchanged approximately $1.2 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 3,260,379 shares of the Company's common stock at prices from $0.3336 to $0.3966 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).
From April 1, 2023 through the date of this filing, the Company sold 12,046,742 shares of common stock at share prices between $0.22771 and $0.54 per share under the Sales Agreement for gross proceeds of approximately $4.1 million.
Warrant Purchase Agreement
On May 15, 2023, the Company entered into a Warrant Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell in a private placement (the “Private Placement”) up to an aggregate of 150,000,000 warrants (the “Warrants”) to purchase up to 150,000,000 shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an offering price of $0.01 per Warrant (subject to adjustment as set forth in the Purchase Agreement) (the “Per Warrant Purchase Price”) for an aggregate warrant offering price equal to $1,500,000.
The Warrants have an initial exercise price which is equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) (subject to adjustment as set forth in the Warrants) (the “Initial Exercise Price”), payable in cash or the cancellation of indebtedness. Upon receipt of stockholder approval, the exercise price will equal the lower of (i) the Initial Exercise Price and (ii) 90% of the lowest VWAP (as defined in the Purchase Agreement) of the Common Stock for the five Trading Days (as defined in the Purchase Agreement) immediately prior to the date on which a Notice of Exercise is submitted to the Company (the “Adjusted Exercise Price” and together with the Initial Price, as applicable, the “Exercise Price”); provided, however, that any exercise of the Warrants with an Adjusted Exercise Price will be subject to the Company’s consent unless the trading price of the Common Stock as of the time the Notice of Exercise is delivered to the Company is at least 10% or more above the prior Trading Day’s Nasdaq Official Closing Price. The Purchaser may not exercise the Warrants to the extent such exercise would cause such Purchaser, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 9.99% of the Company’s then outstanding Common Stock following such exercise.
Each Warrant is immediately exercisable for one share of Common Stock and will expire one year from the issuance date (the “Termination Date”) unless extended by the Company with the consent of the Warrant holder. Pursuant to the terms of the Warrants, at any time prior to the Termination Date, the Company may, in its sole discretion, redeem any portion of a Warrant that has not been exercised, in cash, at the Per Warrant Purchase Price, plus all liquidated damages and other costs, expenses or amounts due in respect of the Warrants (the “Redemption Amount”) upon five Trading Days’ written notice to the Warrant holder (the “Redemption Date”). On the Termination Date, the Company will be required to redeem any portion of the Warrants that has not been exercised or redeemed prior to such date through payment of the Redemption Amount in cash. The Company will be required to pay any Redemption Amount within five Trading Days after the Redemption Date or the Termination Date, as applicable.
Subject to the satisfaction of certain conditions set forth in the Warrants during a period of seven consecutive Trading Days (the “Measurement Period”), the Company may, within one Trading Day of the end of such Measurement Period (the “Forced Exercise Eligibility Date”), force the holder to exercise its Warrants into up to such aggregate number of Warrant Shares equal to 25% of the quotient obtained by dividing the Traded Value (as defined in the Warrants) by the Exercise Price then in effect (less any Warrant Shares voluntarily exercised by the holder during such Measurement Period or at any time thereafter and prior to the applicable Forced Exercise Date (as defined in the Warrants) (the “Maximum Forced Exercise Share Amount”) as designated in the applicable Forced Exercise Notice (as defined in the Warrants) (each, a “Forced Exercise”). Following any Forced Exercise, a minimum of seven Trading Days must elapse after the Forced Exercise Date prior to the Company sending the Holders a new Forced Exercise Notice. The Company’s right to a Forced Exercise shall be exercised ratably among the Warrant holders based on each Holder’s initial purchase of Warrants.
On May 15, 2023, the Company and Maxim Group LLC (the “Placement Agent”) entered into a Placement Agency Agreement (the “Placement Agency Agreement”), whereby the Placement Agent, in connection with the Private Placement, agreed to act as the Company’s exclusive placement agent on a reasonable best efforts basis. Pursuant to the Placement Agency Agreement, the Company agreed to pay to the Placement Agent (i) a cash fee equal to 2.75% of the gross proceeds received by the Company from the Purchasers at the Closing, to be paid on the Closing Date and (ii) a cash fee equal to 5.5% of the gross proceeds received by the Company from a Purchaser upon the exercise of Warrants for cash, to be paid on a weekly basis
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INPIXON AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Note 27 - Subsequent Events (continued)
during the exercise period of the Warrants as to any exercise proceeds received by the Company from a Purchaser pursuant to the exercise of Warrants for cash during the preceding week (the "Exercise Cash Fee"). The Company is not required to pay the Exercise Cash Fee to the extent that a Purchaser exercises its Warrants through the cancellation of indebtedness owed by the Company to such Purchaser. The Company has also agreed to reimburse the Placement Agent up to $50,000 for certain expenses and legal fees incurred by the Placement Agent. The Placement Agency Agreement contains customary representations and warranties and agreements of the Company and the Placement Agent and customary indemnification rights and obligations of the parties.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A, “Risk Factors.”
Overview of Our Business
Inpixon is the Indoor Intelligence™ company. Our solutions and technologies help organizations create and redefine exceptional experiences that enable smarter, safer and more secure environments. Inpixon customers can leverage our real-time positioning, mapping and analytics technologies to achieve higher levels of productivity and performance, increase safety and security, improve worker and employee satisfaction rates and drive a more connected work environment. We have focused our corporate strategy on being the primary provider of the full range of foundational technologies needed to form a comprehensive suite of solutions that make indoor data available and actionable to organizations and their employees. Together, our technologies allow organizations to create and utilize the digital twin of a physical location and to deliver enhanced experiences in their current environment and in the metaverse.
Inpixon specializes in providing real-time location systems (RTLS) for the industrial sector. As the manufacturing industry has evolved, RTLS technology has become a crucial aspect of Industry 4.0. Our RTLS solution leverages cutting-edge technologies such as IoT, AI, and big data analytics to provide real-time tracking and monitoring of assets, machines, and people within industrial environments. With our RTLS, businesses can achieve improved operational efficiency, enhanced safety and reduced costs. By having real-time visibility into operations, industrial organizations can make informed, data-driven decisions, minimize downtime, and ensure compliance with industry regulations. With our RTLS, industrial businesses can transform their operations and stay ahead of the curve in the digital age.
Inpixon's full-stack industrial IoT solution provides end-to-end visibility and control over a wide range of assets and devices. It's designed to help organizations optimize their operations and gain a competitive edge in today's data-driven world. The turn-key platform integrates a range of technologies, including RTLS, sensor networks, edge computing, and big data analytics, to provide a comprehensive view of an organization's operations. We help organizations to track the location and status of assets in real-time, identify inefficiencies, and make decisions that drive business growth. Our IoT stack covers all the technology layers, from the edge devices to the cloud. It includes hardware components such as sensors and gateways, a robust software platforms for data management and analysis, and a user-friendly dashboard for real-time monitoring and control. Our solutions also offer robust security features, to help ensure the protection of sensitive data. Additionally, Inpixon's RTLS provides scalability and flexibility, allowing organizations to easily integrate it with their existing systems and add new capabilities as their needs evolve.
In addition to our Indoor Intelligence technologies and solutions, we also offer:
• Digital solutions (eTearsheets; eInvoice, and adDelivery) or cloudbased applications and analytics for the advertising, media and publishing industries through our advertising management platform referred to as Shoom by Inpixon; and
• A comprehensive set of data analytics and statistical visualization solutions for engineers and scientists referred to as SAVES by Inpixon.
We report financial results for three segments: Indoor Intelligence, Shoom and SAVES. For Indoor Intelligence, we generate revenue from sales of hardware, software licenses and professional services. For Shoom and SAVES, we generate revenue from the sale of software licenses.
We experienced a net loss from continuing operations of approximately $12.3 million and approximately $10.8 million for the three months ended March 31, 2023 and 2022, respectively. We cannot assure that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. In order to continue our operations, we have
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supplemented the revenues we earned with proceeds from the sale of our equity and debt securities and proceeds from loans and bank credit lines.
Global Events
While the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to remain uncertain. While we were able to continue operations remotely throughout the pandemic, we have experienced supply chain cost increases and constraints and delays in the receipt of certain components of our hardware products impacting delivery times for our products. In addition, to the extent that certain customers or prospective customers continue to be challenged by the lasting effects of the pandemic, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders. While we have been able to realize growth in the three months ended March 31, 2023 as compared to the same periods in 2022, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain. There are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.
We anticipate that certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, and inflation on our customers and partners in regions throughout the world, we expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business. A further discussion of the impact of the COVID-19 pandemic and the Russia and Ukraine conflict on our business is set forth below in Part II, Item 1A. Risk Factors.
Corporate Strategy Update
In order to continue to respond to rapid changes and required technological advancements, as well as increase our shareholder value, we are exploring strategic transactions and opportunities that we believe will enhance shareholder value. Our board of directors has authorized a review of strategic alternatives, including a possible asset sale, merger with another company or spin-off of one or more of our business units. We will also be opportunistic and may consider other strategic and/or attractive transactions, which may include, but not be limited to other alternative investment opportunities, such as minority investments, joint ventures or special purpose acquisition companies. If we make any acquisitions in the future, we expect that we may pay for such acquisitions with cash, equity securities and/or debt in combinations appropriate for each acquisition. In September of 2022, we entered into an Agreement and Plan of Merger in connection with the spin-off and sale of our enterprise apps business which was consummated on March 14, 2023. (See “Recent Events” below for more details). In addition, we have entered into a non-binding letter of intent and are in the due diligence and negotiation stages with another third party in connection with a potential transaction involving the remainder of our business. We may enter into one or more additional non-binding letters of intent in connection with our due diligence and evaluation process.
Recent Events
Financings
At-The-Market (ATM) Program
On July 22, 2022, we entered into an Equity Distribution Agreement (the “Sales Agreement”) with Maxim Group LLC ("Maxim") under which we may offer and sell shares of our common stock having an aggregate offering price of up to $25 million (the "Shares") from time to time through Maxim, acting exclusively as our sales agent (the “ATM Offering”). Maxim is entitled to compensation at a fixed commission rate of 3.0% of the gross sales price per Share sold excluding Maxim's costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel. During the quarter ended March 31, 2023, the Company sold 9,655,207 shares of common stock at share prices between $1.15 and $1.86 per share under the Sales Agreement for gross proceeds of approximately $15.4 million. From April 1, 2023 through the date of this filing, the Company sold 12,046,742 shares of common stock at share prices between $0.22771 and $0.54 per share under the Sales Agreement for gross proceeds of approximately $4.1 million. The Company is currently subject to the SEC’s “baby shelf rules,” as of April 17, 2023, which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by the Company under the Sales Agreement or other offerings pursuant to the Company’s effective shelf registration statement on Form S-3.
Note Exchanges
During the quarter ended March 31, 2023, the Company exchanged approximately $0.9 million of the outstanding principal and interest under the March 2020 10% Note Purchase Agreement and Promissory Note for 611,258 shares of the
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Company's common stock at prices from $1.09 to $1.682 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d). This note was fully satisfied as of January 31, 2023.
During the quarter ended March 31, 2023, the Company exchanged approximately $0.5 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 935,976 shares of the Company's common stock at prices from $0.37 to $0.915 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).
From April 1, 2023 through the date of this filing, the Company exchanged approximately $1.2 million of the outstanding principal and interest under the July 2022 10% Note Purchase Agreement and Promissory Note for 3,260,379 shares of the Company's common stock at prices from $0.3336 to $0.3966 per share, calculated in accordance with Nasdaq's “minimum price” as defined by Nasdaq Listing Rule 5635(d).
Enterprise Apps Spin-off and Business Combination
On March 14, 2023, Inpixon completed (the “Closing”) the separation (the “Separation”) of its enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”) through a spin-off of CXApp Holding Corp., a Delaware corporation ("CXApp"), to certain holders of Inpixon securities as of March 6, 2023 (the “Record Date”) on a pro rata basis (the “Distribution” or “Enterprise Apps Spin-off”) and merger (the “Merger”) of CXApp with a wholly owned subsidiary of KINS Technology Group Inc., a Delaware corporation (“KINS”), in a Reverse Morris Trust transaction (collectively, the “Transactions”) pursuant to (i) an Agreement and Plan of Merger, dated as of September 25, 2022, by and among Inpixon, KINS, CXApp, and KINS Merger Sub Inc. (the "Merger Agreement") and (ii) a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc. (the "Separation Agreement”, and collectively with the Merger Agreement and the other related transaction documents, the “Transaction Agreements”).
In connection with the Closing, KINS was renamed CXApp Inc. (“New CXApp”). Pursuant to the Transaction Agreements, Inpixon contributed cash sufficient to ensure CXApp had $10 million in cash and cash equivalents prior to the deduction of transaction expenses at closing and certain assets and liabilities constituting the Enterprise Apps Business, including certain related subsidiaries of Inpixon, to CXApp (the “Contribution”). In consideration for the Contribution, CXApp issued to Inpixon additional shares of CXApp common stock such that the number of shares of CXApp common stock then outstanding equaled the number of shares of CXApp common stock necessary to effect the Distribution. Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of CXApp common stock for each share of Inpixon common stock held as of such date. Pursuant to the Merger Agreement, each share of Legacy CXApp common stock was thereafter exchanged for the right to receive 0.09752221612415190 of a share of New CXApp Class A common stock (with fractional shares rounded down to the nearest whole share) and 0.3457605844401750 of a share of New CXApp Class C common stock (with fractional shares rounded down to the nearest whole share). New CXApp Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger. Upon the closing of the Transactions, Inpixon’s existing security holders held approximately 50.0% of the shares of New CXApp common stock outstanding.
Employee Matters Agreement
On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, CXApp, Legacy CXApp, Inpixon and Merger Sub entered into the Employee Matters Agreement (the “Employee Matters Agreement”). The Employee Matters Agreement sets forth the terms and conditions of certain employee related matters in connection with the transaction, including, but not limited to the participation in benefits for each of the respective companies as relevant, and the assumption and retention of benefit plan assets and liabilities, worker's compensation, payroll taxes, regulatory filings, and the sharing of employee information.
Tax Matters Agreement
On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, CXApp, Legacy CXApp and Inpixon entered into the Tax Matters Agreement (the “Tax Matters Agreement”) which governs each party’s respective rights, responsibilities and obligations with respect to tax liabilities and
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benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes.
Allocation of Taxes
In general, KINS and CXApp will be liable for all U.S. federal, state, local and foreign taxes (and any related interest, penalties or audit adjustments) that are (i) imposed with respect to tax returns that include both CXApp and Inpixon, to the extent such taxes are attributable to CXApp or the Enterprise Apps Business, or (ii) imposed with respect to tax returns that include CXApp but not Inpixon, in each case, for tax periods (or portions thereof) beginning after the Distribution. Inpixon will generally be liable for taxes described in clauses (i) and (ii) above for tax periods (or portions thereof) ending on the date of or prior to the Distribution, and any and all Distribution Taxes, as defined in the Tax Matters Agreement (generally, taxes imposed with respect to the Separation, Contribution, and Distribution). However, CXApp and KINS may be liable for certain taxes pursuant to indemnity obligations described below.
Indemnification Obligations
The Tax Matters Agreement generally provides for indemnification obligations between New CXApp and KINS, on the one hand, and Inpixon, on the other hand. In particular, CXApp and KINS must indemnify Inpixon for taxes allocated to CXApp or KINS, as described above, and Inpixon must indemnify New CXApp and KINS for taxes as allocated to Inpixon as described above, which would generally include Distribution Taxes. The Tax Matters Agreements, however, provides that KINS and CXApp may be liable for certain taxes to the extent such taxes result from a breach of certain representations or restrictive covenants made by KINS and CXApp, as described below.
Transition Services Agreement
On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, Legacy CXApp and Inpixon entered into a Transition Services Agreement (the “Transition Services Agreement”) pursuant to which Inpixon and certain employees and representatives and CXApp and certain employees and representatives will provide services to each other primarily related to payroll and benefits administration, IT support, finance and accounting services, contract administration and management services, and other administrative support services that may be required on an as needed basis, which services are of the type that CXApp and Inpixon provided to, and received from, each other prior to the Separation. The fees for each of the transition services are set forth in the Transition Services Agreement. The Transition Services Agreement will terminate on the expiration of the term of the last service provided under it, and if no expiration date is provided for any transition service, then such transition service will terminate twelve months after the date of the Transition Services Agreement, provided that the receiving party shall have the right to an extension of each or any transition service for up to six months by providing written notice to providing party in advance of the original termination date for such transition service if, prior to such request for extension, the receiving party has used commercially reasonable efforts to establish analogous capabilities of its own.
The transaction is expected to be tax-free to Inpixon and its security holders for U.S. federal income tax purposes.
On March 15, 2023, New CXApp began regular-way trading on NASDAQ under the ticker symbol “CXAI.” Inpixon continues to trade under the ticker symbol “INPX.”
Compliance with Nasdaq Continued Listing Requirement
On April 14, 2023, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days beginning on March 2, 2023, and ending on April 13, 2023, the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of 180 calendar days, or until October 11, 2023, in which to regain compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that our common stock will
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be subject to delisting. The letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market. The Company intends to monitor the closing bid price of our common stock and consider its available options in the event that the closing bid price of our common stock remains below $1 per share.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 3 of the condensed consolidated financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not been material.
There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Goodwill, Acquired Intangible Assets and Other Long-Lived Assets - Impairment Assessments
We have recorded goodwill and other indefinite-lived assets in connection with our historical acquisitions. Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is not amortized. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination. The recoverability of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the carrying amount may not be recoverable. A significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred. We have determined that we will operate and report in three reporting units: Indoor Intelligence, SAVES, and Shoom. As of June 30, 2022, the Company's previously recorded goodwill has been fully impaired.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022
The following table sets forth selected condensed consolidated financial data as a percentage of our revenue and the percentage of period-over-period change:
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| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenues | Amount | % of Revenues | $ Change | % Change* | ||||||||||||||||||||||||||||||||
| Revenues | $ | 3,104 | 100 | % | $ | 2,649 | 100 | % | $ | 455 | 17 | % | ||||||||||||||||||||||||||
| Cost of revenues | $ | 791 | 25 | % | $ | 797 | 30 | % | $ | (6) | (1) | % | ||||||||||||||||||||||||||
| Gross profit | $ | 2,313 | 75 | % | $ | 1,852 | 70 | % | $ | 461 | 25 | % | ||||||||||||||||||||||||||
| Operating expenses | $ | 10,495 | 338 | % | $ | 11,089 | 419 | % | $ | (594) | (5) | % | ||||||||||||||||||||||||||
| Loss from operations | $ | (8,182) | (264) | % | $ | (9,237) | (349) | % | $ | 1,055 | 11 | % | ||||||||||||||||||||||||||
| Other income (expense) | $ | (1,662) | (54) | % | $ | (1,546) | (58) | % | $ | (116) | (8) | % | ||||||||||||||||||||||||||
| Provision for income taxes | $ | (2,478) | (80) | % | $ | — | — | % | $ | (2,478) | — | % | ||||||||||||||||||||||||||
| Net loss from continuing operations | $ | (12,322) | (397) | % | $ | (10,783) | (407) | % | $ | (1,539) | (14) | % | ||||||||||||||||||||||||||
| Loss from Discontinued Operations, Net of Tax | $ | (4,856) | (156) | % | $ | (774) | (29) | % | $ | (4,082) | (527) | % | ||||||||||||||||||||||||||
| Net loss attributable to stockholders of Inpixon | $ | (16,873) | (544) | % | $ | (11,211) | (423) | % | $ | (5,662) | (51) | % | ||||||||||||||||||||||||||
* Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations in this item, which may be rounded to the nearest hundred thousand, may not produce the same results.
Revenues
Revenues for the three months ended March 31, 2023 were $3.1 million compared to $2.6 million for the comparable period in the prior year for an increase of approximately $0.5 million, or approximately 17%. This increase is primarily attributable to the increase in Indoor Intelligence sales from the Aware and RTLS component product lines.
Cost of Revenues and Gross Profit
Cost of revenues for the three months ended March 31, 2023 and 2022 were $0.8 million. The gross profit margin for the three months ended March 31, 2023 was 75% compared to 70% for the three months ended March 31, 2022. This increase in gross profit margin is due to the sales mix during the period.
Operating Expenses
Operating expenses for the three months ended March 31, 2023 were $10.5 million and $11.1 million for the comparable period ended March 31, 2022. This decrease of $0.6 million is primarily attributable to lower compensation, professional fees and legal expense in the three months ended March 31, 2023.
Other Income (Expense)
Other income/expense for the three months ended March 31, 2023 was a loss of $1.7 million as compared to a loss of $1.5 million for the three months ended March 31, 2022. The three months ended March 31, 2023 included higher interest expense on short term debt and the three months ended March 31, 2022 included a $1.5 million unrealized loss on equity securities.
Provision for Income Taxes
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There is an income tax expense of approximately $2.5 million and $0.0 million for the three months ended March 31, 2023 and 2022, respectively. The income tax expense in the three months ended March 31, 2023 includes a $2.6 million deferred tax expense to increase the valuation allowance, which is offset by a current tax benefit of $0.1 million, due to the Enterprise Apps Spin-off.
Loss from Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax for the three months ended March 31, 2023 was $4.9 million compared to a loss of $0.8 million for the three months ended March 31, 2022. This increase in loss of $4.1 million was due to approximately $1.0 million of spin off transaction costs in the three months ended March 31, 2023 and the earnout compensation benefit of approximately $2.8 million in the three months ended March 31, 2022.
Non-GAAP Financial information
EBITDA
EBITDA is defined as net income (loss) before interest, provision for (benefit from) income taxes, and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation.
Adjusted EBITDA for the three months ended March 31, 2023 was a loss of $7.7 million compared to a loss of $8.8 million for the prior year period.
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The following table presents a reconciliation of net income (loss) attributable to stockholders of Inpixon, which is our GAAP operating performance measure, to Adjusted EBITDA for the three and three months ended March 31, 2023 and 2022 (in thousands):
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net loss attributable to stockholders of Inpixon | $ | (16,873) | $ | (17,362) | |||||||
| Interest expense/(income), net | 1,724 | (2) | |||||||||
| Income tax provision | 2,478 | 100 | |||||||||
| Depreciation and amortization | 1,454 | 1,806 | |||||||||
| EBITDA | (11,217) | (15,458) | |||||||||
| Adjusted for: | |||||||||||
| Non-recurring one-time charges: | |||||||||||
| Unrealized (gain)/loss on equity securities | (34) | 1,503 | |||||||||
| Acquisition transaction/financing costs | 164 | 121 | |||||||||
| Earnout compensation benefit | — | (2,827) | |||||||||
| Professional service fees | — | 8 | |||||||||
| Transaction costs | 2,443 | — | |||||||||
| Accretion of Series 7 Preferred Stock | — | 4,555 | |||||||||
| Accretion of Series 8 Preferred Stock | — | 548 | |||||||||
| Deemed dividend for the modification related to Series 8 Preferred Stock | — | 2,627 | |||||||||
| Deemed contribution for the modification related to warrants issued in connection with Series 8 Preferred Stock | — | (1,469) | |||||||||
| Amortization premium- modification related to Series 8 Preferred Stock | — | (110) | |||||||||
| Distribution of equity method investment shares to employees as compensation | 666 | — | |||||||||
| Unrealized foreign exchange (gains)/losses | (205) | 89 | |||||||||
| Stock-based compensation - compensation and related benefits | 329 | 1,533 | |||||||||
| Severance costs | 127 | 111 | |||||||||
| Adjusted EBITDA | $ | (7,727) | $ | (8,769) | |||||||
•We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:
•To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;
•As a basis for allocating resources to various projects;
•As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and
•To evaluate internally the performance of our personnel.
We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:
•We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non-cash items including stock based compensation, amortization of intangibles, change in the fair value of shares to be issued, change in
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the fair value of derivative liability, impairment of goodwill and one time charges including gain/loss on the settlement of obligations, severance costs, provision for doubtful accounts, acquisition costs and the costs associated with the public offering.
•We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and
•We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies.
Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include the fact that:
•Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
•Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and
•Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.
Proforma Non-GAAP Net Income (Loss) per Share
Basic and diluted net income (loss) per share for the three months ended March 31, 2023 was a loss of $1.38 compared to loss of $9.05 for the prior year period.
Proforma non-GAAP net income (loss) per share is used by our Company’s management as an evaluation tool as it manages the business and is defined as net income (loss) per basic and diluted share adjusted for non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.
Proforma non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2023 was a loss of $1.01 per share compared to a loss of $4.79 per share for the prior year period.
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The following table presents a reconciliation of net loss per basic and diluted share, which is our GAAP operating performance measure, to proforma non-GAAP net loss per share for the periods reflected (in thousands, except per share data):
| For the Three Months Ended March 31, | ||||||||||||||
| (thousands, except per share data) | 2023 | 2022 | ||||||||||||
| Net loss attributable to stockholders of Inpixon | $ | (16,873) | $ | (17,362) | ||||||||||
| Adjustments: | ||||||||||||||
| Non-recurring one-time charges: | ||||||||||||||
| Unrealized (gain)/loss on equity securities | (34) | 1,503 | ||||||||||||
| Acquisition transaction/financing costs | 164 | 121 | ||||||||||||
| Earnout compensation benefit | — | (2,827) | ||||||||||||
| Professional service fees | — | 8 | ||||||||||||
| Transaction costs | 2,443 | — | ||||||||||||
| Accretion of Series 7 Preferred Stock | — | 4,555 | ||||||||||||
| Accretion of Series 8 Preferred Stock | — | 548 | ||||||||||||
| Deemed dividend for the modification related to Series 8 Preferred Stock | — | 2,627 | ||||||||||||
| Deemed contribution for the modification related to warrants issued in connection with Series 8 Preferred Stock | — | (1,469) | ||||||||||||
| Amortization premium- modification related to Series 8 Preferred Stock | — | (110) | ||||||||||||
| Distribution of equity method investment shares to employees as compensation | 666 | — | ||||||||||||
| Unrealized foreign exchange (gains)/losses | (205) | 89 | ||||||||||||
| Stock-based compensation - compensation and related benefits | 329 | 1,533 | ||||||||||||
| Severance costs | 127 | 111 | ||||||||||||
| Amortization of intangibles | 1,025 | 1,489 | ||||||||||||
| Proforma non-GAAP net loss | $ | (12,358) | $ | (9,184) | ||||||||||
| Proforma non-GAAP net loss per common share - Basic and Diluted | $ | (1.01) | $ | (4.79) | ||||||||||
| Weighted average basic and diluted common shares outstanding | 12,238,684 | 1,917,629 | ||||||||||||
•We rely on proforma non-GAAP net income (loss) per share, which is a non-GAAP financial measure:
•To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;
•As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and
•To evaluate internally the performance of our personnel.
We have presented proforma non-GAAP net income (loss) per share above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss), and that by including this information we can provide investors with a more complete understanding of our business. Specifically, we present proforma non-GAAP net income (loss) per share as supplemental disclosure because:
•We believe proforma non-GAAP net income (loss) per share is a useful tool for investors to assess the operating performance of our business without the effect of non-cash items including stock based compensation, amortization of intangibles and one time charges including gain on the settlement of obligations, severance costs, provision for doubtful accounts, change in the fair value of shares to be issued, acquisition costs and the costs associated with the public offering.
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•We believe that it is useful to provide to investors a standard operating metric used by management to evaluate our operating performance; and
•We believe that the use of proforma non-GAAP net income (loss) per share is helpful to compare our results to other companies.
Liquidity and Capital Resources as of March 31, 2023
Our current capital resources and operating results as of and through March 31, 2023, consist of:
1)an overall working capital surplus of approximately $0.2 million;
2)cash of approximately $15.3 million;
3)net cash used by operating activities for the three months ended March 31, 2023 of $9.5 million.
The breakdown of our overall working capital surplus as of March 31, 2023 is as follows (in thousands):
| Working Capital | Assets | Liabilities | Net | |||||||||||||||||
| Cash and cash equivalents | $ | 15,254 | $ | — | $ | 15,254 | ||||||||||||||
| Accounts receivable, net / accounts payable | 2,999 | 1,767 | 1,232 | |||||||||||||||||
| Inventory | 2,179 | — | 2,179 | |||||||||||||||||
| Accrued liabilities | — | 5,112 | (5,112) | |||||||||||||||||
| Operating lease obligation | — | 199 | (199) | |||||||||||||||||
| Deferred revenue | — | 1,382 | (1,382) | |||||||||||||||||
| Notes and other receivables / Short-term debt | 430 | 14,971 | (14,541) | |||||||||||||||||
| Other | 2,797 | — | 2,797 | |||||||||||||||||
| Total | $ | 23,659 | $ | 23,431 | $ | 228 | ||||||||||||||
Contractual Obligations and Commitments
Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consists of operating lease liabilities and acquisition liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are legally binding. As of March 31, 2023, the total obligation for capitalized operating leases is approximately $0.5 million, of which approximately $0.2 million is expected to be paid in the next twelve months.
As of March 31, 2023, we owed approximately $15.0 million in principal under promissory notes with third parties. This balance excludes intercompany amounts that are eliminated in the financial statements. These notes are payable within the next twelve months and the interest rate charged under the notes range from 8% to 10%. See Note 10 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.
Net cash used in operating activities during the three months ended March 31, 2023 of $9.5 million consists of a net loss of $17.2 million offset by non-cash adjustments of approximately $5.6 million less net cash changes in operating assets and liabilities of approximately $2.0 million. Although the Company has sustained significant losses during three months ended March 31, 2023, in addition to the cash we had on hand, we raised gross proceeds of approximately $19.6 million since January 1, 2023, in connection with the ATM Offering described above. Given our current cash balances, financing facilities and budgeted cash flow requirements, the Company believes such funds are sufficient to satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements.
However, general economic or other conditions resulting from COVID 19 or other events materially may impact the liquidity of our common stock or our ability to continue to access capital from the sale of our securities to support our growth plans. While the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to remain uncertain. While we were able to continue operations remotely throughout the pandemic, we have experienced supply chain cost increases and constraints and delays in the receipt of certain components of our hardware
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products impacting delivery times for our products. In addition, to the extent that certain customers continue to be challenged by the lasting effects of the pandemic, we have and may continue to see an impact in the demand of certain products and delays in certain projects and customer orders. Our business has been impacted by the COVID-19 pandemic and may continue to be impacted. While we have been able to continue operations remotely, we have and continue to experience supply chain cost increases and constraints and delays in the receipt of certain components of our products impacting delivery times for our products. We have also seen some impact in the demand of certain products and delays in certain projects and customer orders either because they require onsite services which could not be performed as a result of new rules and regulations resulting from the pandemic, customer facilities being partially or fully closed during the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.
Certain global events, such as the continued impact of the pandemic, the recent military conflict between Russia and Ukraine, and other general economic factors that are beyond our control may impact our results of operations. These factors can include interest rates; recession; inflation; unemployment trends; the threat or possibility of war, terrorism or other global or national unrest; political or financial instability; and other matters that influence our customers spending. Increasing volatility in financial markets and changes in the economic climate could adversely affect our results of operations. We also expect that supply chain interruptions and constraints, and increased costs on parts, materials and labor may continue to be a challenge for our business. While we have been able to realize growth in the three months ended March 31, 2023 as compared to the same periods in 2022, the impact that these global events will have on general economic conditions is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain. There are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected. The Company may continue to pursue strategic transactions and may raise such additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each transaction.
Liquidity and Capital Resources
The Company’s net cash flows used in operating, investing and financing activities for the three months ended March 31, 2023 and 2022 and certain balances as of the end of those periods are as follows (in thousands):
| For the Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash used in operating activities | $ | (9,503) | $ | (15,319) | |||||||
| Net cash provided by (used in) investing activities | (376) | 27,813 | |||||||||
| Net cash provided by (used in) financing activities | 4,892 | (4,103) | |||||||||
| Effect of foreign exchange rate changes on cash | 6 | (19) | |||||||||
| Net (decrease)/increase in cash and cash equivalents | $ | (4,981) | $ | 8,372 | |||||||
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Cash and cash equivalents | $ | 15,254 | $ | 10,235 | |||||||
| Working capital surplus | $ | 228 | $ | 5,152 | |||||||
Operating Activities for the three months ended March 31, 2023
Net cash used in operating activities during the three months ended March 31, 2023 was approximately $9.5 million. The cash flows related to the three months ended March 31, 2023 consisted of the following (in thousands):
| Net income (loss) | $ | (17,178) | |||
| Non-cash income and expenses | 5,632 | ||||
| Net change in operating assets and liabilities | 2,043 | ||||
| Net cash used in operating activities | $ | (9,503) | |||
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The non-cash income and expense of approximately $5.6 million consisted primarily of the following (in thousands):
| $ | 1,454 | Depreciation and amortization expenses | ||||||
| 110 | Amortization of right of use asset | |||||||
| 329 | Stock-based compensation expense attributable, warrants, restricted stock grants and options issued as part of Company operations | |||||||
| 834 | Amortization of debt discount | |||||||
| 666 | Distribution of equity method investment shares to employees as compensation | |||||||
| 2,478 | Deferred income tax | |||||||
| (34) | Unrealized loss on equity securities | |||||||
| (205) | Other | |||||||
| $ | 5,632 | Total non-cash expenses | ||||||
The net cash used in the change in operating assets and liabilities aggregated approximately $2.0 million and consisted primarily of the following (in thousands):
| $ | (1,994) | Increase in accounts receivable and other receivables | ||||||
| 553 | Decrease in inventory, prepaid expenses and other current assets and other assets | |||||||
| (534) | Decrease in accounts payable | |||||||
| 3,543 | Increase in accrued liabilities, income tax liabilities and other liabilities | |||||||
| (109) | Decrease in operating lease liabilities | |||||||
| 584 | Increase in deferred revenue | |||||||
| $ | 2,043 | Net cash used in the changes in operating assets and liabilities | ||||||
Operating Activities for the three months ended March 31, 2022
Net cash used in operating activities during the three months ended March 31, 2022 was approximately $15.3 million. The cash flows related to the three months ended March 31, 2022 consisted of the following (in thousands):
| Net income (loss) | $ | (11,557) | |||
| Non-cash income and expenses | 2,163 | ||||
| Net change in operating assets and liabilities | (5,925) | ||||
| Net cash used in operating activities | $ | (15,319) | |||
The non-cash income and expense of approximately $2.2 million consisted primarily of the following (in thousands):
| $ | 1,806 | Depreciation and amortization expenses | ||||||
| 169 | Amortization of right of use asset | |||||||
| 1,533 | Stock-based compensation expense attributable to warrants and options issued as part of Company operations | |||||||
| (2,827) | Earnout payment expense | |||||||
| (167) | Unrealized loss on foreign currency transactions | |||||||
| 1,503 | Unrealized loss on equity securities | |||||||
| 146 | Other | |||||||
| $ | 2,163 | Total non-cash expenses | ||||||
The net use of cash in the change in operating assets and liabilities aggregated approximately $5.9 million and consisted primarily of the following (in thousands):
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| $ | (239) | Increase in accounts receivable and other receivables | ||||||
| (3,385) | Increase in inventory, prepaid expenses and other current assets and other assets | |||||||
| (1,345) | Decrease in accounts payable | |||||||
| (149) | Decrease in accrued liabilities, income tax liabilities and other liabilities | |||||||
| (141) | Decrease in operating lease liabilities | |||||||
| (666) | Decrease in deferred revenue | |||||||
| $ | (5,925) | Net use of cash used in the changes in operating assets and liabilities | ||||||
Cash Flows from Investing Activities as of March 31, 2023 and 2022
Net cash flows used in investing activities during the three months ended March 31, 2023 was approximately $0.4 million compared to net cash flows provided by investing activities during the three months ended March 31, 2022 of approximately $27.8 million. Cash flows related to investing activities during the three months ended March 31, 2023 include $0.01 million for the purchase of property and equipment, $0.2 million for investment in capitalized software, $0.3 million for the issuance of a note receivable, and $0.2 million of proceeds from a note receivable. Cash flows related to investing activities during the three months ended March 31, 2022 include $0.1 million for the purchase of property and equipment, $0.1 million investment in capitalized software, and $28.0 million from sales of treasury bills.
Cash Flows from Financing Activities as of March 31, 2023 and 2022
Net cash flows provided by financing activities during the three months ended March 31, 2023 was $4.9 million. Net cash flows used in financing activities during the three months ended March 31, 2022 was $4.1 million. During the three months ended March 31, 2023, the Company received incoming cash flows of $0.1 million from a promissory note, $15.0 million from a registered direct offering, paid $0.2 million of the CXApp acquisition liability, and distributed $10.0 million to the shareholders related to the spin-off of CXApp. During the three months ended March 31, 2022, the Company received incoming cash flows $46.9 million for the issuance of preferred series 8 stock and warrants, paid $49.3 million for the redemption of preferred series 7 stock, paid $1.8 million of the CXApp acquisition liability, received $0.4 million of net proceeds from promissory notes and paid $0.3 million of taxes related to the net share settlement of restricted stock units.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Recently Issued Accounting Standards
For a discussion of recently issued accounting pronouncements, please see Note 3 to our financial statements, which are included in this report beginning on page F-1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with GAAP.
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In connection with the preparation of this Form 10-Q, management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The Company’s management determined that there were no material changes needed to internal controls as a result of the COVID-19 pandemic.
Limitations of the Effectiveness of Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.
Item 1A. Risk Factors
We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risks. In addition to the risk factors set forth below and the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 17, 2023, which report is incorporated by reference herein, all of which could materially affect our business, financial condition and future results.
Changes in the value of the common stock or other securities that we own as a result of strategic investments may result in material fluctuations (increases or decreases) in our total asset value and net income on a quarterly basis.
On September 15, 2022, we acquired 891,124 shares of Class A common stock, par value $0.0001 (“FOXO common stock”) of Foxo Technologies Inc. ("FOXO") in connection with the conversion of a 10% convertible note acquired on April 27, 2022 in an aggregate principal amount of $6.1 million for a purchase price of $5.5 million as a result of the closing of a business combination. FOXO common stock is traded in active markets, as the security is trading under “FOXO” on the NYSE American. FOXO common stock is accounted for as available-for-sale equity securities based on “Level 1” inputs, which consist of quoted prices in active markets, with unrealized holding gains and losses included in earnings. The fair value of the FOXO common stock was determined by the closing trading price of the security as of March 31, 2023. The Company recognized an unrealized gain on FOXO common stock of $0.03 million for the three months ended March 31, 2023.
Consequently, the investment securities we own, are inherently volatile. Accordingly, the value of our total assets and as a consequence, the price of our common stock may decline or increase regardless of our operating performance, which may result in losses for investors purchasing shares of our common stock. Further, to the extent that we experience unrealized losses in connection with such securities from declines in securities values that management determines to be other than temporary, the book value of those securities will be adjusted to their estimated recovery value and we will recognize a charge to earnings in the quarter during which we make that determination. Additionally, the Company has no control over the price the Company will eventually receive as a result of the disposition of such assets and may be unable to sell the aforementioned securities at favorable prices quickly or when desired.
Our common stock may be delisted from The Nasdaq Capital Market which could negatively impact the price of our common stock, liquidity and our ability to access the capital markets.
Our common stock is currently listed on The Nasdaq Capital Market under the symbol “INPX.” The listing standards of The Nasdaq Capital Market provide that a company, in order to qualify for continued listing, must maintain a minimum stock price of $1.00 and satisfy standards relative to minimum stockholders’ equity, minimum market value of publicly held shares and various additional requirements. If The Nasdaq Stock Market LLC, or Nasdaq, delists our securities from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant negative consequences including:
•limited availability of market quotations for our securities;
•a determination that the common stock is a “penny stock” which would require brokers trading in the common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of common stock;
•a limited amount of analyst coverage, if any; and
•a decreased ability to issue additional securities or obtain additional financing in the future.
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Delisting from The Nasdaq Capital Market could also result in other negative consequences, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest and fewer business development opportunities.
In several instances in the past, including as recently as on April 14, 2023, we received written notification from Nasdaq informing us that because the closing bid price of our common stock was below $1.00 for 30 consecutive trading days, our shares no longer complied with the minimum closing bid price requirement for continued listing on Nasdaq under the Nasdaq Listing Rules. Each time, we were given a period of 180 days from the date of the notification to regain compliance with Nasdaq’s listing requirements by having the closing bid price of our common stock listed on Nasdaq be at least $1.00 for at least 10 consecutive trading days.
In connection with the April 14, 2023 notice, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until October 11, 2023, in which to regain compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period. In the event that we do not regain compliance within this 180-day period, we may be eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that our common stock will be subject to delisting. The letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market.
We intend to monitor the closing bid price of our common stock and consider its available options in the event that the closing bid price of our common stock remains below $1 per share. While we have regained compliance within the applicable time periods in the past, we cannot be certain that we will be able to regain compliance in connection with the April 14, 2023 notice, or that we will be able to comply with the other continued listing requirements.
If our shares of common stock lose their status on Nasdaq, we believe that they would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by OTC Markets Group Inc., commonly referred to as the Pink Open Market and we may also qualify to be traded on their OTCQB market (The Venture Market). These markets are generally not considered to be as efficient as, and not as broad as, Nasdaq. Selling our shares on these markets could be more difficult because smaller quantities of shares would likely be bought and sold, and transactions could be delayed. In addition, in the event our shares are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock or even holding our common stock, further limiting the liquidity of our common stock. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) Sales of Unregistered Securities
During the quarter ended March 31, 2023, the Company issued an aggregate of 611,258 shares of common stock (the “2020 Note Exchange Shares”) to the holder of that certain outstanding promissory note of the Company issued on March 20, 2020 (the “March 2020 Note”), at a price between $1.09 and $1.68 per share, in each case at a price per share equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in connection with the terms and conditions of certain Exchange Agreements, pursuant to which we and the holder agreed to (i) partition new promissory notes in the form of the March 2020 Note in the aggregate original principal amount equal to approximately $0.9 million and then cause the outstanding balance of the March 2020 Note to be reduced by an aggregate of approximately $0.9 million; and (ii) exchange the partitioned notes for the delivery of the 2020 Note Exchange Shares.
During the quarter ended March 31, 2023, the Company issued an aggregate of 935,976 shares of common stock (the “2022 Note Exchange Shares," and together with the 2020 Note Exchange Shares, the "Exchange Common Shares”) to the holder of that certain outstanding promissory note of the Company issued on July 22, 2022 (the “July 2022 Note”), at a price between approximately $0.37 and $0.915 per share, in each case at a price per share equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) in connection with the terms and conditions of certain Exchange Agreements, pursuant to which we and the holder agreed to (i) partition new promissory notes in the form of the July 2022 Note in the aggregate original principal amount equal to approximately $0.5 million and then cause the outstanding balance of the July 2022 Note to be reduced by an aggregate of approximately $0.5 million; and (ii) exchange the partitioned notes for the delivery of the 2022 Note Exchange Shares.
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The offer and sale of the Exchange Common Shares was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on an exemption from registration under Section 3(a)(9) of the Securities Act, in that (a) the Exchange Common Shares were issued in exchanges for partitioned notes which are other outstanding securities of the Company; (b) there was no additional consideration of value delivered by the holder in connection with the exchanges; and (c) there were no commissions or other remuneration paid by the Company in connection with the exchanges.
c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
The information set forth below is included herein for the purpose of providing the disclosure required under "Item 1.01 - Entry into a Material Definitive Agreement." and "Item 3.02 – Unregistered Sales of Equity Securities.” of Form 8-K.
On May 15, 2023, the Company entered into a Warrant Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell in a private placement (the “Private Placement”) up to an aggregate of 150,000,000 warrants (the “Warrants”) to purchase up to 150,000,000 shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an offering price of $0.01 per Warrant (subject to adjustment as set forth in the Purchase Agreement) (the “Per Warrant Purchase Price”) for an aggregate warrant offering price equal to $1,500,000.
Exercise Price: The Warrants have an initial exercise price which is equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d) (subject to adjustment as set forth in the Warrants) (the “Initial Exercise Price”), payable in cash or the cancellation of indebtedness. Upon receipt of stockholder approval, the exercise price will equal the lower of (i) the Initial Exercise Price and (ii) 90% of the lowest VWAP (as defined in the Purchase Agreement) of the Common Stock for the five Trading Days (as defined in the Purchase Agreement) immediately prior to the date on which a Notice of Exercise is submitted to the Company (subject to adjustment as set forth in the Warrants) (the “Adjusted Exercise Price” and together with the Initial Price, as applicable, the “Exercise Price”); provided, however, that any exercise of the Warrants with an Adjusted Exercise Price will be subject to the Company’s consent unless the trading price of the Common Stock as of the time the Notice of Exercise is delivered to the Company is at least 10% or more above the prior Trading Day’s Nasdaq Official Closing Price. The Purchasers may not exercise the Warrants to the extent such exercise would cause such Purchaser, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 9.99% of the Company’s then outstanding Common Stock following such exercise (the “Beneficial Ownership Limitation”).
Term: Each Warrant is immediately exercisable for one share of Common Stock and will expire one year from the issuance date (the “Termination Date”), unless extended by the Company with the consent of the holder.
Stockholder Approval: The exercise of the Warrants at the Adjusted Exercise Price is subject to stockholder approval in accordance with Nasdaq Listing Rule 5635. In addition, to the extent stockholder approval is determined to be required by Nasdaq Listing Rule 5635 for issuances at the Initial Exercise Price, then the Company may not issue Warrant Shares or Right Shares, which, in the aggregate, would exceed 19.99% of the number of shares of Common Stock outstanding on the Trading Day immediately preceding the date of the Purchase Agreement (subject to adjustment as set forth in the Warrants) (such number of shares, the “Issuable Maximum”).
Forced Exercise: Subject to the satisfaction of certain conditions set forth in the Warrants during a period of seven consecutive Trading Days (the “Measurement Period”), the Company may, within one Trading Day of the end of such Measurement Period (the “Forced Exercise Eligibility Date”), force the holder to exercise its Warrants into up to such aggregate number of Warrant Shares equal to 25% of the quotient obtained by dividing the Traded Value (as defined in the Warrants) by the Exercise Price then in effect (less any Warrant Shares voluntarily exercised by the holder during such Measurement Period or at any time thereafter and prior to the applicable Forced Exercise Date (as defined in the Warrants) (the “Maximum Forced Exercise Share Amount”) as designated in the applicable Forced Exercise Notice (as defined in the Warrants) (each, a “Forced Exercise”).
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Among other conditions set forth in the Warrants, the Company may not deliver a Forced Exercise Notice, unless, from the beginning of the Measurement Period through the Forced Exercise Date, the Registration Statement (as defined below) is effective as to all Warrant Shares and the prospectus thereunder is available for use by the Warrant holder for the resale of all such Warrant Shares and the Company has not withheld its consent to an exercise by the holder anytime during the Measurement Period. In the event that the issuance of Warrant Shares as a result of a Forced Exercise would result in a Warrant holder exceeding the Beneficial Ownership Limitation (such shares, the “Excess Shares”), then, in lieu of the issuance of such Excess Shares, the Company will issue such holder rights to receive such number of Excess Shares (the “Rights”), which such holder may exercise for shares of Common Stock (the “Rights Shares”) at any time pursuant to the terms and conditions of the Warrants, provided that such exercise would not result in such holder exceeding the Beneficial Ownership Limitation. Following any Forced Exercise, a minimum of seven Trading Days must elapse after the Forced Exercise Date prior to the Company sending the Holders a new Forced Exercise Notice. The Company’s right to a Forced Exercise shall be exercised ratably among the Warrant holders based on each Holder’s initial purchase of Warrants.
Redemption Right: .At any time prior to the Termination Date, the Company may, in its sole discretion, redeem any portion of a Warrant that has not been exercised, in cash, at the Per Warrant Purchase Price, plus all liquidated damages and other costs, expenses or amounts due in respect of the Warrants (the “Redemption Amount”) upon five Trading Days’ written notice to the Warrant holder (the “Redemption Date”). On the Termination Date, the Company will be required to redeem any portion of the Warrants that has not been exercised or redeemed prior to such date through payment of the Redemption Amount in cash. The Company will be required to pay any Redemption Amount within five Trading Days after the Redemption Date or the Termination Date, as applicable.
Exercise Standstill: The Warrant holder will not be permitted to exercise their Warrants upon two Trading Days’ written notice from the Company to the holders (the “Exercise Standstill”) in connection with an offering of the Company’s Common Stock or Common Stock Equivalents (as defined in the Warrants) that results in gross proceeds to the Company in excess of $1,000,000 for such period of time as set forth in such written notice. Each Warrant holder will only be subject to the Exercise Standstill to the extent that the holders of the other Warrants issued pursuant to the Purchase Agreement are also bound to the Exercise Standstill.
Registration Rights: The Purchase Agreement requires the Company to (i) as soon as practicable (and in any event within 30 calendar days of the date of the Purchase Agreement), file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) providing for the resale by the Purchasers of the Warrant Shares and the Rights Shares issued and issuable upon exercise of the Warrants and the Rights, as applicable, (ii) use commercially reasonable efforts to cause such Registration Statement to become effective no later than the later of (a) 30 days following the filing thereof and (b) 60 days following the Closing Date, and (iii) keep such Registration Statement effective at all times until no Purchaser owns any Warrants.
Closing Date: The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers, customary conditions to closing and customary indemnification rights and obligations of the parties. The closing of the Private Placement (the “Closing”) is expected to occur on or about May 17, 2023 (the “Closing Date”), subject to the satisfaction of customary closing conditions.
Placement Agent Agreement: On May 15, 2023, the Company and Maxim Group LLC (the “Placement Agent”) entered into a Placement Agency Agreement (the “Placement Agency Agreement”), whereby the Placement Agent, in connection with the Private Placement, agreed to act as the Company’s exclusive placement agent on a reasonable best efforts basis. Pursuant to the Placement Agency Agreement, the Company agreed to pay to the Placement Agent (i) a cash fee equal to 2.75% of the gross proceeds received by the Company from the Purchasers at the Closing, to be paid on the Closing Date and (ii) a cash fee equal to 5.5% of the gross proceeds received by the Company from the Purchaser upon the exercise of Warrants for cash, to be paid on a weekly basis during the exercise period of the Warrants as to any exercise proceeds received by the Company from the Purchaser pursuant to the exercise of Warrants for cash during the preceding week (the "Exercise Cash Fee"). The Company is not required to pay the Exercise Cash Fee to the extent that a Purchaser exercises its Warrants through the cancellation of indebtedness owed by the Company to such Purchaser. The Company has also agreed to reimburse the Placement Agent up to $50,000 for certain expenses and legal fees incurred by the Placement Agent. The Placement Agency Agreement contains customary representations and warranties and agreements of the Company and the Placement Agent and customary indemnification rights and obligations of the parties.
Registration Exemption: The Warrants, the Rights, the Warrant Shares and the Rights Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and are instead being offered pursuant to the exemption provided in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The foregoing description of the Purchase Agreement, the Placement Agency Agreement and the form of Warrants does not purport to be complete and is subject to, and qualified in its entirety by reference to the Purchase Agreement, the Placement Agency Agreement and the form of Warrants, which are filed as Exhibits 10.6, 10.7 and 4.7, respectively, to this Form 10-Q and incorporated herein by reference. The Purchase Agreement has been included to provide security holders with
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information regarding its terms but it is not intended to provide any other factual information about the Company or its affiliates. The Purchase Agreement contains representations, warranties and covenants by the Company and the Purchasers. These representations, warranties and covenants were made solely for the benefit of the other party to the Purchase Agreement and (a) are not intended to be treated as categorical statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be inaccurate, (b) may have been qualified in the Purchase Agreement by confidential disclosure schedules that were delivered to the other party in connection with the signing of the Purchase Agreement, which disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the Purchase Agreement, (c) may be subject to standards of materiality applicable to the parties that differ from what might be viewed as material to stockholders and (d) were made only as of the date of the Purchase Agreement or such other date or dates as may be specified in the Purchase Agreement. Accordingly, you should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company.
Item 6. Exhibits
See the Exhibit index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INPIXON | ||||||||
| Date: May 15, 2023 | By: | /s/ Nadir Ali | ||||||
| Nadir Ali Chief Executive Officer (Principal Executive Officer) | ||||||||
| By: | /s/ Wendy Loundermon | |||||||
| Wendy Loundermon Chief Financial Officer (Principal Financial Officer) | ||||||||
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EXHIBIT INDEX
| Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||||||||||||||
| 3.1 | S-1 | 333-190574 | 3.1 | August 12, 2013 | ||||||||||||||||||||||||||||||||||
| 3.2 | S-1 | 333-218173 | 3.2 | May 22, 2017 | ||||||||||||||||||||||||||||||||||
| 3.3 | 8-K | 001-36404 | 3.1 | April 10, 2014 | ||||||||||||||||||||||||||||||||||
| 3.4 | 8-K | 001-36404 | 3.1 | December 18, 2015 | ||||||||||||||||||||||||||||||||||
| 3.5 | 8-K | 001-36404 | 3.1 | March 1, 2017 | ||||||||||||||||||||||||||||||||||
| 3.6 | 8-K | 001-36404 | 3.2 | March 1, 2017 | ||||||||||||||||||||||||||||||||||
| 3.7 | 8-K | 001-36404 | 3.1 | February 5, 2018 | ||||||||||||||||||||||||||||||||||
| 3.8 | 8-K | 001-36404 | 3.1 | February 6, 2018 | ||||||||||||||||||||||||||||||||||
| 3.9 | 8-K | 001-36404 | 3.1 | November 1, 2018 | ||||||||||||||||||||||||||||||||||
| 3.10 | 8-K | 001-36404 | 3.1 | January 7, 2020 | ||||||||||||||||||||||||||||||||||
| 3.11 | 8-K | 001-36404 | 3.1 | November 19, 2021 | ||||||||||||||||||||||||||||||||||
| 3.12 | 8-K | 001-36404 | 3.1 | October 6, 2022 | ||||||||||||||||||||||||||||||||||
| 3.13 | 8-K | 001-36404 | 3.1 | December 2, 2022 | ||||||||||||||||||||||||||||||||||
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| Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||||||||||||||
| 3.14 | S-1 | 333-190574 | 3.2 | August 12, 2013 | ||||||||||||||||||||||||||||||||||
| 3.15 | 8-K | 001-36404 | 3.2 | September 13, 2021 | ||||||||||||||||||||||||||||||||||
| 3.16 | 8-K | 001-36404 | 3.1 | April 24, 2018 | ||||||||||||||||||||||||||||||||||
| 3.17 | 8-K | 001-36404 | 3.1 | January 15, 2019 | ||||||||||||||||||||||||||||||||||
| 3.18 | 8-K | 001-36404 | 3.1 | September 15, 2021 | ||||||||||||||||||||||||||||||||||
| 3.19 | 8-K | 001-36404 | 3.1 | March 24, 2022 | ||||||||||||||||||||||||||||||||||
| 4.1 | 8-K | 001-36404 | 4.1 | April 24, 2018 | ||||||||||||||||||||||||||||||||||
| 4.2 | 8-K | 001-36404 | 4.1 | March 20, 2020 | ||||||||||||||||||||||||||||||||||
| 4.3 | 8-K | 001-36404 | 4.1 | July 22, 2022 | ||||||||||||||||||||||||||||||||||
| 4.4 | 8-K | 001-36404 | 4.1 | October 20, 2022 | ||||||||||||||||||||||||||||||||||
| 4.5 | 8-K | 001-36404 | 4.2 | October 20, 2022 | ||||||||||||||||||||||||||||||||||
| 4.6 | 8-K | 001-36404 | 4.1 | December 30, 2022 | ||||||||||||||||||||||||||||||||||
| 4.7 | X | |||||||||||||||||||||||||||||||||||||
| 10.1 | 8-K | 001-36404 | 10.1 | February 28, 2023 | ||||||||||||||||||||||||||||||||||
| 10.2 | 8-K | 001-36404 | 10.2 | February 28, 2023 | ||||||||||||||||||||||||||||||||||
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| Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||||||||||||||
| 10.3† | 8-K | 001-36404 | 10.1 | March 20, 2023 | ||||||||||||||||||||||||||||||||||
| 10.4 | 8-K | 001-36404 | 10.2 | March 20, 2023 | ||||||||||||||||||||||||||||||||||
| 10.5† | 8-K | 001-36404 | 10.3 | March 20, 2023 | ||||||||||||||||||||||||||||||||||
| 10.6† | X | |||||||||||||||||||||||||||||||||||||
| 10.7 | X | |||||||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
| 32.1# | X | |||||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | X | ||||||||||||||||||||||||||||||||||||
† Exhibits, schedules and similar attachments have been omitted pursuant to Item 601 of Regulation S-K and the registrant undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC.
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# This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
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