REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Inpixon and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Inpixon and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Intangible Assets for Business Acquisitions
Description of the Matter
During the year ended December 31, 2020 the Company completed certain business combinations and asset acquisitions for net aggregate consideration of approximately $13 million. The transactions were accounted for as a business combination. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed, based on their respective fair values identified including intangible assets with aggregate fair values of approximately $12.4 million. The Company, with the assistance of third party valuation experts, estimated the fair values of the identified intangible assets using valuation models. Such valuation models require significant assumptions; these assumptions are primarily related to the complexity of the valuation models used to measure the fair values as well as the sensitivity of the fair values identified. The significant assumptions used to estimate the fair value of the identified intangible assets included discount rates, attrition rates, economic lives and financial projections including comparable company specific data. These significant assumptions are forward looking and could be affected by future economic and market conditions.
How We Addressed the Matter in our Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the attrition rates, terminal growth rates and discount rates for the identified intangible assets for the acquired entities included the following:
• We assessed the reasonableness of fiscal year 2020 forecasted cash flows of revenues and operating margins by comparing them to the acquired entities actual 2020 cash flows.
• We assessed the reasonableness of the forecasted revenue growth rates and operating margins including the cash flow forecast period by comparing them to the acquired entities’ actual revenue growth rates and operating margins during the most recent historical periods.
• We performed sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions.
• With the assistance of our value specialists, we evaluated the reasonableness of the (1) valuation methodologies; (2) terminal growth rates by comparing them to industry growth rates and the projected nominal gross domestic product (GDP) growth rate; (3) customer attrition rates by testing the mathematical accuracy of the rates used and comparing them to historical customer data; and (4) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2012.
New York NY
March 31, 2021
INPIXON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par value data)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2020
|
|
As of December 31,
2019
|
Assets
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
$
|
17,996
|
|
|
$
|
4,777
|
|
Accounts receivable, net of allowances of $235 and $646, respectively
|
1,739
|
|
|
1,108
|
|
Notes and other receivables
|
152
|
|
|
74
|
|
Inventory
|
1,243
|
|
|
400
|
|
Short-term investments
|
7,998
|
|
|
—
|
|
Prepaid expenses and other current assets
|
1,197
|
|
|
406
|
|
|
|
|
|
Total Current Assets
|
30,325
|
|
|
6,765
|
|
|
|
|
|
Property and equipment, net
|
1,445
|
|
|
145
|
|
Operating lease right-of-use asset, net
|
2,077
|
|
|
1,585
|
|
Software development costs, net
|
1,721
|
|
|
1,544
|
|
Long-term investments
|
2,500
|
|
|
—
|
|
Intangible assets, net
|
14,203
|
|
|
8,400
|
|
Goodwill
|
6,588
|
|
|
2,070
|
|
Receivable from related party
|
—
|
|
|
616
|
|
Other assets
|
152
|
|
|
94
|
|
|
|
|
|
Total Assets
|
$
|
59,011
|
|
|
$
|
21,219
|
|
|
|
|
|
INPIXON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except number of shares and par value data)
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
Accounts payable
|
$
|
908
|
|
|
$
|
2,383
|
|
Accrued liabilities
|
2,739
|
|
|
1,863
|
|
Operating lease obligation, current
|
647
|
|
|
776
|
|
Deferred revenue
|
1,922
|
|
|
912
|
|
Short-term debt
|
5,401
|
|
|
7,304
|
|
Acquisition liability
|
500
|
|
|
502
|
|
|
|
|
|
Total Current Liabilities
|
12,117
|
|
|
13,740
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
Operating lease obligation, noncurrent
|
1,457
|
|
|
837
|
|
Other liabilities, noncurrent
|
7
|
|
|
7
|
|
Deferred tax liability, noncurrent
|
—
|
|
|
87
|
|
Acquisition liability, noncurrent
|
750
|
|
|
500
|
|
|
|
|
|
Total Liabilities
|
14,331
|
|
|
15,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
Pref Stock - $0.001 par value; 5,000,000 shares authorized
|
|
|
|
Series 4 Convertible Pref Stock - 10,415 shares auth; 1 and 1 issued, and 1 and 1 outstanding as of December 31, 2020 and December 31, 2019, respectively
|
—
|
|
|
—
|
|
Series 5 Convertible Pref Stock - 12,000 shares auth; 126 and 0 issued, and 126 and 0 outstanding as of December 31, 2020 and December 31, 2019, respectively.
|
—
|
|
|
—
|
|
Common Stock - $0.001 par value; 250,000,000 shares authorized; 53,178,462 and 4,234,923 issued and 53,178,461 and 4,234,922 outstanding as of December 31, 2020 and December 31, 2019, respectively.
|
53
|
|
|
4
|
|
Additional paid-in capital
|
225,613
|
|
|
158,382
|
|
Treasury stock, at cost, 1 share
|
(695)
|
|
|
(695)
|
|
Accumulated other comprehensive income
|
660
|
|
|
94
|
|
Accumulated deficit (excluding $2,442 reclassified to additional paid in capital in quasi-reorganization)
|
(180,992)
|
|
|
(151,763)
|
|
|
|
|
|
Stockholders’ Equity Attributable to Inpixon
|
44,639
|
|
|
6,022
|
|
|
|
|
|
Non-controlling Interest
|
41
|
|
|
26
|
|
|
|
|
|
Total Stockholders’ Equity
|
44,680
|
|
|
6,048
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
59,011
|
|
|
$
|
21,219
|
|
The accompanying notes are an integral part of these financial statements
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Revenues
|
9,297
|
|
|
6,301
|
|
|
|
|
|
Cost of Revenues
|
2,613
|
|
|
1,609
|
|
|
|
|
|
Gross Profit
|
6,684
|
|
|
4,692
|
|
|
|
|
|
Operating Expenses
|
|
|
|
Research and development
|
6,523
|
|
|
3,893
|
|
Sales and marketing
|
5,331
|
|
|
3,043
|
|
General and administrative
|
15,261
|
|
|
13,660
|
|
Acquisition-related costs
|
1,057
|
|
|
1,277
|
|
Amortization of intangibles
|
2,306
|
|
|
3,629
|
|
|
|
|
|
Total Operating Expenses
|
30,478
|
|
|
25,502
|
|
|
|
|
|
Loss from Operations
|
(23,794)
|
|
|
(20,810)
|
|
|
|
|
|
Other Expense
|
|
|
|
Interest expense, net
|
(2,426)
|
|
|
(2,277)
|
|
Loss on exchange of debt for equity
|
(210)
|
|
|
(294)
|
|
Provision for valuation allowance on related party loan - held for sale
|
(2,370)
|
|
|
(10,627)
|
|
Other expense
|
(470)
|
|
|
(558)
|
|
Total Other Expense
|
(5,476)
|
|
|
(13,756)
|
|
|
|
|
|
Net Loss, before tax
|
(29,270)
|
|
|
(34,566)
|
|
Income tax benefit
|
56
|
|
|
584
|
|
Net Loss
|
(29,214)
|
|
|
(33,982)
|
|
|
|
|
|
Net Income Attributable to Non-controlling Interest
|
15
|
|
|
9
|
|
|
|
|
|
Net Loss Attributable to Stockholders of Inpixon
|
$
|
(29,229)
|
|
|
$
|
(33,991)
|
|
|
|
|
|
Deemed dividend for triggering of warrant down round feature
|
—
|
|
|
(1,250)
|
|
Net Loss Attributable to Common Stockholders
|
(29,229)
|
|
|
(35,241)
|
|
|
|
|
|
Net Loss Per Basic and Diluted Common Share
|
|
|
|
Net Loss Per Share - Basic and Diluted
|
$
|
(1.01)
|
|
|
$
|
(47.52)
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
Basic and Diluted
|
28,800,493
|
|
|
741,530
|
|
The accompanying notes are an integral part of these financial statements
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Net Loss
|
$
|
(29,214)
|
|
|
$
|
(33,982)
|
|
Unrealized foreign exchange gain from cumulative translation adjustments
|
566
|
|
|
68
|
|
|
|
|
|
Comprehensive Loss
|
$
|
(28,648)
|
|
|
$
|
(33,914)
|
|
The accompanying notes are an integral part of these financial statements
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020
|
1
|
|
|
$
|
—
|
|
|
126
|
|
|
$
|
—
|
|
|
4,234,922
|
|
|
$
|
4
|
|
|
$
|
158,382
|
|
|
(1)
|
|
|
$
|
(695)
|
|
|
$
|
94
|
|
|
$
|
(151,763)
|
|
|
$
|
26
|
|
|
$
|
6,048
|
|
Common Shares issued for net cash proceeds of a public offering
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,416,830
|
|
|
33
|
|
|
46,110
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
46,143
|
|
Common Shares issued for net cash proceeds from a registered direct offering
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,000,000
|
|
|
5
|
|
|
9,200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
9,205
|
|
Common shares issued for extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,863,223
|
|
|
7
|
|
|
9,929
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
9,936
|
|
Common shares issued for extinguishment of liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183,486
|
|
|
0.2
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
200
|
|
Common shares issued for net proceeds from warrants exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,000,000
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
3
|
|
Stock options granted to employees and consultants for services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,193
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1,193
|
|
Issuance of Ten Degrees Acquisition shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
480,000
|
|
|
0.5
|
|
|
599
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
599
|
|
Cumulative Translation Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
566
|
|
|
—
|
|
|
—
|
|
|
$
|
566
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,229)
|
|
|
15
|
|
|
$
|
(29,214)
|
|
Balance - December 31, 2020
|
1
|
|
|
—
|
|
|
126
|
|
|
—
|
|
|
53,178,461
|
|
|
$
|
53
|
|
|
$
|
225,613
|
|
|
(1)
|
|
|
$
|
(695)
|
|
|
$
|
660
|
|
|
$
|
(180,992)
|
|
|
$
|
41
|
|
|
$
|
44,680
|
|
The accompanying notes are an integral part of these financial statements
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 4 Convertible Preferred Stock
|
|
Series 5 Convertible Preferred Stock
|
|
Series 6 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
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance - January 1, 2019
|
1
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
35,154
|
|
|
$
|
—
|
|
|
$
|
123,226
|
|
|
(1)
|
|
|
$
|
(695)
|
|
|
$
|
26
|
|
|
$
|
(117,772)
|
|
|
$
|
18
|
|
|
$
|
4,803
|
|
Common and Preferred Shares issued for net cash proceeds of a public offering
|
—
|
|
|
—
|
|
|
12,000
|
|
|
—
|
|
|
2,997
|
|
|
—
|
|
|
1,615,287
|
|
|
2
|
|
|
20,679
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,681
|
|
Common shares issued for extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,542,633
|
|
|
1
|
|
|
7,301
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,302
|
|
Common shares issued for net proceeds from warrants exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
306
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
Common shares issued for warrants exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
425,952
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock issued for stock options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Redemption of convertible Series 5 Preferred Stock
|
—
|
|
|
—
|
|
|
(11,874)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79,242
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Redemption of convertible Series 6 Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,997)
|
|
|
—
|
|
|
240,001
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares issued for extinguishment of liability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,655
|
|
|
—
|
|
|
1,130
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,130
|
|
Common shares issued for services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,445
|
|
|
—
|
|
|
242
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
242
|
|
Stock options granted to employees and consultants for services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,247
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,247
|
|
Issuance of Locality Acquisition Shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,445
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
513
|
|
Issuance of GTX Acquisition Shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,223
|
|
|
—
|
|
|
650
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
650
|
|
Issuance of Jibestream Acquisition Shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
176,289
|
|
|
—
|
|
|
1,349
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,349
|
|
Fractional shares issued for stock split
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62,276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative Translation Adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
—
|
|
|
68
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,991)
|
|
|
8
|
|
|
(33,983)
|
|
Balance - December 31, 2019
|
1
|
|
|
$
|
—
|
|
|
126
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
4,234,922
|
|
|
$
|
4
|
|
|
$
|
158,382
|
|
|
(1)
|
|
|
$
|
(695)
|
|
|
$
|
94
|
|
|
$
|
(151,763)
|
|
|
$
|
26
|
|
|
$
|
6,048
|
|
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Cash Flows Used in Operating Activities
|
|
|
|
Net loss
|
$
|
(29,214)
|
|
|
$
|
(33,982)
|
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation and amortization
|
826
|
|
|
1,123
|
|
Amortization of intangible assets
|
2,545
|
|
|
3,633
|
|
Amortization of right of use asset
|
490
|
|
|
398
|
|
Stock based compensation
|
1,194
|
|
|
3,489
|
|
Amortization of technology
|
—
|
|
|
66
|
|
Loss on exchange of debt for equity
|
210
|
|
|
294
|
|
Amortization of debt discount
|
2,594
|
|
|
2,221
|
|
Accrued interest income, related party
|
(32)
|
|
|
—
|
|
Provision for doubtful accounts
|
956
|
|
|
558
|
|
Provision for inventory obsolescence
|
138
|
|
|
—
|
|
Provision for the valuation allowance held for sale loan
|
2,370
|
|
|
10,627
|
|
Provision for the valuation allowance related party receivable
|
648
|
|
|
—
|
|
Income tax benefit
|
(87)
|
|
|
(584)
|
|
Other expenses
|
(6)
|
|
|
(223)
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable and other receivables
|
(964)
|
|
|
46
|
|
Inventory
|
(117)
|
|
|
171
|
|
Prepaid expenses and other current assets
|
(563)
|
|
|
156
|
|
Other assets
|
(248)
|
|
|
(412)
|
|
Accounts payable
|
(1,815)
|
|
|
1,189
|
|
Accrued liabilities
|
269
|
|
|
521
|
|
Deferred revenue
|
242
|
|
|
(507)
|
|
Operating lease obligation
|
(490)
|
|
|
—
|
|
Other liabilities
|
453
|
|
|
551
|
|
Total Adjustments
|
8,613
|
|
|
23,317
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
(20,601)
|
|
|
(10,665)
|
|
|
|
|
|
Cash Flows Used in Investing Activities
|
|
|
|
Purchase of property and equipment
|
(972)
|
|
|
(89)
|
|
Investment in capitalized software
|
(862)
|
|
|
(927)
|
|
Investment in short term investment
|
(7,998)
|
|
|
—
|
|
Investment in Systat Licensing Agreement
|
(2,200)
|
|
|
—
|
|
Investment in Ten Degrees
|
(1,500)
|
|
|
—
|
|
Investment in Nanotron
|
(7,786)
|
|
|
—
|
|
Investment in long term investment
|
(2,500)
|
|
|
—
|
|
Cash paid for the acquisition of GTX
|
—
|
|
|
(250)
|
|
Cash paid for the acquisition of Locality
|
—
|
|
|
(204)
|
|
INPIXON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for the acquisition of Jibestream
|
—
|
|
|
(3,714)
|
|
Cash acquired in the Locality acquisition
|
—
|
|
|
70
|
|
Cash acquired in the Jibestream acquisition
|
—
|
|
|
6
|
|
Cash acquired in the Nanotron acquisition
|
311
|
|
|
—
|
|
Net Cash Flows Used in Investing Activities
|
$
|
(23,507)
|
|
|
$
|
(5,108)
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
Net (repayments) proceeds to bank facility
|
(150)
|
|
|
127
|
|
Net proceeds from issuance of common stock, preferred stock and warrants
|
55,352
|
|
|
20,725
|
|
Repayment of notes payable
|
(74)
|
|
|
(70)
|
|
Loans to related party
|
(2,569)
|
|
|
(10,276)
|
|
Repayments from related party
|
200
|
|
|
1,832
|
|
Advances to related party
|
—
|
|
|
(31)
|
|
Loan to Jibestream
|
—
|
|
|
(141)
|
|
Loan to GTX
|
—
|
|
|
(50)
|
|
Net proceeds from promissory notes
|
5,000
|
|
|
7,500
|
|
Repayment of acquisition liability to Locality shareholders
|
(500)
|
|
|
(210)
|
|
Net Cash Provided By Financing Activities
|
57,259
|
|
|
19,406
|
|
|
|
|
|
Effect of Foreign Exchange Rate on Changes on Cash
|
(4)
|
|
|
68
|
|
|
|
|
|
Net Increase in Cash, Cash Equivalents and Restricted Cash
|
13,147
|
|
|
3,701
|
|
|
|
|
|
Cash, Cash Equivalents and Restricted Cash - Beginning of period
|
4,849
|
|
|
1,148
|
|
|
|
|
|
Cash, Cash Equivalents and Restricted Cash - End of period (Note 2)
|
$
|
17,996
|
|
|
$
|
4,849
|
|
|
|
|
|
Supplemental Disclosure of cash flow information:
|
|
|
|
Cash paid for:
|
|
|
|
Interest
|
$
|
4
|
|
|
$
|
20
|
|
Income Taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
Common shares issued for extinguishment of liability
|
$
|
200
|
|
|
$
|
1,130
|
|
Common shares issued for extinguishment of debt
|
$
|
9,936
|
|
|
$
|
7,302
|
|
Right of use asset obtained in exchange for lease liability
|
$
|
557
|
|
|
$
|
1,675
|
|
Common shares issued for GTX acquisition
|
$
|
—
|
|
|
$
|
650
|
|
Common shares issued for Locality acquisition
|
$
|
—
|
|
|
$
|
513
|
|
Common shares issued for Jibestream acquisition
|
$
|
—
|
|
|
$
|
1,349
|
|
Common shares issued for Ten Degrees acquisition
|
$
|
600
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial statements
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 1 - Organization and Nature of Business
Inpixon, and its wholly-owned subsidiaries, Inpixon Canada, Inc. (“Inpixon Canada”) and Jibestream, Inc. (“Jibestream”), which was amalgamated into Inpixon Canada on January 1, 2020, Inipixon Limited ("Inpixon UK"), Inpixon GmbH ("Inpixon Germany"), as well as Inpixon Germany's wholly-owned subsidiary, Nanotron GmbH ("Nanotron"), and its majority-owned subsidiary Inpixon India Limited (“Inpixon India”) (unless otherwise stated or the context otherwise requires, the terms “Inpixon” “we,” “us,” “our” and the “Company” refer collectively to Inpixon and the aforementioned subsidiaries), are an indoor intelligence company. Our business and government customers use our solutions to secure, digitize and optimize their indoor spaces with our positioning, mapping, RTLS (real time location systems) and analytics products. Our indoor intelligence platform uses sensor technology to detect accessible cellular, Wi-Fi, Bluetooth, ultra-wide band (“UWB”) and chirp signals emitted from devices within a venue providing positional information similar to what global positioning system (“GPS”) satellite systems provide for the outdoors. Combining this positional data with our dynamic and interactive mapping solution and a high-performance analytics engine, yields near real time insights to our customers providing them with visibility, security and business intelligence within their indoor spaces. Our highly configurable platform can also ingest data from our customers’ and other third-party sensors, Wi-Fi access points, Bluetooth beacons, video cameras, and big data sources, among others, to maximize indoor intelligence. The Company also offers digital tear-sheets with optional invoice integration, digital ad delivery, and an e-edition designed for reader engagement for the media, publishing and entertainment industry and a comprehensive set of data analytics and statistical visualization solutions with its SAVES product line catering to the needs of engineers and scientists. The Company is headquartered in Palo Alto, California, and has subsidiary offices in Coquitlam, Canada, New Westminster, Canada, Toronto, Canada, Slough, United Kingdom, Ratingen, Germany, Berlin, Germany, Bangalore, India and Hyderabad, India.
On May 21, 2019, the Company acquired Locality Systems Inc. (“Locality”), a technology company based near Vancouver, Canada, specializing in wireless device positioning and radio frequency augmentation of video surveillance systems (See Note 3). On June 27, 2019, the Company acquired certain global positioning system (“GPS”) products, software, technologies, and intellectual property from GTX Corp (“GTX”), a U.S. based company specializing in GPS technologies (See Note 4). These transactions expanded our patent portfolio and included certain granted or licensed patents and GPS and radio frequency (“RF”) technologies. Additionally, on August 15, 2019, the Company acquired Jibestream, a provider of indoor mapping and location technology based in Toronto, Canada (See Note 5). On June 19, 2020, the Company entered into an exclusive license with Cranes Software International Ltd. and Systat Software, Inc. (together the “Systat Parties”) to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (See Note 6). On August 19, 2020, the Company entered into an Asset Purchase Agreement with Ten Degrees Inc. (“TDI”), Ten Degrees International Limited (“TDIL”), mCube International Limited (“MCI”), and the holder of a majority of the outstanding capital of TDIL and mCube, Inc., and the sole shareholder of 100% of the outstanding capital stock of MCI (“mCube,” together with TDI, TDIL, and MCI collectively, the “Transferors”), we acquired a suite of on-device “blue-dot” indoor location and motion technologies, including patents, trademarks, software and related intellectual property from the Transferors (See Note 7). Additionally, on October 6, 2020, the Company acquired Nanotron Technologies GmbH (“Nanotron”), a manufacturer and developer of location-aware IoT systems and solutions based in Berlin, Germany (See Note 8).
Liquidity
As of December 31, 2020, the Company has a working capital surplus of approximately $18.2 million. For the year ended December 31, 2020, the Company incurred a net loss of approximately $29.2 million.
On March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of its common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up to $50 million, which was increased on June 19, 2020 to $150 million pursuant to an amendment to the EDA, from time to time through Maxim, acting exclusively as the Company’s sales agent. The Company issued 33,416,830 shares of common stock during the year ended December 31, 2020 in connection with the ATM resulting in net proceeds to the Company of approximately $46.1 million after deduction of sales commissions and other offering expenses. The EDA was terminated by the parties on February 12, 2021.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
On November 25, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor, pursuant to which it sold in a registered direct offering, 5,000,000 shares of its common stock, and warrants to purchase up to 8,000,000 shares of common stock at an exercise price of $1.25 per share (the “2020 Purchase Warrants”) for a combined purchase price of $1.25 per share and pre-funded warrants to purchase up to 3,000,000 shares of common stock ("2020 Pre-funded Warrants") at an exercise price of $0.001 per share at a purchase price of $1.249 per share for net proceeds of $9.2 million after deduction of sales commissions and other offering expenses.
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. 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 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 while shelter in place orders were in effect, compliance with new rules and regulations resulting from the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology. Despite these challenges, including a decline in revenue for certain existing product lines, we were able to realize growth in total revenue for the year ended December 31, 2020 when compared to the year ended 2019, as a result of the addition of new product lines including a full year of sales associated with our mapping product, the addition of the SAVES product lines following the second quarter of 2020 and the addition of the RTLS product line in the fourth quarter of 2020. The total impact that COVID-19 will have on general economic conditions is continuously evolving and the impact it may continue to have on our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected. A further discussion of the impact of the COVID-19 pandemic on our business is set forth below in Part II, Item 1A. Risk Factors. There are no assurances that we will be able to continue to experience the same growth or not be materially adversely affected.
Note 2 - Summary of Significant Accounting Policies
Consolidations
The consolidated financial statements have been prepared using the accounting records of Inpixon, Inpixon Canada, Inpixon Germany, Inpixon UK, Nanotron and Inpixon India. All material inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
•the valuation of stock-based compensation;
•the valuation of the assets and liabilities acquired of Locality, GTX, Jibestream, Sysat, Ten Degrees, and Nanotron as described in Note 3, Note 4, Note 5, Note 6, Note 7, and Note 8 respectively, as well as the valuation of the Company’s common shares issued in the transaction;
•the allowance for doubtful accounts;
•The valuation of loans receivable;
•the valuation allowance for deferred tax assets; and
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
•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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, checking accounts, money market accounts and temporary investments with maturities of three months or less when purchased. As of December 31, 2020 and 2019, the Company had no cash equivalents.
Restricted Cash
In connection with certain transactions, the Company may be required to deposit assets, including cash or investment shares, in escrow accounts. The assets held in escrow are subject to various contingencies that may exist with respect to such transactions. Upon resolution of those contingencies or the expiration of the escrow period, some or all the escrow amounts may be used and the balance released to the Company. As of December 31, 2019, the Company had and $72,000 deposited in escrow as restricted cash for the Shoom acquisition, of which any amounts not subject to claims shall be released to the pre-acquisition stockholders of Shoom pro-rata on the next anniversary of the closing date of the Shoom acquisition. The restricted cash balance was included in Prepaid Assets and Other Current Assets on the consolidated balance sheet. As of December 31, 2020, there was no balance of restricted cash as all amounts related to the Shoom acquisition were released from escrow and paid to the Shoom pre-acquisition stockholders prior to that date.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets that sum to the total of the same amounts show in the statement of cash flows.
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As of December 31,
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(in thousands)
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2020
|
|
2019
|
Cash and cash equivalents
|
$
|
17,996
|
|
|
$
|
4,777
|
|
Restricted cash
|
—
|
|
|
72
|
|
Total cash, cash equivalents, and restricted cash in the balance sheet
|
$
|
17,996
|
|
|
$
|
4,849
|
|
Accounts Receivable, net and Allowance for Doubtful Accounts
Accounts receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for doubtful accounts to ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customer’s operating results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would be further adjusted. The Company has recorded an allowance for doubtful accounts of approximately $235,000 and $646,000 as of December 31, 2020 and 2019, respectively.
Inventory
Finished goods are measured at the cost of manufactured products including direct materials and subcontracted services. The Company's latest acquisition, Nanotron, states finished goods at the lower of cost and net realizable value on an average cost basis. As the inventory held by Nanotron is typically small dollar value items with small variances in price, an estimate or average is used to determine the balance of inventory. All other subsidiaries of the Company state inventory utilizing the first-
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
in, first-out method. The Company continually analyzes its slow-moving, excess and obsolete inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company establishes reserves. If the Company does not meet its sales expectations, these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. As of December 31, 2020 and 2019, the Company recognized inventory obsolescence of approximately $138,000 and $0, respectively.
Short-term investments
Investments with maturities greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of US Treasury Bills. Accrued interest on US Treasury bills are also classified as short term investment.
Our short-term investments are considered available for use in current operations, are classified as available-for-sale securities. Available for sale securities are carried at fair value, with an unrealized loss of approximately $2,000.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.
Intangible Assets
Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, intellectual property agreements, export licenses and trade names/trademarks. They are amortized ratably over a range of 1 to 15 years, which approximates customer attrition rate and technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment each year. Based on its assessments, the Company did not incur any impairment charges for the years ended December 31, 2020 and 2019.
Acquired In-Process Research and Development (“IPR&D”)
In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the acquisition date, and subsequently accounts for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Once an IPR&D project has been completed, the useful life of the IPR&D asset is determined and amortized accordingly. If the IPR&D asset is abandoned, the remaining carrying value is written off. During fiscal year 2014, the Company acquired IPR&D through the acquisition of AirPatrol, in 2015 through the acquisition of the assets of LightMiner, in 2019 through the acquisitions of Locality, Jibestream and certain assets of GTX and in 2020 through the SYSTAT licensing agreement, the acquisition of certain assets of Ten Degrees, and the acquisition of Nanotron. The Company's IPR&D is comprised of AirPatrol, LightMiner, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, and Nanotron, which was valued on the date of the acquisition. It will take additional financial resources to continue development of these technologies.
The Company continues to seek additional resources, through both capital raising efforts and meeting with industry experts, for further development of the AirPatrol, Locality, Jibestream, GTX, SYSTAT, Ten Degrees, and Nanotron technologies. Through December 31, 2020, the Company has made some progress with raising capital since these acquisitions, building their pipeline and getting industry acknowledgment. The Company has been recognized by leading industry analysts in a report on leading indoor positioning companies and was also awarded the IoT Security Excellence award by TMC and Crossfire Media. Management remains focused on growing revenue from these products and continues to pursue efforts to recognize the value of the AirPatrol, Locality, Jibestream, GTX, SYSTAT, Ten Degrees. and Nanotron technologies. Although there can be no assurance that these efforts will be successful, the Company intends to allocate financial and personnel resources when deemed
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
possible and/or necessary. If the Company chooses to abandon these efforts, or if the Company determines that such funding is not available, the related IPR&D will be subject to significant impairment.
Goodwill
The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.
The Company performed the annual impairment test as of December 31, 2020 and did not record impairment of goodwill during the years ended December 31, 2020 and 2019, respectively.
Other Long Term Investments
The Company invests in certain equity-method investments: When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S. GAAP. The Company accounted for its equity investment under the equity method of accounting, as the Company is deemed to have significant influence. The Company generally recognizes its share of the equity method investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely from the Company’s reporting period.
Software Development Costs
The Company develops and utilizes internal software for the processing of data provided by its customers. Costs incurred in this effort are accounted for under the provisions of ASC 350-40, "Internal Use Software" and ASC 985-20, "Software – Cost of Software to be Sold, Leased or Marketed", whereby direct costs related to development and enhancement of internal use software is capitalized, and costs related to maintenance are expensed as incurred. The Company capitalizes its direct internal costs of labor and associated employee benefits that qualify as development or enhancement. These software development costs are amortized over the estimated useful life which management has determined ranges from 1 to 5 years.
Research and Development
Research and development costs consist primarily of professional fees and compensation expense. All research and development costs are expensed as incurred. Research and development costs as of December 31, 2020 and 2019 were $6.5 million and $3.9 million, respectively.
Loans and Notes Receivable
The Company evaluates loans and notes receivable that don’t qualify as securities pursuant to ASC 310 – "Receivables", wherein such loans would first be classified as either “held for investment” or ‘held for sale”. Loans would be classified as
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
“held for investment”, if the Company has the intent and ability to hold the loan for the foreseeable future, or to maturity or pay-off. Loans would be classified as “held for sale”, if the Company intends to sell the loan. Loan receivables classified as “held for investment” are carried on the balance sheet at their amortized cost and are periodically evaluated for impairment. Loan receivables classified as “held for sale” are carried on the balance sheet at the lower of their amortized cost or fair value, with a valuation allowance being recorded (with a corresponding income statement charge) if the amortized cost exceeds the fair value. For loans carried on the balance sheet at fair value, changes to the fair value amount that relate solely to the passage of time will be recorded as interest income.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.
Non-Controlling Interest
The Company has an 82.5% equity interest in Inpixon India as of December 31, 2020. The portion of the Company’s equity attributable to this third party non-controlling interest was approximately $41,000 and $26,000 as of December 31, 2020 and 2019, respectively.
Foreign Currency Translation
Assets and liabilities related to the Company’s foreign operations are calculated using the Indian Rupee, Canadian Dollar, British Pound and Euro, and are translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates prevailing during the period. Translation adjustments are recorded as a separate component of consolidated stockholders’ equity, totaling a gain of approximately $566,000 and $68,000 for the years ended December 31, 2020 and 2019, respectively. Gains or losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations. The Company engages in foreign currency denominated transactions with customers that operate in functional currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were not material for the years ended December 31, 2020 and 2019.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) and its components in its consolidated financial statements. Comprehensive loss consists of net loss, foreign currency translation adjustments and unrealized gains and losses from marketable securities, affecting stockholders’ (deficit) equity that, under GAAP, are excluded from net loss.
Revenue Recognition
The Company recognizes revenue when control is transfered 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
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
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 years ended December 31, 2020 and 2019, the Company did not incur any such losses. These amounts are based on known and estimated factors.
SAVES by Inpixon Revenue Recognition
SAVES by Inpixon ("SAVES", formerly Systat) is a comprehensive set of data analytics and statistical visualization solutions for engineers and scientists.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 for students 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 SAVES 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
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
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 $1,922,000 and $912,000 as of December 31, 2020 and 2019, respectively, related to cash received in advance for product maintenance services and professional services provided by the Company’s technical staff. The Company expects to satisfy its remaining performance obligations for these maintenance services and professional services, and recognize the deferred revenue and related contract costs over the next twelve months.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be nominal during each of the reporting periods.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred advertising costs, which are included in selling, general and administrative expenses of approximately $1.3 million and $19,000 during the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the Company initiated an advertising campaign totaling approximately $1.3 million, resulting in the substantial increase of advertising costs compared to the year ended December 31, 2019.
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.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The Company incurred stock-based compensation charges of approximately $1.2 million and $3.5 million for each of the years ended December 31, 2020 and 2019, respectively, which are included in general and administrative expenses. The following table summarizes such charges for the periods then ended (in thousands):
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|
|
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|
|
For the Years Ended
December 31,
|
|
2020
|
|
2019
|
Compensation and related benefits
|
$
|
1,194
|
|
|
$
|
3,247
|
|
Professional and legal fees
|
—
|
|
|
242
|
|
Totals
|
$
|
1,194
|
|
|
$
|
3,489
|
|
Net Loss Per Share
The Company computes basic and diluted earnings per share by dividing net loss by the weighted average number of common shares outstanding during the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options and warrants in the calculation of diluted net loss per common shares would have been anti-dilutive.
The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the years ended December 31, 2020 and 2019:
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|
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|
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|
For the Years Ended
December 31,
|
|
2020
|
|
2019
|
Options
|
5,450,057
|
|
|
121,796
|
|
Warrants
|
8,093,250
|
|
|
93,252
|
|
Convertible preferred stock
|
846
|
|
|
846
|
|
Totals
|
13,544,153
|
|
|
215,894
|
|
Preferred Stock
The Company relies on the guidance provided by ASC 480, "Distinguishing Liabilities from Equity", 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", 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 Measurements
ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
•Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
•Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
•Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the years ended December 31, 2020 and 2019.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and short-term debt. The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodologies. These financial instruments, except for short-term debt, are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. Short-term debt approximates market value based on similar terms available to the Company in the market place.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
Based on its assessments, the Company did not record any impairment charges for the years ended December 31, 2020 and 2019.
Recently Issued and Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of financial
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) clarifying effective dates for the impacted ASUs. For public business entities that meet the definition of an SEC filer and smaller reporting company, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2022, and the guidance is to be applied using the modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. The Company has adopted this standard and the adoption of this standard did not have a material impact on its condensed consolidated financial statements or disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” (“ASU 2018-13”). ASU 2018-13 requires application of the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements for (1) changes in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 also requires prospective application to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The Company has evaluated this standard and adoption does not have a material impact on its condensed consolidated financials or disclosures.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments--Credit Losses (Topic 326) (“ASU 2019-05”). These amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early application permitted. The Company has adopted this standard and the adoption of this standard did not have a material impact on its condensed consolidated financial statements or disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021. The Company does not expect this ASU will have a material effect on its condensed consolidated financial statements or disclosures.
In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities, Investments—Equity Method and Joint Ventures, and Derivatives and Hedging" ("ASU 2020-01"), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The effective date of the standard will be for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements or disclosures.
In February 2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement and requirements related to credit losses. The new guidance was effective upon issuance of this final accounting standards update. The Company has adopted this standard and the adoption did not have a material impact on its condensed consolidated financial statements or disclosures.
In October 2020, the FASB issued ASU 2020-10, "Codification Improvements" ("ASU 2020-10"), which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The effective date of the standard will be for interim and annual reporting periods beginning after December 15, 2020 for public entities. The Company will adopt ASU 2020-10 as of the reporting period beginning January 1, 2021. The adoption of this update is not expected to have a material effect on the Company’s consolidated financial statements.
Reverse Stock Split
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
On January 7, 2020, the Company effected a 1-for-45 reverse stock split of its outstanding common stock. The consolidated financial statements and accompanying notes give effect to the reverse stock split as if it occurred at the beginning of the first period presented.
Subsequent Events
The Company evaluates events and/or transactions occurring after the balance sheet date and before the issue date of the consolidated financial statements to determine if any of those events and/or transactions requires adjustment to or disclosure in the consolidated financial statements.
Note 3 - Locality Acquisition
On May 21, 2019, the Company, through its wholly owned subsidiary, Inpixon Canada as purchaser, completed its acquisition of Locality in which Locality’s stockholders sold all of their shares to the purchaser in exchange for consideration of (i) $1,500,000 (the “Aggregate Cash Consideration”) minus a working capital adjustment equal to $85,923, and (ii) 14,445 shares of the Company's common stock with a fair market value of $514,000. Locality was a technology company specializing in wireless device positioning and radio frequency augmentation of video surveillance systems. The Locality acquisition allows the Company to accept wireless device positioning from third-party Wi-Fi access points as well as surveillance systems and combine that information with Inpixon's own location data into their analytics platform, providing customers with additional data and ability to see video and radio frequency data concurrently.
The Aggregate Cash Consideration, less the working capital adjustment applied against the Aggregate Cash Consideration of $85,923, is payable in installments as follows: (i) the initial installment representing $250,000 minus $46,422 of the working capital adjustment was paid on the closing date; (ii) $210,499 was paid on November 21, 2019, which was comprised of a $250,000 installment less $39,501 of the working capital adjustment; (iii) two additional installments, each equal to $250,000, were paid twelve months and eighteen months after the closing date; and (iv) one final installment representing $500,000 will be paid on the second anniversary of the closing date, in each case minus the cash fees payable to the advisor in connection with the acquisition. Inpixon Canada will have the right to offset any loss, as defined in the purchase agreement, first, against any installment of the installment cash consideration that has not been paid and second, against the sellers and the advisor on a several basis, in accordance with the indemnification provisions of the purchase agreement.
The total recorded purchase price for the transaction was approximately $1,928,000, which consisted of cash at closing of $204,000, approximately $1,210,000 of cash that will be paid in installments as discussed above and $514,000 representing the value of the stock issued upon closing.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The purchase price was allocated and modified for measurement period adjustments due to the receipt of the valuation report and updated tax provision estimates as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
Valuation Measurement Period Adjustments
|
|
Tax Provision Measurement Period Adjustments
|
|
Adjusted Allocation
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70
|
|
Accounts receivable
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Other current assets
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Inventory
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Fixed assets
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Developed technology
|
|
1,523
|
|
|
(78)
|
|
|
—
|
|
|
1,445
|
|
Customer relationships
|
|
216
|
|
|
(31)
|
|
|
—
|
|
|
185
|
|
Non-compete agreements
|
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Goodwill
|
|
619
|
|
|
80
|
|
|
(46)
|
|
|
653
|
|
|
|
$
|
2,491
|
|
|
$
|
(29)
|
|
|
$
|
(46)
|
|
|
$
|
2,416
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Accrued liabilities
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Deferred revenue
|
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Deferred tax liability
|
|
474
|
|
|
(29)
|
|
|
(46)
|
|
|
399
|
|
|
|
563
|
|
|
(29)
|
|
|
(46)
|
|
|
488
|
|
Total Purchase Price
|
|
$
|
1,928
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,928
|
|
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The deferred revenue included in the financial statements is the expected liability to service the projects. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not deductible for tax purposes. The financial data of Locality is included in the Company’s financial statements starting on the acquisition date through the year ended December 31, 2020. Proforma information has not been presented as it has been deemed to be immaterial.
Note 4 - GTX Acquisition
On June 27, 2019, the Company completed its acquisition of certain assets of GTX, consisting of a portfolio of GPS technologies and intellectual property (the “Assets”) that allow Inpixon to provide positioning and positioning solutions for assets and devices homogenously from the indoors to the outdoors. Prior to this asset acquisition, the Company was only providing indoor location.
The Assets were acquired for aggregate consideration consisting of (i) $250,000 in cash delivered at the closing and (ii) 22,223 shares of Inpixon’s restricted common stock.
The total recorded purchase price for the transaction was $900,000, which consisted of the cash paid of $250,000 and $650,000 representing the value of the stock issued upon closing.
The purchase price was allocated based on the receipt of a final valuation report as follows (in thousands):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
Fair Value Allocation
|
Assets Acquired:
|
|
Developed technology
|
$
|
830
|
|
Non-compete agreements
|
68
|
|
Goodwill
|
2
|
|
|
|
Total Purchase Price
|
$
|
900
|
|
On September 16, 2019, the Company loaned GTX $50,000 in accordance with the terms of the asset purchase agreement. The note began to accrue interest at a rate of 5% per annum beginning on November 1, 2019. The note was amended on May 11, 2020 to extend the maturity date from April 13, 2020 to September 13, 2020 and require monthly payments against the outstanding balance of the note. The note was amended on October 28, 2020 to extend the maturity date from September 13, 2020 to December 31, 2020 and waive the requirement for the monthly repayment installment obligation provided for in the May 11, 2020 amendment. This note is included as part of other receivables in the Company’s consolidated financial statements. As of December 31, 2020, the balance of the note including interest was approximately $53,000. Proforma information has not been presented as it has been deemed to be immaterial
Note 5 - Jibestream Acquisition
On August 15, 2019, the Company, through its wholly owned subsidiary, Inpixon Canada as purchaser (the “Purchaser”), completed its acquisition of Jibestream, a provider of indoor mapping and location technology, for consideration consisting of: (i) CAD $5,000,000, plus an amount equal to all cash and cash equivalents held by Jibestream at the closing, minus, if a negative number, the absolute value of the Estimated Working Capital Adjustment (as defined in the acquisition agreement), minus any amounts loaned by the Purchaser to Jibestream to settle any Indebtedness (as defined in the Purchase Agreement (the "Purchase Agreement")) or other fees, minus any cash payments to the holders of outstanding options to settle any in-the-money options, minus the deferred revenue costs of CAD $150,000, and minus the costs associated with the audit and review of the financial statements of Jibestream required by the Purchase Agreement (collectively, the “Estimated Cash Closing Amount”); plus (ii) 176,289 shares of the Company’s common stock which was equal to CAD $3,000,000, converted to U.S. dollars based on the exchange rate at the time of the closing, divided by $12.4875 which was the price per share at which shares of the Company’s common stock are issued in of the Company’s common stock the Offering on August 12, 2019 (“Inpixon Shares”).
Jibestream, provided a dynamic interactive map that allowed customers to put their digitized map into their mobile app or provide the map on a kiosk or other interface. Inpixon can now utilize the Jibestream map to offer a more intuitive interface to see its locationing data and analytics.
The Nasdaq listing rules required the Company to obtain the approval of the Company’s stockholders for the issuance of 63,645 of the Inpixon Shares (the “Excess Shares”), which was obtained on October 31, 2019 and the shares were issued on November 5, 2019. A number of Inpixon Shares representing fifteen percent (15%) of the value of the Purchase Price (the “Holdback Amount”) were subject to stop transfer restrictions and forfeiture to secure the indemnification and other obligations of the Vendors in favor of the Company arising out of or pursuant to Article VIII of the Purchase Agreement and, at the option of the Company, to secure the obligation of the Vendors’ to pay any adjustment to the Purchase Price pursuant to Section 2.5 of the Purchase Agreement.
The total recorded purchase price for the transaction was approximately $5,062,000, which consisted of cash at closing of approximately $3,714,000 and $1,348,000 representing the value of the stock issued upon closing determined based on the closing price of the Company’s common stock as of the closing date on August 15, 2019. Subsequently, the Company agreed not to enforce any right of setoff resulting from a Working Capital Adjustment.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The purchase price was allocated based on the receipt of a final valuation report and modified for measurement period adjustments due to updated tax provision estimates as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Allocation
|
|
Tax Provision Measurement Period Adjustments
|
|
Adjusted Allocation
|
Assets Acquired:
|
|
|
|
|
|
|
Cash
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Accounts receivable
|
|
309
|
|
|
—
|
|
|
309
|
|
Other current assets
|
|
138
|
|
|
—
|
|
|
138
|
|
Fixed assets
|
|
10
|
|
|
—
|
|
|
10
|
|
Other assets
|
|
430
|
|
|
—
|
|
|
430
|
|
Developed technology
|
|
3,193
|
|
|
—
|
|
|
3,193
|
|
Customer relationships
|
|
1,253
|
|
|
—
|
|
|
1,253
|
|
Non-compete agreements
|
|
420
|
|
|
—
|
|
|
420
|
|
Goodwill
|
|
2,407
|
|
|
(919)
|
|
|
1,488
|
|
|
|
$
|
8,165
|
|
|
$
|
(919)
|
|
|
$
|
7,246
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
Accounts payable
|
|
51
|
|
|
—
|
|
|
51
|
|
Accrued liabilities
|
|
94
|
|
|
—
|
|
|
94
|
|
Deferred revenue
|
|
1,156
|
|
|
—
|
|
|
1,156
|
|
Other liabilities
|
|
513
|
|
|
—
|
|
|
513
|
|
Deferred tax liability
|
|
1,289
|
|
|
(919)
|
|
|
370
|
|
|
|
3,103
|
|
|
(919)
|
|
|
2,184
|
|
Total Purchase Price
|
|
$
|
5,062
|
|
|
$
|
—
|
|
|
$
|
5,062
|
|
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The deferred revenue included in the financial statements is the expected liability to service the projects. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not deductible for tax purposes. As part of the acquisition, the Company acquired a lease obligation with an operating lease right of use asset of approximately $371,000 and an operating lease obligation of approximately $371,000 which are included in other assets and other liabilities, respectively, in the purchase price allocation. The financial data of Jibestream is included in the Company’s financial statements starting on the acquisition date through the year ended December 31, 2020.
Jibestream was amalgamated into Inpixon Canada on January 1, 2020.
Note 6 - Systat Licensing Agreement
On June 19, 2020, the Company entered into an exclusive license with Cranes Software International Ltd. and Systat Software, Inc. (together the “Systat Parties”) to use, market, distribute, and develop the SYSTAT and SigmaPlot software suite of products (the “License Grant”) pursuant to the terms and conditions of that certain Exclusive Software License and Distribution Agreement, deemed effective as of June 1, 2020 (the “Effective Date”), and amended on June 30, 2020 (as amended, the “License Agreement”). In accordance with Rule 11-01(d) and ASC 805, the transaction was deemed to be the acquisition of a business and accounted for as a business combination with an acquisition date of June 30, 2020 (the “Closing Date”). In accordance with the terms of the License Agreement, on the Closing Date, we partitioned a portion of that certain promissory note (the “Sysorex Note”) issued to us by Sysorex, Inc. (“Sysorex”), into a new note in an amount equal to $3.0 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat Software, Inc. in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement. An additional $3.3 million of the principal balance underlying the Sysorex Note was partitioned and assigned to Systat Software, Inc. as consideration payable for the rights granted under the license as follows: (i) $1.3 million on the three
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
month anniversary of the Closing Date; (ii) $1.0 million on the six month anniversary of the Closing Date; and (iii) $1.0 million on March19, 2021. In addition, the cash consideration of $2.2 million was delivered on July 8, 2020.
In connection with the License Grant, the Systat Parties provided Inpixon with equipment to use at no additional cost for a minimum period of six months following the Closing Date. The Company is also entitled to any customer maintenance revenue, new license fees, or license renewal fees, received by any of the Systat Parties after June 1, 2020 in connection with the Systat Customer Contracts and/or Systat Distribution Agreements (as such terms are defined in the License Agreement) assigned to and assumed by us in connection with the License Agreement. The net amount owed to the Company for this period is included in the Other Receivable line item listed in the assets acquired below. The License Grant will remain in effect for a period of 15 years years following the Closing Date, unless terminated sooner upon mutual written consent of Systat Software, Inc. and us or upon termination by either for the other party’s specified breach.
In connection with the License Grant, the Company expanded its operations into the United Kingdom and Germany. As a result of such expansion, the Company formed Inpixon Limited, a new wholly owned subsidiary in the United Kingdom, and established Inpixon GmbH, a wholly owned subsidiary incorporated under the laws of Germany.
The total recorded purchase price for the transaction was $2.2 million, which consisted of the $2.2 million cash consideration as a full valuation allowance was retained against the Sysorex Note.
The preliminary purchase price is allocated as follows (in thousands):
|
|
|
|
|
|
|
Fair Value Allocation
|
Assets Acquired:
|
|
Other receivable
|
$
|
44
|
|
Developed technology
|
1,200
|
|
Customer relationships
|
395
|
|
Tradename & Trademarks
|
279
|
|
Non-compete agreements
|
495
|
|
Goodwill
|
520
|
|
|
$
|
2,933
|
|
Liabilities Assumed:
|
|
Deferred Revenue
|
$
|
733
|
|
|
733
|
|
Total Purchase Price
|
$
|
2,200
|
|
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The deferred revenue included in the consolidated financial statements is the expected liability to service the projects. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not deductible for tax purposes. The financial data of the License Grant is included in the Company’s financial statements as of deemed acquisition date of June 30, 2020.
A final valuation of the assets and purchase price allocation of the License Grant has not been completed as of the end of this reporting period as the third party valuation has not been finalized. Consequently, the purchase price was preliminarily allocated based upon the Company’s best estimates at the time of this filing. These amounts are subject to revision upon the completion of formal studies and valuations, as needed, which the Company expects to occur during the first quarter of 2021.
Note 7 - Ten Degrees Acquisition
On August 19, 2020, in accordance with the terms and conditions of that certain Asset Purchase Agreement ("APA"), by and among the Company, Ten Degrees Inc. (“TDI”), Ten Degrees International Limited (“TDIL”), mCube International Limited
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(“MCI”), and the holder of a majority of the outstanding capital of TDIL and mCube, Inc., and the sole shareholder of 100% of the outstanding capital stock of MCI (“mCube,” together with TDI, TDIL, and MCI collectively, the “Transferors”), the Company acquired a suite of on-device “blue-dot” indoor location and motion technologies, including patents, trademarks, software and related intellectual property from the Transferors (collectively, the “TDI Assets”). In accordance with Rule 11-01(d) and ASC 805, the transaction was deemed to be the acquisition of a group of assets, and not to be accounted for as a business combination, with an asset acquisition date of August 19, 2020. The TDI Assets were acquired for consideration consisting of (i) $1.5 million in cash and (ii) 480,000 shares of the Company's common stock. In accordance with the terms of the APA, commencing as of the date of the APA, the Transferors, and their affiliates, have agreed to not compete with our business associated with the TDI Assets for a period of five years from the closing date. In addition, each party agreed to not solicit any employees from the other party for a period of one year from the closing date, subject to certain exceptions.
The total recorded purchase price for the transaction was $2.1 million, which consisted of the cash paid of $1.5 million and $600,000 representing the value of the stock issued upon closing.
The preliminary purchase price is allocated as follows (in thousands):
|
|
|
|
|
|
|
Fair Value Allocation
|
Assets Acquired:
|
|
Developed technology
|
$
|
1,701
|
|
Non-compete agreements
|
399
|
|
|
|
Total Purchase Price
|
$
|
2,100
|
|
The value of the intangibles were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The developed technology and non-compete agreements acquired are included in the consolidated balance of intangible assets as of December 31, 2020. There was no goodwill acquired or recognized as a result of the acquisition of Ten Degrees.
Note 8 – Nanotron Acquisition
On October 6, 2020, the Company, through its wholly-owned subsidiary, Inpixon GmbH, a limited liability company incorporated under the laws of Germany, completed the acquisition of all the outstanding capital stock of Nanotron, a limited liability company incorporated under the laws of Germany, pursuant to the terms and conditions of that certain Share Sale and Purchase Agreement, dated as of October 5,2020, among the Company, Nanotron and Sensera Limited (the "Seller", and the owner of all outstanding shares of Nanotron), a stock corporation incorporated under the laws of Australia and the sole shareholder of Nanotron. As a result of the acquisition, the Company now owns 100% of Nanotron. Nanotron’s business consists of developing and manufacturing location-aware IoT systems and solutions.
The total paid to Nanotron was an aggregate purchase price of $8.7 million in cash (less the Holdback Funds (as defined below) and certain other closing adjustments) for the outstanding shares of Nanotron. The price was subject to certain post-Closing adjustments based on actual working capital as of the closing as described in the Purchase Agreement. Inpixon retained $750,000 (the “Holdback Funds”) from the purchase price to secure Nanotron’s obligations under the purchase agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18 months after the Closing Date. As discussed above, the certain adjustments to the Purchase Price are adjustments for severance payments and calculations of Net Working Capital versus the Working Capital Target (calculation defined as “Net Working Capital Adjustment”). The adjustment for severance payments includes a $214,000 reduction in purchase price for severance payments due after the closing date offset by a return credit of $50,000 for severance payments owed by Sensera Limited. As for Net Working Capital Adjustment, Net Working Capital was determined to be less than the Working Capital Target by an amount of $30,000, resulting in a reduction in the purchase price of $30,000. Inpixon Germany paid the purchase price from funds received in connection with a capital contribution from Inpixon, and a portion of the purchase price was used by the Seller to satisfy outstanding loans payable by Sensera Limited to obtain the release of certain existing security interests on Nanotron’s assets.
The preliminary purchase price is allocated as follows (in thousands):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
Fair Value Allocation
|
Assets acquired:
|
|
Cash and cash equivalents
|
301
|
|
Trade and other receivables
|
576
|
|
Inventory
|
827
|
|
Prepaid expenses and other current assets
|
103
|
|
Operating lease right-of-use asset
|
557
|
|
Property, plant, and equipment
|
433
|
|
Tradename
|
51
|
|
Proprietary Technology
|
1,213
|
|
Customer Relationships
|
1,055
|
|
Non-compete Agreements
|
610
|
|
In-Process R&D
|
505
|
|
IP Agreement
|
178
|
|
Goodwill
|
3,755
|
|
Total assets acquired
|
$
|
10,164
|
|
|
|
Liabilities assumed:
|
|
Accounts payable
|
526
|
|
Lease liabilities
|
557
|
|
Restructuring Costs
|
214
|
|
Accrued Liabilities
|
361
|
|
Total liabilities assumed
|
1,658
|
|
Estimated fair value of net assets acquired:
|
$
|
8,506
|
|
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not tax deductible for local tax purposes, but will be amortizable in the computation of the shareholder’s U.S. tax liability.
Note 9 - Proforma Financial Information
Jibestream Proforma Financial Information
The following unaudited proforma financial information presents the consolidated results of operations of the Company and Jibestream for the years ended December 31, 2020 and 2019, as if the acquisition had occurred as of the beginning of the first period presented instead of on August 15, 2019. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.
The proforma financial information for the Company and Jibestream is as follows (in thousands):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Revenues
|
$
|
9,297
|
|
|
7,558
|
|
Net loss attributable to common stockholders
|
$
|
(29,229)
|
|
|
(36,513)
|
|
Net loss per basic and diluted common share
|
(1.01)
|
|
|
(36.59)
|
|
Weighted average common shares outstanding:
|
|
|
|
Basic and Diluted
|
28,800,493
|
|
|
997,856
|
|
Nanotron Proforma Financial Information
The following unaudited proforma financial information presents the consolidated results of operations of the Company and Nanotron for the years ended December 31, 2020 and 2019, as if the acquisition had occurred as of the beginning of the first period presented instead of on October 6, 2020. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.
The proforma financial information for the Company and Nanotron is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Revenues
|
$
|
13,059
|
|
|
$
|
15,044
|
|
Net loss attributable to common stockholders
|
$
|
(29,541)
|
|
|
$
|
(39,532)
|
|
Net loss per basic and diluted common share
|
$
|
(1.03)
|
|
|
$
|
(53.31)
|
|
Weighted average common shares outstanding:
|
|
|
|
Basic and Diluted
|
28,800,493
|
|
|
741,530
|
|
Note 10 - Inventory
Inventory as of December 31, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Raw materials
|
$
|
210
|
|
|
$
|
13
|
|
Work-in-process
|
137
|
|
|
—
|
|
Finished goods
|
1,033
|
|
|
387
|
|
Inventory obsolescence reserve
|
(138)
|
|
|
—
|
|
Total Inventory
|
$
|
1,243
|
|
|
$
|
400
|
|
Note 11 - Property and Equipment, net
Property and equipment as of December 31, 2020 and 2019 consisted of the following (in thousands):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Computer and office equipment
|
$
|
1,421
|
|
|
$
|
774
|
|
Furniture and fixtures
|
287
|
|
|
228
|
|
Leasehold improvements
|
45
|
|
|
25
|
|
Software
|
829
|
|
|
39
|
|
Total
|
2,581
|
|
|
1,066
|
|
Less: accumulated depreciation and amortization
|
(1,136)
|
|
|
(921)
|
|
|
|
|
|
Total Property and Equipment, Net
|
$
|
1,445
|
|
|
$
|
145
|
|
Depreciation and amortization expense were approximately $128,000 and $98,000 for the years ended December 31, 2020 and 2019, respectively.
Note 12 - Software Development Costs, net
Capitalized software development costs as of December 31, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Capitalized software development costs
|
$
|
5,275
|
|
|
$
|
6,029
|
|
Accumulated amortization
|
(3,554)
|
|
|
(4,485)
|
|
Software development costs, net
|
$
|
1,721
|
|
|
$
|
1,544
|
|
The weighted average remaining amortization period for the Company’s software development costs is 2.8 years.
Amortization expense for capitalized software development costs was $0.7 million and $1.03 million for each of the years ended December 31, 2020 and 2019.
Future amortization expense on the computer software is anticipated to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
For the Years Ending December 31,
|
|
Amount
|
2021
|
|
$
|
789
|
|
2022
|
|
478
|
|
2023
|
|
256
|
|
2024
|
|
198
|
|
2025 and thereafter
|
|
—
|
|
Total
|
|
$
|
1,721
|
|
Note 13 - Intangible Assets
Intangible assets at December 31, 2020 and 2019 consisted of the following (in thousands):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount December 31,
|
|
Accumulated Amortization December 31,
|
|
Remaining Weighted Average Useful Life
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Trade Name/Trademarks
|
$
|
1,112
|
|
|
$
|
780
|
|
|
$
|
(854)
|
|
|
$
|
(724)
|
|
|
0.03
|
Customer Relationships
|
5,590
|
|
|
4,070
|
|
|
(2,972)
|
|
|
(2,574)
|
|
|
1.10
|
Developed Technology
|
26,216
|
|
|
21,422
|
|
|
(16,647)
|
|
|
(14,996)
|
|
|
6.52
|
Non-compete Agreements
|
2,485
|
|
|
923
|
|
|
(902)
|
|
|
(501)
|
|
|
0.37
|
IP Agreement
|
186
|
|
|
—
|
|
|
(12)
|
|
|
—
|
|
|
0.05
|
Totals
|
$
|
35,589
|
|
|
$
|
27,195
|
|
|
$
|
(21,386)
|
|
|
$
|
(18,795)
|
|
|
|
Aggregate Amortization Expense:
Aggregate amortization expense for the years ended December 31, 2020 and 2019 were $2.3 million and $3.6 million, respectively.
Future amortization expense on intangibles assets is anticipated to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
For the Years Ending December 31,
|
|
Amount
|
2021
|
|
2,356
|
|
2022
|
|
2,176
|
|
2023
|
|
1,985
|
|
2024
|
|
1,745
|
|
2025 and thereafter
|
|
5,940
|
|
Total
|
|
$
|
14,202
|
|
Note 14 - Goodwill
The Company has recorded goodwill and other indefinite-lived assets in connection with its acquisition of Shoom, Locality, GTX, Jibestream, Systat, and Nanotron. 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 Company’s goodwill balance and other assets with indefinite lives were evaluated for potential impairment during the years ended December 31, 2020 and 2019, as certain indications on a qualitative and quantitative basis were identified that an impairment exists as of the reporting date.
During the years ended December 31, 2020 and 2019, the Company did not recognize any impairment on the balance of goodwill. The Company utilized qualitative factors in determining if the carrying amounts of the Company’s reporting units exceeded the fair value of the Company, and noted that no such factors indicated impairment on any of its goodwill.
During the year ended December 31, 2019, the corporate income tax returns were filed for the periods ending as of the acquisition dates of Locality and Jibestream. After reviewing those tax returns, it was determined that there were additional tax benefits the Company would receive primarily related to net operating losses and research tax credits. As a result, the deferred tax asset of Jibestream was increased by approximately $1,023,000 and the deferred tax asset of Locality was increased by $48,000 with a corresponding decrease to goodwill. Additionally, during the year ended December 31, 2019, upon receipt of the Locality valuation report, the values of the intangibles were updated with a corresponding $80,000 increase to goodwill.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The following table summarizes the changes in the carrying amount of Goodwill for the year ended December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Locality
|
|
Jibestream
|
|
GTX
|
|
Systat
|
|
Nanotron
|
|
Total
|
Balance as of January 1, 2019
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Goodwill additions through acquisitions
|
619
|
|
|
2,407
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,026
|
|
Valuation Measurement Period Adjustments
|
80
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
80
|
|
Tax Provision Measurement Period Adjustments
|
(46)
|
|
|
(919)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(965)
|
|
Adjusted Allocation
|
653
|
|
|
1,488
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,141
|
|
Exchange rate fluctuation at December 31, 2019
|
19
|
|
|
(90)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71)
|
|
Balance as of December 31, 2019
|
672
|
|
|
1,398
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,070
|
|
Goodwill additions through acquisitions
|
—
|
|
|
15
|
|
|
2
|
|
|
520
|
|
|
3,755
|
|
|
4,292
|
|
Exchange rate fluctuation at December 31, 2020
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
176
|
|
|
$
|
226
|
|
Balance as of December 31, 2020
|
672
|
|
|
1,463
|
|
|
2
|
|
|
520
|
|
|
3,931
|
|
|
6,588
|
|
Note 15 - Other Long Term Investments
During the fourth quarter, the Company purchased $2.5 million of Cardinal Ventures Holdings LLC, (“CVH”) for 600,000 Class A Units and 2,500,000 Class B Units. CVH is a Delaware limited liability company formed to conduct any business, enterprise or activity permitted to owning certain interests in a sponsor of a special purpose acquisition company (“SPAC”). CVH will receive distributions from the sponsor to the extent there is activity at the SPAC.
As described in Note 1, 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 October 6, 2020 through December 31, 2020, CVH had no operating results, as such, there were 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 December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership interest as of December 31,
|
|
|
|
|
2020
|
|
Instrument Held
|
Investee
|
|
|
|
|
CVH LLC Class A
|
|
14.1
|
%
|
|
Units
|
CVH LLC Class B
|
|
28.1
|
%
|
|
Units
|
The following table presents summarized financial information for Inpixon’s investment in equity method eligible entities:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
Balance Sheet Data
|
|
|
Total assets
|
|
$
|
6,508
|
|
Total liabilities
|
|
$
|
—
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
For the period from October 6 through December 31,
|
|
|
2020
|
Income Statement Data
|
|
|
Revenues
|
|
$
|
—
|
|
Expenses
|
|
$
|
—
|
|
Note 16 - Deferred Revenue
Deferred revenue as of December 31, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Deferred Revenue, Current
|
|
|
|
Maintenance agreements
|
$
|
892
|
|
|
$
|
633
|
|
Service agreements
|
147
|
|
|
279
|
|
Deferred revenue assumed from Systat agreement
|
883
|
|
|
—
|
|
Total Deferred Revenue, Current
|
1,922
|
|
|
912
|
|
|
|
|
|
Total Deferred Revenue
|
$
|
1,922
|
|
|
$
|
912
|
|
The fair value of the deferred revenue approximates the services to be rendered.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 17 - Debt
Debt as of December 31, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt
|
Maturity
|
Principal
|
Unamortized Debt Discount
|
2020
|
|
2019
|
March 2020 10% Note
|
3/18/2021
|
$
|
5,655
|
|
$
|
(254)
|
|
$
|
5,401
|
|
|
—
|
|
November 2019 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
953
|
|
September 2019 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
1,050
|
|
August 2019 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
1,895
|
|
June 2019 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
2,087
|
|
May 2019 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
1,694
|
|
December 2018 10% Note
|
|
—
|
|
—
|
|
—
|
|
|
29
|
|
Debt discount
|
|
—
|
|
—
|
|
—
|
|
|
(628)
|
|
Revolving line of credit
|
|
—
|
|
—
|
|
—
|
|
|
150
|
|
Other short term debt
|
|
—
|
|
—
|
|
—
|
|
|
74
|
|
Total Short-Term Debt
|
|
|
|
$
|
5,401
|
|
|
$
|
7,304
|
|
Interest expense on the short-term debt totaled approximately $0.7 million and $0.8 million and approximately $1.6 million and $1.7 million was amortized to interest expense from the combined amortization of deferred financing costs and note discounts recorded at issuance for the Short Term Debt for the periods ending December 31, 2020 and 2019, respectively.
(A) 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, 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 $6,465,000, which is payable on or before the date that is 12 months from the issuance date. The initial principal amount includes an original issue discount of $1,450,000 and $15,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs.
In exchange for the March 2020 Note, the holder paid an aggregate purchase price of $5,000,000. Interest on the March 2020 Note accrues at a rate of 10% per annum and is payable on the maturity date or otherwise in accordance with the March 2020 Note. The Company may pay all or any portion of the amount owed earlier than it is due; provided, that in the event the Company elects to prepay all or any portion of the outstanding balance, it shall pay to the holder 115% of the portion of the outstanding balance the Company elects to prepay.
Beginning on the date that is 6 months from the issuance date and at the intervals indicated below until the March 2020 Note is paid in full, the holder shall have the right to redeem up to an aggregate of 1/3 of the initial principal balance of the March 2020 Note each month by providing written notice delivered to the Company; provided, however, that if the holder does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the holder to redeem in any future month in addition to such future month’s monthly redemption amount.
Upon receipt of any monthly redemption notice, the Company shall pay the applicable monthly redemption amount in cash to the holder within five business days of the Company’s receipt of such Monthly Redemption Notice. The March 2020 Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings, the holder may, by written notice, declare all unpaid principal, plus all accrued interest and other amounts due under the March 2020 Note to be immediately due and payable. Upon the occurrence of a bankruptcy-related event of default, without notice, all unpaid principal, plus all accrued interest and other amounts due under the March 2020 Note will become immediately due and payable at the mandatory default amount. On September 17, 2020, we 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% which was added to the March 2020 Note balance.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
November 2019 10% Note Purchase Agreement and Promissory Note
On November 22, 2019, we issued a promissory note to St. George Investments LLC (“St. George”), an affiliate of Iliad and Chicago Venture, pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “November 2019 10% Note”) in the initial principal amount of $952,500, which is payable on or before the date that is 6 months from the issuance date, subject to extension in accordance with the terms of the note. The initial principal amount includes an original issue discount of $187,500 and $15,000 that the Company agreed to pay to St. George to cover its legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the note, St. George paid an aggregate purchase price of $750,000.
Under the terms of the note, since it was still outstanding on February 22, 2020, a one-time monitoring fee equal to ten percent (10%) of the then-current outstanding balance, or approximately $97,688, was added to the note.
As of December 31, 2020 this note was re-paid in full.
September 2019 10% Note Purchase Agreement and Promissory Note
On September 17, 2019, the Company entered into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to the Holder an unsecured promissory note (the “September 2019 10% Note”) in an aggregate principal amount of $952,500, which is payable on or before the date that is 9 months from the issuance date. The Initial Principal Amount includes an original issue discount of $187,500 and $15,000 that the Company agreed to pay to the Holder to cover the Holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the Note, the Holder paid an aggregate purchase price of $750,000.
Under the terms of the September 2019 Note, since it was still outstanding on December 17, 2019, a one-time monitoring fee equal to ten percent (10%) of the then outstanding balance, or $97,661, was added to the September 2019 Note.
As of December 31, 2020 this note was re-paid in full.
August 2019 10% Note Purchase Agreement and Promissory Note
On August 8, 2019, the Company entered into a note purchase agreement with Chicago Venture, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “August 2019 10% Note”) in an aggregate principal amount of $1,895,000, which is payable on or before the date that is 9 months from the issuance date. The Initial Principal Amount includes an original issue discount of $375,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the August 2019 Note, the holder paid an aggregate purchase price of $1,500,000.
As of December 31, 2020 this note was re-paid in full.
June 2019 10% Note Purchase Agreement and Promissory Note
On June 27, 2019, the Company entered into a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed to issue and sell to the holder an unsecured promissory note (the “June 2019 10% Note”) in an aggregate principal amount of $1,895,000, which is payable on or before the date that is 9 months from the issuance date. The initial principal amount includes an original issue discount of $375,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the June 2019 Note, the holder paid an aggregate purchase price of $1,500,000.
Effective as of August 12, 2019, the Company and Chicago Venture entered into an amendment agreement, dated as of August 14, 2019, to provide that the Company’s obligation to repay all or a portion of the outstanding balance of the June 2019 Note upon the completion of any offering of equity securities of the Company would not apply or be effective until December 27, 2019. As consideration for the amendment, a fee of $191,883 was added to the outstanding balance of the June 2019 Note.
As of December 31, 2020 this note was re-paid in full.
May 2019 10% Note Purchase Agreement and Promissory Note
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
On May 3, 2019, the Company entered into a note purchase agreement (the “Purchase Agreement”) with Chicago Venture, pursuant to which the Company agreed to issue and sell to the investor an unsecured promissory note (the “May 2019 Note”) in an aggregate principal amount of $3,770,000, which is payable on or before the date that is 10 months from the issuance date. The initial principal amount includes an original issue discount of $750,000 and $20,000 that the Company agreed to pay to the holder to cover the holder’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the May 2019 Note, the holder paid an aggregate purchase price of $3,000,000.
As of December 31, 2020 this note was re-paid in full.
December 2018 10% Note Purchase Agreement and Promissory Note
On December 21, 2018, the Company entered into a note purchase agreement with Iliad, pursuant to which the Company agreed to issue and sell to Iliad an unsecured promissory note (the “December 2018 10% Note”) in an aggregate principal amount of $1,895,000, which is payable on or before December 31, 2019 (as provided in the Exchange Agreement, dated October 24, 2019, described below (the “October 24th Exchange Agreement”)). The initial principal amount includes an original issue discount of $375,000 and $20,000 that the Company agreed to pay to the Holder to cover its legal fees, accounting costs, due diligence, monitoring and other transaction costs. In exchange for the December 2018 Note, the Holder paid an aggregate purchase price of $1,500,000.
On February 8, 2019, the Company entered into a global amendment (the “Global Amendment”) to the note purchase agreements entered into on October 12, 2018 and December 21, 2018, in connection with the notes issued as of such dates, to delete the phrase “by cancellation or exchange of the Note, in whole or in part” from Section 8.1 of those agreements. The Company also agreed to pay Iliad’s fees and other expenses in an aggregate amount of $80,000 (the “Fee”) in connection with the preparation of the Global Amendment by adding $40,000 of the Fee to the outstanding balance of each of the notes.
On August 8, 2019, the Company and Iliad entered into a standstill agreement with respect to the December 2018 Note (the “Standstill Agreement”). Pursuant to the Standstill Agreement, Iliad agreed that it will not redeem all or any portion of the December 2018 Note for a period beginning on August 8, 2019, and ending on the date that is 90 days from August 8, 2019. As consideration for this, the outstanding balance of the December 2018 Note was increased by $206,149.
As of December 31, 2020 this note was re-paid in full.
November 2017 10% Note Purchase Agreement and Promissory Note
On January 29, 2019, the Company and Chicago Venture Partners, L.P., the holder convertible promissory note (“Chicago Venture” or the “Note Holder”), issued on November 17, with an outstanding balance of $383,768 entered into an exchange agreement (the “Exchange Agreement”), pursuant to which the Company and the Note Holder agreed to (i) partition a new convertible promissory note in the form of the Original Note (the “Partitioned Note”) in the original principal amount equal to the Remaining Balance (the “Exchange Amount”) and then cause the Remaining Balance to be reduced by the Exchange Amount; and (ii) exchange the Partitioned Note for the delivery of 3,842 shares of the Company’s common stock at an effective price share equal to $99.90. Following such partition of the Original Note, the Original Note was deemed paid in full, was automatically deemed cancelled, and shall not be reissued.
As of December 31, 2020 this note was re-paid in full.
Note Exchanges
The following table summarizes the Company’s exchanges of outstanding principal and interest for shares of common stock The Company analyzed the exchanges of principal as an extinguishment and compared the net carrying value of the debt being extinguished to the re-acquisition price (shares of common stock being issued) and recorded a loss on the exchange of debt for equity as a separate item in the other income/expense section of the condensed consolidated statements of operations.
As of and for the year ended December 31, 2020 (in thousands, except number of shares):
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt
|
Principal and Interest
|
Shares
|
Exchange Price
|
|
Loss on Exchange
|
March 2020 10% Note
|
$
|
1,150
|
|
1,076,676
|
|
$
|
1.03
|
|
to
|
$
|
1.09
|
|
|
$
|
78
|
|
November 2019 10% Note
|
1,215
|
|
894,549
|
|
1.35
|
|
to
|
1.36
|
|
|
—
|
|
September 2019 10% Note
|
1,120
|
|
975,704
|
|
1.14
|
|
to
|
1.17
|
|
|
22
|
|
August 2019 10% Note
|
2,034
|
|
1,832,220
|
|
1.09
|
|
to
|
1.13
|
|
|
25
|
|
June 2019 10% Note
|
2,236
|
|
1,372,417
|
|
1.12
|
|
to
|
3.05
|
|
|
33
|
|
May 2019 10% Note
|
1,958
|
|
524,140
|
|
3.65
|
|
to
|
4.05
|
|
|
52
|
|
December 2018 10% Note
|
223
|
|
187,517
|
|
1.19
|
|
to
|
1.19
|
|
|
—
|
|
Total Short-Term Debt
|
$
|
9,936
|
|
6,863,223
|
|
|
|
|
|
$
|
210
|
|
As of and for the year ended December 31, 2019 (in thousands, except number of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt
|
Principal and Interest
|
Shares
|
Exchange Price
|
|
Loss on Exchange
|
May 2019 10% Note
|
$
|
2,076
|
|
738,891
|
|
$
|
1.80
|
|
to
|
$
|
3.51
|
|
|
$
|
96
|
|
October 2018 10% Note
|
2,729
|
|
92,831
|
|
$
|
22.95
|
|
to
|
$
|
40.45
|
|
|
188
|
|
December 2018 10% Note
|
2,112
|
|
707,078
|
|
$
|
1.80
|
|
to
|
$
|
4.95
|
|
|
10
|
|
Total Short-Term Debt
|
$
|
6,917
|
|
1,538,800
|
|
|
|
|
|
$
|
294
|
|
(B) Revolving Line of Credit
Payplant Accounts Receivable Bank Line
In accordance with the Payplant Loan and Security Agreement, dated as of August 14, 2017 (the “Loan Agreement”), the Loan Agreement allows the Company to request loans from the Lender (in the manner provided therein) with a term of no greater than 360 days days in amounts that are equivalent to 80% of the face value of purchase orders received. The Lender is not obligated to make the requested loan, however, if the Lender agrees to make the requested loan, before the loan is made, the Company must provide Lender with (i) one or more promissory notes for the amount being loaned in favor of Lender, (ii) one or more guaranties executed in favor of Lender and (iii) other documents and evidence of the completion of such other matters as Lender may request. The principal amount of each loan shall accrue interest at a 30 day rate of 2% (the “Interest Rate”), calculated per day on the basis of a year of 360 days days and, when combined with all fees that may be characterized as interest will not exceed the maximum rate allowed by law. Upon the occurrence and during the continuance of any event of default, interest shall accrue at a rate equal to the Interest Rate plus 0.42% per 30 days. All computations of interest shall be made on the basis of a year of 360 days. The promissory note is subject to the interest rates described in the Loan Agreement and is secured by the assets of the Company pursuant to the Loan Agreement and will be satisfied in accordance with the terms of the Payplant Client Agreement.
On August 31, 2018, Inpixon, Sysorex, SGS, and Payplant executed Amendment 1 to Payplant Client Agreement (the “Amendment”). Pursuant to the Amendment, Sysorex and SGS are no longer parties to the Payplant Client Agreement, originally entered into on August 14, 2017, and have been released from any and all obligations and liabilities arising under the Payplant Client Agreement, whether such obligations and liabilities were in existence prior to or on the date of the Amendment or arise after the date of the Amendment.
On August 13, 2020, we provided Payplant a Notice of Termination (the “Notice”) of (i) that certain Loan and Security Agreement, dated as of August 14, 2017 (the “Loan Agreement”), by and among the Company, Payplant and Lender and (ii) that certain Payplant Client Agreement, dated as of August 14, 2017, as amended (the “Client Agreement”), by and between the Company and Payplant, pursuant to which we are able to request loans from the Lender.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(C) Other Short Term Debt
As of December 31, 2020, the Company paid the remaining $74,065 to the pre-acquisition stockholders of Shoom and the outstanding balance owed is $0.
Note 18 - Capital Raises
January 2019 Capital Raise
On January 15, 2019, the Company closed a rights offering whereby it sold an aggregate of 12,000 units consisting of an aggregate of 12,000 shares of Series 5 Convertible Preferred Stock and 80 warrants to purchase common stock exercisable for one share of common stock at an exercise price of $149.85 per share in accordance with the terms and conditions of a warrant agency agreement, resulting in gross proceeds to the Company of approximately $12 million, and net proceeds of approximately $10.77 million after deducting expenses relating to dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants.
Following the rights offering, the conversion price of the Series 4 Convertible Preferred Stock was reduced to the floor price of $223.20, the exercise price of the warrants issued in the April 2018 public offering were also reduced to the floor price of $223.20 and the number of shares issuable upon exercise of such warrants was increased to 61,562 shares of common stock. The maximum deemed dividend under the Series 4 Convertible Preferred Stock has been recognized so there is no accounting effect from the conversion price reduction of the Series 4 Convertible Preferred Stock. However, the Company recorded a $1.3 million deemed dividend for the reduction to the exercise price of the April 2018 warrants. As of December 31, 2020, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
August 2019 Financing
On August 12, 2019, the Company sold an aggregate of (i) 144,387 shares of our common stock, (ii) 2,997 shares of our Series 6 Convertible Preferred Stock, with a stated value $1,000 per share, convertible into shares of our common stock (the “Series 6 Preferred Stock”), and (iii) Series A warrants to purchase up to an aggregate of 384,387 shares of common stock at an exercise price per share of $12.4875, resulting in gross proceeds to the Company of approximately $4.8 million, and net proceeds of approximately $4 million after deducting the underwriting discounts and offering expenses. As of December 31, 2020, there were 0 shares of Series 6 Convertible Preferred Stock outstanding.
March 2020 Distribution Agreement
On March 3, 2020, the Company entered into an Equity Distribution Agreement (“EDA”) with Maxim Group LLC (“Maxim”) under which the Company may offer and sell shares of our common stock in connection with an at-the-market equity facility (“ATM”) in an aggregate offering amount of up to $50 million, which was increased on June 19, 2020 to $150 million pursuant to an amendment to the EDA, from time to time through Maxim, acting exclusively as our sales agent. The Company intends to use the net proceeds of the ATM primarily for working capital and general corporate purposes. The Company may also use a portion of the net proceeds to invest in or acquire businesses or technologies that it believes are complementary to its own, although the Company has no current plans, commitments or agreements with respect to any acquisitions as of the date of this filing. Maxim will be entitled to compensation at a fixed commission rate of 4.0% of the gross sales price per share sold for the initial $50 million of shares and 3.25% for any sales in excess of such amount. In addition, the Company has agreed to reimburse Maxim for its costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel.
The Company is not obligated to make any sales of the shares under the EDA and no assurance can be given that the Company will sell any shares under the EDA, or if it does, as to the price or amount of shares that the Company will sell, or the dates on which any such sales will take place. The EDA will continue until the earliest of (i) December 3, 2021, (ii) the sale of shares having an aggregate offering price of $150 million, and (iii) the termination by either Maxim or the Company upon the provision of 15 days written notice or otherwise pursuant to the terms of the EDA. The EDA was mutually terminated by the parties on February 12, 2021.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 18 - Capital Raises (continued)
During the year ended December 31, 2020 under an at-the-market (“ATM”) program, we sold an aggregate of 33,416,830 shares of common stock, at a weighted average price of approximately $1.45 per share resulting in net proceeds of approximately $46.1 million to us after deduction of sales commissions equal to 4.0% of the gross sales and other offering expenses. We raised total aggregate gross proceeds of approximately $48.5 million in connection with the ATM program as of December 31, 2020.
Registered Direct Offering
On November 25, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor, pursuant to which it sold in a registered direct offering, 5,000,000 shares of its common stock, and warrants to purchase up to 8,000,000 shares of common stock at an exercise price of $1.25 per share (the “2020 Purchase Warrants”) for a combined purchase price of $1.25 per share and pre-funded warrants to purchase up to 3,000,000 shares of common stock ("2020 Pre-funded Warrants") at an exercise price of $0.001 per share at a purchase price of $1.249 per share for net proceeds net proceeds of $9.2 million. Each 2020 Purchase Warrant and 2020 Pre-funded warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date. On December 23, 2020, the 2020 Pre-funded Warrants were exercised in full.
Note 19 - Common Stock
On January 29, 2019, the Company issued 3,842 shares of common stock under an exchange agreement to settle the outstanding balance of $383,768 under a partitioned note. (see Note 17)
On February 20, 2019, the Company issued 16,655 shares of common stock under a settlement agreement for an arbitration proceeding.
During the three months ended March 31, 2019, the Company issued 306 shares of common stock in connection with the exercise of 306 warrants at $149.85 per share.
During the three months ended March 31, 2019, the Company issued 27,741 shares of common stock in connection with the exercise of 46,235 warrants through cashless exercises.
During the three months ended March 31, 2019, 10,062 shares of Series 5 Convertible Preferred Stock were converted into 67,149 shares of the Company’s common stock.
During the three months ended March 31, 2019, the Company issued 4,445 shares of common stock for services, which were fully vested upon grant. The Company recorded an expense of approximately $242,000.
During the three months ended June 30, 2019, the Company issued 61,636 shares of common stock under an exchange agreement to settle the outstanding balance of $2,005,000 under a partitioned note (See Note 17).
During the three months ended June 30, 2019, the Company issued 18,572 shares of common stock in connection with the exercise of 30,954 warrants through cashless exercises.
During the three months ended June 30, 2019, 1,812 shares of Series 5 Convertible Preferred Stock were converted into 12,093 shares of the Company’s common stock.
On May 21, 2019, the Company issued 14,445 shares of common stock to Locality as part of an acquisition (See Note 3).
On June 27, 2019, the Company issued 22,223 shares of common stock to GTX as part of an acquisition (See Note 4).
On August 12, 2019, the Company issued 144,387 shares of common stock as part of a public offering (See Note 18).
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 19 - Common Stock (continued)
On August 15, 2019, the Company issued 112,644 shares of common stock to security holders of Jibestream as part of an acquisition (See Note 5).
During the three months ended September 30, 2019, the Company issued 31,195 shares of common stock under an exchange agreement to settle the outstanding balance of approximately $725,000 under a partitioned note (See Note 17).
During the three months ended September 30, 2019, the Company issued 310,154 shares of common stock in connection with the exercise of 310,154 warrants through cashless exercises.
During the three months ended September 30, 2019, 2,997 shares of Series 6 Convertible Preferred Stock were converted into 240,001 shares of the Company’s common stock.
On November 5, 2019, the Company issued 63,645 shares of common stock to security holders of Jibestream as part of an acquisition (See Note 5).
During the three months ended December 31, 2019, the Company issued 1,470,900 shares of common stock as part of an ATM program (See Note 18).
During the three months ended December 31, 2019, the Company issued 1,445,960 shares of common stock under an exchange agreement to settle the outstanding balance of approximately $4.2 million under a partitioned note (See Note 17).
During the three months ended December 31, 2019, the Company issued 69,485 shares of common stock in connection with the exercise of 69,485 warrants through cashless exercises.
During the three months ended December 31, 2019, the Company issued 14 shares of common stock in connection with the exercise of 14 employee stock options.
During the three months ended March 31, 2020, the Company issued 1,896,557 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $4,194,000 under partitioned notes.
During the three months ended March 31, 2020, the Company issued 937,010 shares of common stock in connection with the ATM at per share prices between $1.23 and $2.11, resulting in net proceeds to the Company of approximately $1.25 million after subtracting sales commissions and other offering expenses (See Note 18 ).
During the three months ended June 30, 2020, the Company issued 3,889,990 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $4,592,000 under partitioned notes.
During the three months ended June 30, 2020, the Company issued 29,033,036 shares of common stock in connection with the ATM at per share prices between $1.13 and $2.02, resulting in net proceeds to the Company of approximately $40.52 million after subtracting sales commissions and other offering expenses (See Note 18 ).
During the three months ended June 30, 2020, the Company issued 183,486 shares of common stock for the extinguishment of liability totaling approximately $200,000.
On August 19, 2020, the Company issued 480,000 shares of common stock to the security holders of Ten Degrees as part of an acquisition (See Note 7).
During the three months ended September 30, 2020, the Company issued 1,604,312 shares of common stock in connection with the ATM at per share prices between $1.5064 and $1.5134, resulting in net proceeds to the Company of approximately $2.27 million after subtracting sales commissions and other offering expenses (See Note 18).
During the three months ended December 31, 2020, the Company issued 1,842,472 shares of common stock in connection with the ATM at per share prices between $1.0706 and $1.1793, resulting in net proceeds to the Company of approximately $2.1 million after subtracting sales commissions and other offering expenses (See Note 18).
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 19 - Common Stock (continued)
During the three months ended December 31, 2020, the Company issued 1,076,676 shares of common stock under exchange agreements to settle outstanding balances totaling approximately $1.2 million under partitioned notes.
During the three months ended December 31, 2020, the Company issued 5,000,000 shares of common stock in connection with the an offering of common stock and warrants pursuant to a Securities Purchase Agreement which resulted in net proceeds of $9.2 million. (See Note 23)
During the three months ended December 31, 2020, the Company issued 3,000,000 shares of common stock in connection with the exchange of Pre-Funded Warrants (as defined in Note 23) offered under the Securities Purchase Agreement, resulting in net proceeds of $3,000. See Note Note 18 and Note 23 for further details.
Note 20 - Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share with rights, preferences, privileges and restrictions as to be determined by the Company’s Board of Directors.
Series 4 Convertible Preferred Stock
On April 20, 2018, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 4 Convertible Preferred Stock (“Series 4 Preferred”), authorized 10,415 shares of Series 4 Preferred and designated the preferences, rights and limitations of the Series 4 Preferred. The Series 4 Preferred is non-voting (except to the extent required by law) and was convertible into the number of shares of common stock, determined by dividing the aggregate stated value of the Series 4 Preferred of $1,000 per share to be converted by $828.00.
As of December 31, 2020, there was one share of Series 4 Preferred outstanding.
Series 5 Convertible Preferred Stock
On January 14, 2019, the Company filed with the Secretary of State of the State of Nevada the Certificate of Designation that created the Series 5 Convertible Preferred Stock, authorized 12,000 shares of Series 5 Convertible Preferred Stock and designated the preferences, rights and limitations of the Series 5 Convertible Preferred Stock. The Series 5 Convertible Preferred Stock is non-voting (except to the extent required by law). The Series 5 Convertible Preferred Stock is convertible into the number of shares of Common Stock, determined by dividing the aggregate stated value of the Series 5 Convertible Preferred Stock of $1,000 per share to be converted by $149.85.
As of December 31, 2020, there were 126 shares of Series 5 Convertible Preferred Stock outstanding.
Note 21 - Authorized Share Increase and Reverse Stock Split
On January 3, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect a 1-for-45 reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of January 7, 2020.
The consolidated financial statements and accompanying notes give effect to the 1-for-45 reverse stock split and increase in authorized shares as if they occurred at the first period presented.
Note 22 - Stock Options
In September 2011, the Company adopted the 2011 Employee Stock Incentive Plan (the “2011 Plan”) which provides for the granting of incentive and non-statutory common stock options and stock based incentive awards to employees, non-employee directors, consultants and independent contractors. The plan was amended and restated in May 2014. Unless terminated sooner by the Board of Directors, this plan will terminate on August 31, 2021.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 22 - Stock Options (continued)
In February 2018, the Company adopted the 2018 Employee Stock Incentive Plan (the “2018 Plan” and together with the 2011 Plan, the “Option Plans”), which will be utilized with the 2011 Plan for employees, corporate officers, directors, consultants and other key persons employed. The 2018 Plan will provide for the granting of incentive stock options, NQSOs, stock grants and other stock-based awards, including Restricted Stock and Restricted Stock Units (as defined in the 2018 Plan).
Incentive stock options granted under the Option Plans are granted at exercise prices not less than 100% of the estimated fair market value of the underlying common stock at date of grant. The exercise price per share for incentive stock options may not be less than 110% of the estimated fair value of the underlying common stock on the grant date for any individual possessing more that 10% of the total outstanding common stock of the Company. Options granted under the Option Plans vest over periods ranging from immediately to four years and are exercisable over periods not exceeding ten years.
On August 10, 2020, our Board of Directors approved an amendment to the Company’s 2018 Plan to remove the limit on the amount of non-qualified stock options that can be issued under the 2018 Plan to any one individual.
The aggregate number of shares that may be awarded under the 2011 Plan as of December 31, 2020 is 417,270 and awarded under the 2018 Plan as of December 31, 2020 is 14,230,073. As of December 31, 2020, 5,450,057 of options were granted to employees, directors and consultants of the Company (including one share outside of our plan) and 9,197,287 options were available for future grant under the Option Plans.
During the year ended December 31, 2019, the Company granted options under the 2018 Plan for the purchase of 130,651 shares of common stock to employees and consultants of the Company. These options are 100% vested or vest pro-rata over 12, 24, 36, 40 or 48 months, have a life of ten years and an exercise price between $6.30 and $101.70 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be $4,364,000. The fair value of the common stock as of the grant date was determined to be between $6.30 and $101.70 per share.
During the year ended December 31, 2020, the Company granted options under the 2018 Plan for the purchase of 5,567,500 shares of common stock to employees and consultants of the Company. These options are 100% vested or vest pro-rata over 24, 36 or 48 months, have a life of ten years and an exercise price between $1.10 and $1.29 per share. The Company valued the stock options using the Black-Scholes option valuation model and the fair value of the awards was determined to be $1,911,000. The fair value of the common stock as of the grant date was determined to be between $1.10 and $1.29 per share.
During the year ended December 31, 2020 and 2019, the Company recorded a charge of $1,194,000 and $3,247,000, respectively, for the amortization of employee stock options.
As of December 31, 2020, the fair value of non-vested options totaled approximately $1,626,000, which will be amortized to expense over the weighted average remaining term of 0.86 years.
The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key weighted-average assumptions used to apply this pricing model during the years ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Risk-free interest rate
|
0.33-0.35%
|
|
1.77-2.66%
|
Expected life of option grants
|
5 years
|
|
7 years
|
Expected volatility of underlying stock
|
34.43%
|
|
49.48-106.16%
|
Dividends assumption
|
$
|
—
|
|
|
$
|
—
|
|
The expected stock price volatility for the Company’s stock options was determined by the historical volatilities for industry peers and used an average of those volatilities. The Company attributes the value of stock-based compensation to operations on the straight-line single option method. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The dividends assumptions was $0 as the Company historically has not declared any dividends and does not expect to.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 22 - Stock Options (continued)
The following table summarizes the changes in options outstanding during the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding at January 1, 2019
|
1,624
|
|
|
$
|
5,229.00
|
|
|
—
|
|
Granted
|
130,651
|
|
|
61.79
|
|
|
—
|
|
Exercised
|
(14)
|
|
|
—
|
|
|
—
|
|
Expired
|
(2,106)
|
|
|
353.19
|
|
|
—
|
|
Forfeitures
|
(8,359)
|
|
|
91.67
|
|
|
—
|
|
Outstanding at December 31, 2019
|
121,796
|
|
|
$
|
123.66
|
|
|
—
|
|
Granted
|
5,567,500
|
|
|
1.10
|
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
(37,404)
|
|
|
272.92
|
|
|
—
|
|
Forfeitures
|
(201,835)
|
|
|
1.26
|
|
|
—
|
|
Outstanding at December 31, 2020
|
5,450,057
|
|
|
$
|
23.76
|
|
|
—
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
77,576
|
|
|
$
|
167.88
|
|
|
—
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
1,752,968
|
|
|
$
|
70.84
|
|
|
—
|
|
Note 23 - Warrants
On January 15, 2019, the Company issued warrants for the purchase of 80,000 shares of common stock in connection with a rights offering more fully described in Note 18. The warrants are exercisable for 5 years at an exercise price of $149.85 per share.
Following the rights offering on January 15, 2019, the exercise price of the warrants issued in the April 2018 public offering were reduced to the floor price of $223.20 and the number of shares issuable upon exercise of such warrants was increased by 33,366 shares of common stock.
On August 12, 2019, the Company issued Series A warrants to purchase up to an aggregate of 384,387 shares of common stock in connection with the August 2019 capital raise more fully described in Note 18. The warrants are exercisable for five years at an exercise price per share of $12.4875.
During the three months ended March 31, 2019, the Company issued 306 shares of common stock in connection with the exercise of 306 warrants at $149.85 per share.
During the twelve months ended December 31, 2019, the Company issued 425,952 shares of common stock in connection with the exercise of 456,826 warrants through cashless exercises.
On November 25, 2020, Inpixon entered into a Securities Purchase Agreement with an institutional investor named therein (the “Investor”), pursuant to which the Company agreed to issue and sell, in a registered direct offering, 5,000,000 shares of the Company’s common stock, par value $0.001 per share, and warrants to purchase up to 8,000,000 shares of common stock (the “Purchase Warrants”) at a combined offering price of $1.25 per share. The Purchase Warrants have an exercise price of $1.25 per share. Each Purchase Warrant is exercisable for one share of common stock and will be immediately exercisable and will expire five years from the issuance date.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The Company also offered and sold to the Purchaser pre-funded warrants to purchase up to 3,000,000 shares of common stock (the “Pre-Funded Warrants” and, together with the 5,000,000 shares and the Purchase Warrants, the “Securities”), in lieu of shares of common stock at the Investor’s election. Each Pre-Funded Warrant is exercisable for one share of common stock. The purchase price of each Pre-Funded Warrant is $1.249, and the exercise price of each Pre-Funded Warrant is $0.001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.
During the three months ended December 31, 2020, the Company issued 3,000,000 shares of common stock in connection with the exercise of 3,000,000 warrants at $0.001 per share .
The following table summarizes the changes in warrants outstanding during the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Exercisable at January 1, 2019
|
52,632
|
|
|
$
|
866.70
|
|
|
$
|
—
|
|
Granted
|
497,753
|
|
|
48.66
|
|
|
—
|
|
Exercised
|
(457,132)
|
|
|
35.78
|
|
|
—
|
|
Expired
|
(1)
|
|
|
6,075,000.00
|
|
|
—
|
|
Cancelled
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at December 31, 2019
|
93,252
|
|
|
$
|
503.09
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Granted
|
11,000,000
|
|
|
$
|
0.91
|
|
|
—
|
|
Exercised
|
(3,000,000)
|
|
|
—
|
|
|
—
|
|
Expired
|
(2)
|
|
|
1,336,500.00
|
|
|
—
|
|
Cancelled
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at December 31, 2020
|
8,093,250
|
|
|
$
|
6.70
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
93,252
|
|
|
$
|
503.09
|
|
|
—
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
8,093,250
|
|
|
$
|
6.70
|
|
|
—
|
|
Note 24 - Income Taxes
The domestic and foreign components of loss before income taxes for the years ended December 31, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Domestic
|
$
|
(24,387)
|
|
|
$
|
(32,116)
|
|
Foreign
|
(4,883)
|
|
|
(2,450)
|
|
|
|
|
|
Loss from Continuing Operations before Provision for Income Taxes
|
$
|
(29,270)
|
|
|
$
|
(34,566)
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
The income tax benefit for the years ended December 31, 2020 and 2019 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
Foreign
|
|
|
|
Current
|
$
|
31
|
|
|
$
|
—
|
|
Deferred
|
(1,815)
|
|
|
(844)
|
|
U.S. federal
|
—
|
|
|
—
|
|
Current
|
—
|
|
|
—
|
|
Deferred
|
(5,367)
|
|
|
(5,177)
|
|
State and local
|
—
|
|
|
—
|
|
Current
|
3
|
|
|
—
|
|
Deferred
|
(1,181)
|
|
|
(898)
|
|
|
(8,329)
|
|
|
(6,919)
|
|
Change in valuation allowance
|
8,273
|
|
|
6,335
|
|
|
|
|
|
Income Tax Benefit
|
$
|
(56)
|
|
|
$
|
(584)
|
|
The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
U.S. federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
State income taxes, net of federal benefit
|
3.2
|
%
|
|
2.0
|
%
|
Incentive stock options
|
(0.4)
|
%
|
|
(0.7)
|
%
|
US-Foreign income tax rate difference
|
1.0
|
%
|
|
0.4
|
%
|
Other permanent items
|
—
|
%
|
|
0.1
|
%
|
Provision to return adjustments
|
(0.8)
|
%
|
|
—
|
%
|
Deferred only adjustment
|
4.5
|
%
|
|
(2.7)
|
%
|
Change in valuation allowance
|
(28.3)
|
%
|
|
(18.3)
|
%
|
Effective Rate
|
0.2
|
%
|
|
1.8
|
%
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
As of December 31, 2020 and 2019, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in 000s)
|
2020
|
|
2019
|
Deferred Tax Asset
|
|
|
|
Net operating loss carryovers
|
$
|
30,731
|
|
|
$
|
8,918
|
|
Stock based compensation
|
1,253
|
|
|
1,114
|
|
Research credits
|
138
|
|
|
135
|
|
Accrued compensation
|
86
|
|
|
36
|
|
Reserves
|
151
|
|
|
242
|
|
Intangibles
|
7,411
|
|
|
2,361
|
|
Fixed assets
|
471
|
|
|
39
|
|
Other
|
3,349
|
|
|
3,046
|
|
|
|
|
|
Total Deferred Tax Asset
|
43,590
|
|
|
15,891
|
|
Less: valuation allowance
|
(38,287)
|
|
|
(13,902)
|
|
|
|
|
|
Deferred Tax Asset, Net of Valuation Allowance
|
$
|
5,303
|
|
|
$
|
1,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Deferred Tax Liabilities
|
2020
|
|
2019
|
Intangible assets
|
$
|
(4,362)
|
|
|
$
|
(1,671)
|
|
Fixed assets
|
(135)
|
|
|
—
|
|
Other
|
(440)
|
|
|
(53)
|
|
Capitalized research
|
(366)
|
|
|
(352)
|
|
Total deferred tax liabilities
|
(5,303)
|
|
|
(2,076)
|
|
|
|
|
|
Net Deferred Tax Asset (Liability)
|
$
|
—
|
|
|
$
|
(87)
|
|
The transition tax is based on total post-1986 earnings and profits which were previously deferred from U.S. income taxes. At December 31, 2020, the Company did not have any undistributed earnings of our foreign subsidiaries. As a result, no additional income or withholding taxes have been provided for. The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.
In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOL carryover is subject to an annual limitation in the event of a change of control, as defined by the regulations. The Company performed an analysis to determine the annual limitation as a result of the changes in ownership that occurred during 2019 and 2020. Based on the Company’s analysis, the NOL available to offset future taxable income after these ownership changes was approximately $16.3 million and $35.2 million, respectively. The NOLs generated in 2017, $1.5 million, will expire beginning in December 31, 2037 if not utilized. The remaining NOLs were generated after 2017 have an indefinite life and do not expire.
As of December 31, 2020 and 2019, Inpixon Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement, had approximately $16.8 million and $12.0 million, respectively, of Canadian NOL carryovers available to offset future taxable income. These NOLs, if not utilized, begin expiring in the year 2023. The NOLs as of December 31, 2020 include Jibestream, which was acquired on August 15, 2019 and amalgamated with Inpixon Canada effective January 1, 2020.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
As of December 31, 2020, Nanotron GmbH, which was acquired on October 5, 2020, had approximately $53.1 million German NOL carryovers available to offset future taxable income. Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to Inpixon, Inpixon Canada and Nanotron GmbH and has, therefore, established a full valuation allowance as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the change in valuation allowance was $9.1 million and $6.3 million, respectively.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal), Canada, India, Germany, United Kingdom and in various state jurisdictions in the United States. Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019.
The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for interest or penalties for the years ended December 31, 2020 and 2019. Management does not expect any material changes in its unrecognized tax benefits in the next year.
The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2016. In general, the Canadian Revenue Authority may reassess taxes four years from the date the original notice of assessment was issued. The tax years that remain open and subject to Canadian reassessment are 2016 – 2020. The tax years that remain open and subject to India reassessment are tax years beginning March 31, 2015. The German tax authorities may reassess taxes four years generally four years from the end of the calendar year in which the return is filed. The tax years that remain open and subject to German reassessment are 2014 – 2020.
On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. The CARES Act did not have a material impact on the Company.
Note 25 - Credit Risk and Concentrations
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 25 - Credit Risk and Concentrations (continued)
Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.
The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Cash is also maintained at foreign financial institutions for its Canadian subsidiary, UK subsidiary, German subsidiaries and its majority-owned India subsidiary. Cash in foreign financial institutions as of December 31, 2020 and 2019 was immaterial. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.
The following table sets forth the percentages of revenue derived by the Company from those customers, which accounted for at least 10% of revenues during the years ended December 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2020
|
|
For the Year Ended December 31, 2019
|
|
$
|
|
%
|
|
$
|
|
%
|
Customer A
|
2,460
|
|
26%
|
|
2,661
|
|
42%
|
Customer B
|
1,221
|
|
13%
|
|
1,224
|
|
19%
|
As of December 31, 2020, Customer C represented approximately 18% and Customer D represented approximately 11% of total accounts receivable. As of December 31, 2019, Customer D represented approximately 29%, Customer A represented approximately 14%, and Customer E represented approximately 10% of total accounts receivable.
As of December 31, 2020, one vendor represented approximately 19% of total gross accounts payable. Purchases from this vendor during the year ended December 31, 2020 was $154,000. As of December 31, 2019, three vendors represented approximately 36%, 12%, and 10% of total gross accounts payable. Purchases from these vendors during the year ended December 31, 2019 was $0.
For the year ended December 31, 2020, three vendors represented approximately 30%, 14%, and 13% of total purchases. For the year ended December 31, 2019, three vendors represented approximately 32%, 27%, and 21% of total purchases.
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note 26 - Foreign Operations
The Company’s operations are located primarily in the United States, Canada, India, Germany, 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
|
|
Eliminations
|
|
Total
|
For the Year Ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
$
|
5,935
|
|
|
$
|
5,270
|
|
|
$
|
1,089
|
|
|
$
|
1,029
|
|
|
$
|
87
|
|
|
$
|
(4,113)
|
|
|
$
|
9,297
|
|
Operating income (loss) by geographic area
|
$
|
(22,727)
|
|
|
$
|
(434)
|
|
|
$
|
188
|
|
|
$
|
(686)
|
|
|
$
|
(136)
|
|
|
$
|
—
|
|
|
$
|
(23,795)
|
|
Net income (loss) by geographic area
|
$
|
(28,276)
|
|
|
$
|
(283)
|
|
|
$
|
161
|
|
|
$
|
(680)
|
|
|
$
|
(137)
|
|
|
$
|
—
|
|
|
$
|
(29,215)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic area
|
$
|
5,786
|
|
|
$
|
1,516
|
|
|
$
|
569
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,570)
|
|
|
$
|
6,301
|
|
Operating income (loss) by geographic area
|
$
|
(18,371)
|
|
|
$
|
(2,488)
|
|
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(20,810)
|
|
Net income (loss) by geographic area
|
$
|
(32,117)
|
|
|
$
|
(1,914)
|
|
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(33,982)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
$
|
61,469
|
|
|
$
|
9,652
|
|
|
$
|
661
|
|
|
$
|
19,379
|
|
|
$
|
212
|
|
|
$
|
(32,362)
|
|
|
$
|
59,011
|
|
Long lived assets by geographic area
|
$
|
7,755
|
|
|
$
|
6,775
|
|
|
$
|
280
|
|
|
$
|
4,610
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
19,445
|
|
Goodwill by geographic area
|
$
|
522
|
|
|
$
|
2,135
|
|
|
$
|
—
|
|
|
$
|
3,931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets by geographic area
|
$
|
11,061
|
|
|
$
|
9,675
|
|
|
$
|
483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,219
|
|
Long lived assets by geographic area
|
$
|
4,348
|
|
|
$
|
6,981
|
|
|
$
|
345
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,674
|
|
Goodwill by geographic area
|
$
|
—
|
|
|
$
|
2,070
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,070
|
|
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 27 - Related Party Transactions
Sysorex Note Purchase Agreement
Nadir Ali, the Company’s Chief Executive Officer and a member of its Board of Directors, is also a member of the Board of Directors of Sysorex.
On December 31, 2018, the Company and Sysorex entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which the Company agreed to purchase from Sysorex at a purchase price equal to the Loan Amount (as defined below), a secured promissory note (the “Secured Note”) for up to an aggregate principal amount of $3 million (the “Principal Amount”), including any amounts advanced through the date of the Secured Note (the “Prior Advances”), to be borrowed and disbursed in increments (such borrowed amount, together with the Prior Advances, collectively referred to as the “Loan Amount”), with interest to accrue at a rate of 10% percent per annum on all such Loan Amounts, beginning as of the date of disbursement with respect to any portion of such Loan Amount. In addition, Sysorex agreed to pay $20,000 to the Company to cover the Company’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the Principal Amount. Sysorex may borrow repay and borrow under the Secured Note, as needed, for a total outstanding balance, exclusive of any unpaid accrued interest, not to exceed the Principal Amount at any one time.
All sums advanced by the Company to the Maturity Date (as defined below) pursuant to the terms of the Note Purchase Agreement will become part of the aggregate Loan Amount underlying the Secured Note. All outstanding principal amounts and accrued unpaid interest owing under the Secured Note shall become immediately due and payable on the earlier to occur of (i) 24 month anniversary of the date the Secured Note is issued (the “Maturity Date”), (ii) at such date when declared due and payable by the Company upon the occurrence of an Event of Default (as defined in the Secured Note), or (iii) at any such earlier date as set forth in the Secured Note. All accrued unpaid interest shall be payable in cash. On February 4, 2019, April 2, 2019, and May 22, 2019, the Secured Note was amended to increase the Principal Amount from $3 million to $5 million, $5 million to $8 million and $8 million to $10 million, respectively. On March 1, 2020, the Company extended the maturity date of the Secured Note to December 31, 2022. In addition, the Secured Note was amended to increase the default interest rate from 18% to 21% or the maximum rate allowable by law and to require a cash payment to the Company by Sysorex against the Loan Amount in an amount equal to no less than 6% of the aggregate gross proceeds raised following the completion of any financing, or series of related financings, in which Sysorex raises aggregate gross proceeds of at least $5 million.
In accordance with the terms of the Systat License Agreement (see Note 6), on June 30, 2020, the Company partitioned a portion of the outstanding balance of the Secured Note into a new note in an amount equal to $3 million in principal plus accrued interest (the “Closing Note”) and assigned the Closing Note and all rights and obligations thereunder to Systat in accordance with the terms and conditions of that certain Promissory Note Assignment and Assumption Agreement ("Assignment Agreement"). An additional $2.3 million of the principal balance underlying the Sysorex Note was partitioned into a new note and assigned to Systat as consideration payable for the rights granted under the license as of December 31, 2020. During the year ended December 31, 2020, an additional amount of approximately $2.6 million was advanced under the Secured Note and approximately $200,000 was repaid. The amount owed for principal as of December 31, 2020 and accrued interest through September 30, 2019 by Sysorex to the Company as of December 31, 2020 and 2019 was approximately $7.7 million and $10.6 million, respectively. These amounts exclude $275,000 of additional interest that the Company is contractually entitled to accrue from October 1, 2019 through December 31, 2019 and approximately $1.1 million of additional interest from January 1, 2020 through December 31, 2020 in accordance with the terms of the Sysorex Note, but did not accrue due to the uncertainty of repayment. An additional $1 million of the principal balance under the Secured Note was assigned to Systat on March 19, 2021, as the final portion of the total consideration due in connection with the license.
The Secured Note has been classified as “held for sale” and the Company, with the assistance of a third party valuation firm, the Company estimated the fair value of the Secured Note as of December 31, 2019, using Sysorex financial projections, a discounted cash flow model and a 12.3% discount rate. Following such valuation, the Company established a $10.6 million valuation allowance as of December 31, 2019 due to the uncertainty of repayment. During the year ended December 31, 2020, the Company re-evaluated the carrying value of the note and established an additional valuation allowance of approximately $2.4 million for the net increase to the note during the year. We are required to periodically re-evaluate the carrying value of the note and the related
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
valuation allowance based on various factors, including, but not limited to, Sysorex’s performance and collectability of the note. Sysorex’s performance against those financial projections will directly impact future assessments of the fair value of the note.
Sysorex Receivable
On February 20, 2019, the Company, Sysorex and Atlas Technology Group, LLC (“Atlas”) entered into a settlement agreement resulting in a net award of $941,796 whereby Atlas agreed to accept an aggregate of 16,655 shares of freely-tradable common stock of the Company in full satisfaction of the award. The Company and Sysorex each agreed pursuant to the terms and conditions of that certain Separation and Distribution Agreement, dated August 7, 2018, as amended, that 50% of the costs and liabilities related to the arbitration action would be shared by each party following the Spin-off. As a result, Sysorex owes the Company $559,121 for the settlement plus the interest accrued during the fiscal year ended December 31, 2019 of $57,238 and interest accrued during the fiscal year ended December 31, 2020 of $31,824. The total owed to the Company for this settlement as of December 31, 2020 and 2019 was $648,183 and $616,359, respectively. The Company established a full valuation allowance against this balance as of December 31, 2020.
Systat License Agreement
Nadir Ali, our Chief Executive Officer and a member of our Board, is a related party in connection with the acquisition of the Licenses as a result of his service as a director of Sysorex, the issuer of the Sysorex Note that was assigned in accordance with the terms and conditions of the License Agreement. In addition, Tanveer Khader and Kareem Irfan, members of our Board, are also related parties in connection with the acquisition of the Licenses as a result of their respective employment relationships with the Systat Parties. (See Note 6).
Jibestream Promissory Note
On August 12, 2019, prior to the acquisition of Jibestream, the Company loaned Jibestream $140,600 for operating expenses. The note accrues interest at a rate of 5% per annum and has a maturity date of December 31, 2020. However, upon the acquisition of Jibestream by Inpixon Canada, Inpixon Canada assumed the loan through consolidation. This note is recorded as a current note receivable on the Company books, however, it is eliminated in the consolidated financial statements. As of December 31, 2020, the balance of the note including principal and interest was approximately $151,000.
Cardinal Health Ventures Investment
Nadir Ali, our Chief Executive Officer and director, is also a member in CVH through 3AM, 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 our 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. (See Note 15).
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 28 - Leases
The Company has an operating lease for its administrative office in Palo Alto, California, effective October 1, 2014, for 8.3 years. The initial lease rate was $14,225 per month with escalating payments. In connection with the lease, the Company is obligated to pay $8,985 monthly for operating expenses for building repairs and maintenance. The Company also has an operating lease for its administrative office in Encino, CA. This lease was effective June 1, 2014 and will end on July 31, 2021. The current lease rate is $6,984 per month and $276 per month for the common area maintenance. Additionally, the Company has an amended operating lease for its administrative office in Coquitlam, Canada, from May 1, 2020 through September 30, 2022. The initial lease rate was CAD $4,479 per month with escalating payments. In connection with the lease, the Company is obligated to pay CAD $2,566 monthly for operating expenses for building repairs and maintenance. The Company has an operating lease for its administrative office in Toronto, Canada, from August 15, 2019 through July 31, 2021. The monthly lease rate is CAD $24,506 per month with no escalating payments. In connection with the lease, the Company is obligated to pay CAD $9,561 monthly for operating expenses for building repairs and maintenance. Starting in January 2021, the lease rate for the Toronto office space will be reduced due to a smaller leased office space. The extension agreement for the reduced office space is through June 30, 2026 with escalating payments. Additionally, the Company has an operating lease for its administrative office in New Westminster, Canada, from August 1, 2019 through July 31, 2021. The initial lease rate was CAD $575 per month. The Company has an operating lease for its administrative office in Hyderabad, India, from January 1, 2019 through February 28, 2024. The monthly lease rate is 482,720 INR per month with 5% escalating payments. In connection with the lease, the Company is obligated to pay 68,960 INR monthly for operating expenses for building repairs and maintenance. The Company has an operating lease for its administrative office in Ratingen, Germany, from July 1, 2020 through June 30, 2022 with an initial lease rate of 641 EUR per month. The Company has an operating lease for its administrative office in Slough, United Kingdom, from July 1, 2020 through October 31, 2021. The monthly lease rate is 1,600 GBP per month with 4% escalating payments.
As part of the acquisition of Nanotron on October 5, 2020, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office suite (the Nanotron office) located in Berlin, Germany. The office space leased by Nanotron occupies one floor of the building with a predetermined fixed annual increase to the monthly payment, effective on June 1 of every year. The initial lease rate was €7,118 per month for the first year prior to annual rent increases. The lease was effective on June 1, 2020, and expires May 31, 2026. There are three lease extension options, on June 1, 2023, June 1, 2024 and June 1, 2025. The Company anticipates extending the lease on each date. As a result, the Company will evaluate the lease under the expected lease term through May 31, 2026.
The Company has no other operating or financing leases with terms greater than 12 months.
The Company adopted ASC Topic 842, Leases (“ASC Topic 842”) effective January 1, 2019 using the modified-retrospective method, and thus, the prior comparative period continues to be reported under the accounting standards in effect for that period.
The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. At the time of adoption, the Company did not have any leases with terms of 12 months or less, which would have resulted in short-term lease payments being recognized in the consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.
On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use asset of $641,992, lease liability of $683,575 and eliminated deferred rent of $41,583. The adoption of ASC 842 did not have a material impact to prior year comparative periods and a result, a cumulative-effect adjustment was not required. The Company determined the lease liability using the Company’s estimated incremental borrowing rate of 8.0% to estimate the present value of the remaining monthly lease payments. With the Locality acquisition, the Company adopted ASC Topic 842 effective May 21, 2019 for the Westminster, Canada office operating lease. With the Jibestream acquisition, the Company adopted ASC Topic 842 effective August 15, 2019 for the Toronto, Canada office operating lease. With the India acquisition, the Company adopted ASC Topic 842 effective January 1, 2019 for the Hyderabad, India office operating lease. With the Systat license agreement, the Company adopted ASC Topic 842 effective July 1, 2020 for the Ratingen, Germany and Slough, United Kingdom office operating leases. In regards to the Nanotron acquisition, Nanotron had adopted IFRS 16, which is the new leasing standard that parallels ASC 842, effective January 1, 2019. Per ASC 805 - "Business Combinations", lease assets and liabilities acquired as part of a business combination should be remeasured at their present value, as if the lease were a new lease as of the acquisition date. As
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 28 - Leases (continued)
a result, the Company recalculated the present value of the lease as of the acquisition date, which will represent the balance of the operating lease right-of-use asset and operating lease liability moving forward.
Right-of-use assets is summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
2020
|
As of December 31, 2019
|
Palo Alto, CA Office
|
$
|
630
|
|
$
|
808
|
|
Encino, CA Office
|
194
|
|
188
|
|
Hyderabad, India Office
|
365
|
|
375
|
|
Coquitlam, Canada Office
|
96
|
|
273
|
|
Westminster, Canada Office
|
10
|
|
10
|
|
Toronto, Canada Office
|
949
|
|
405
|
|
Ratingen, Germany Office
|
18
|
|
—
|
|
Berlin, Germany Office
|
583
|
|
—
|
|
Slough, United Kingdom Office
|
34
|
|
—
|
|
Less accumulated amortization
|
(802)
|
|
(474)
|
|
Right-of-use asset, net
|
$
|
2,077
|
|
$
|
1,585
|
|
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 consolidated statement of income for the period ended December 31, 2020 was $1.1 million.
During the year ended December 31, 2020, the Company recorded $656,110 as rent expense to the right-of-use assets.
Lease liability is summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
As of December 31, 2019
|
Total lease liability
|
$
|
2,104
|
|
$
|
1,613
|
|
Less: short term portion
|
(647)
|
|
(776)
|
|
Long term portion
|
$
|
1,457
|
|
$
|
837
|
|
Maturity analysis under the lease agreement is as follows (in thousands):
|
|
|
|
|
|
Year ending December 31, 2021
|
$
|
694
|
|
Year ending December 31, 2022
|
618
|
|
Year ending December 31, 2023
|
369
|
|
Year ending December 31, 2024
|
276
|
|
Year ending December 31, 2025
|
261
|
|
Year ending December 31, 2026
|
109
|
|
Total
|
$
|
2,327
|
|
Less: Present value discount
|
(223)
|
|
Lease liability
|
$
|
2,104
|
|
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
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Note 28 - Leases (continued)
available at the date of adoption of Topic 842. As of December 31, 2020, the weighted average remaining lease term is 3.92 and the weighted average discount rate used to determine the operating lease liabilities was 8.0%.
Note 29 - 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.
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.
Compliance with Nasdaq Continued Listing Requirement
Between November 2015 and May 2018, we received four deficiency letters from Nasdaq indicating that we did not comply with certain Nasdaq continued listing requirements. Such deficiencies were later cured. However, on May 30, 2019, we received another deficiency letter from Nasdaq indicating that, based on our closing bid price for the last 30 consecutive business days, we did not comply with the minimum bid price requirement of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with the Nasdaq Listing Rules, the Company was provided with a 180 calendar day period, through November 26, 2019 (the “Compliance Deadline”), to regain compliance with the Minimum Bid Price Requirement. On November 27, 2019, the Company received notice from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) that based upon the Company’s continued non-compliance with the Minimum Bid Price Requirement (as defined below), the Company’s common stock would be subject to delisting from Nasdaq (the “Staff Delisting Determination”), unless the Company timely requested an appeal hearing before the Nasdaq Hearings Panel (the “Panel”). The Company requested such hearing, which was held on January 23, 2020, following the Company’s implementation of a reverse stock split effective on January 7, 2020.
On February 5, 2020, the Company received a letter from the Office of General Counsel of Nasdaq informing us that the Nasdaq Hearings Panel (the “Panel”) granted the Company’s request to continue the listing of the Company’s common stock on Nasdaq, subject to a “Panel Monitor” period pursuant to Nasdaq Listing Rule 5815(d)(4)(A) which expired on February 5, 2021.
Note 30 - Subsequent Events
Capital Raises
On January 24, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 5,800,000 shares of its common stock, and warrants to purchase up to 19,354,838 shares of common stock at an exercise price of $1.55 per share (the “January 2021 Purchase Warrants”) for a combined purchase price of $1.55 per share and pre-funded warrants to purchase up to 13,554,838 shares of common stock ("January 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.549 per share for net proceeds of approximately $27.8 million. Each January 2021 Purchase Warrant and January 2021 Pre-funded Warrant is exercisable for
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The January 2021 Pre-funded Warrants were exercised in full as of February 8, 2021. In addition, the investor exercised its purchase rights for 3,000,000 shares of common stock pursuant to the the January 2021 Purchase Warrant on February 11, 2021.
On February 12, 2021, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which it sold in a registered direct offering, 7,000,000 shares of its common stock, and warrants to purchase up to 15,000,000 shares of common stock at an exercise price of $2.00 per share (the “First February 2021 Purchase Warrants”) for a combined purchase price of $2.00 per share and pre-funded warrants to purchase up to 8,000,000 shares of common stock ("First February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $1.999 per share for net proceeds of approximately $27.8 million. Each First February 2021 Purchase Warrant and First February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire 5 years from the issuance date. The First February 2021 Pre-funded warrants were exercised in full as of February 18, 2021.
On February 16, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering, 3,000,000 shares of our common stock, and warrants to purchase up to 9,950,250 shares of common stock at an exercise price of $2.01 per share (the “Second February 2021 Purchase Warrants”) for a combined purchase price of $2.01 per share and pre-funded warrants to purchase up to 6,950,250 shares of common stock ("Second February 2021 Pre-funded Warrants") at an exercise price of $0.001 per share, at a purchase price of $2.009 per share for net proceeds of $18.5 million after deducting placement agent commissions and offering expenses. Each Second February 2021 Purchase Warrant and Second February 2021 Pre-funded Warrant is exercisable for one share of common stock, is immediately exercisable and will expire five years from the issuance date. The Second February 2021 Pre-funded warrants were exercised in full as of March 1, 2021.
Termination of Equity Distribution Agreement (ATM)
On February 12, 2021, we terminated that certain Equity Distribution Agreement, dated March 3, 2020, with Maxim Group LLC.
Stock Option Exercises
On February 5, 2021, the Company issued 4,977 shares of common stock in connection with the cashless exercise of 14,583 employee stock options.
Exchanges
On February 11, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with the holder of that certain outstanding unsecured promissory note, issued on March 18, 2020 in an aggregate initial principal amount of $6,465,000 (the “Original Note”), pursuant to which the Company and the holder agreed to: (i) partition a new promissory note in the form of the Original Note equal to $1.5 million and then cause the outstanding balance of the Original Note to be reduced by $1.5 million; and (ii) exchange the partitioned note for the delivery of 893,921 shares of the Company’s Common Stock, at an effective price per share equal to $1.678.
Stock Option and Restricted Stock Awards
On February 18, 2021, the Company granted 1,480,500 stock options to employees of the Company. These options vest pro-rata over 12, 24, or 36 months, have a life of ten years and an exercise price of $1.78 per share.
On February 18, 2021, the Company granted 120,000 stock options to the directors of the Company. These options vest upon grant, have a life of ten years and an exercise price of $1.78 per share.
On February 18, 2021, the Company granted 5,250,000 restricted stock awards to employees of the Company. These stock awards vest either 25% on the Grant Gate and 25% on each one year anniversary of Grant Date or 50% on Grant Gate and 50% on one year anniversary.
Systat License Agreement
INPIXON AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
On February 22, 2021, the Company entered into a Second Amendment to the License Agreement to allow for the exercise of the purchase option in whole or in part anytime during the Purchase Option Period and to provide for cash consideration in lieu of an assignment of the Note at our option. In addition, we exercised our option to purchase a portion of the underlying assets, including certain software, trademarks, solutions, domain names and websites from Systat in exchange for consideration in an amount equal to $900,000.
Nanotron Purchase Agreement
On February 24, 2021, the Company entered into an amendment to the Nanotron share sale and purchase agreement pursuant to which we agreed to the early release of the Holdback Funds, in exchange for a reduction in the total amount payable to the Seller by $225,000. In addition, the amount payable was further reduced by $59,156.74 in connection with a post closing working capital adjustment and the satisfaction of a claim related to a customer dispute. A balance of $465,843.26 was paid to the Seller in full satisfaction of the Holdback Funds payable by the Purchaser to the Seller pursuant to the Purchase Agreement.
Game Your Game Purchase Agreement
On March 25, 2021, we entered into a Stock Purchase Agreement (the “GYG Purchase Agreement”) with Game Your Game, Inc., a Delaware corporation (“GYG”), and certain selling shareholders (the "Selling Shareholders"), pursuant to which we will acquire an aggregate of 522,000 shares of common stock of GYG (the “GYG Shares”), representing 52.2% of the outstanding shares of common stock of GYG on a fully diluted basis, in exchange for $1,666,932 in cash (the “Cash Consideration”), and a number of shares of our common stock equal to $1,403,103 divided by the lesser of (A) the closing price per share of our common stock, as reported by the Nasdaq Stock Market, immediately prior to the closing of the transaction and (B) the average closing price of our common stock, as reported by the Nasdaq Stock Market, for the 5 trading days immediately preceding the closing date. The Cash Consideration will be used for working capital purposes and to satisfy certain outstanding payroll obligations of GYG. The closing of the transaction is subject to the terms and satisfaction of the conditions set forth in the GYG Purchase Agreement. GYG’s business consists of developing and providing solutions using sports data and analytics.
Iliad Note Extension
On March 17, 2021, we extended the maturity date of the March 2020 Note with Iliad from March 18, 2021 to March 18, 2022.
GTX Note Extension
On February 28, 2021 we agreed to extend the maturity date of the GTX Note to December 31, 2021. In addition, we agreed that from June 1, 2020 until the earlier of the maturity date, the date on which the outstanding balance is paid in full or the date on which certain property is removed from GTX premises an amount equal to $585 per month would be offset as payment against the outstanding balance, applied first against the interset amount and then against the principal amount.