INPX: Inpixon Analysis and Research Report

2018-08-04 - by Asif , Contributing Analyst - 122 views

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Business Overview

The company provide a number of different technology products and services to private and public sector customers. Effective January 1, 2017 the Company has changed the way it analyzes and assesses divisional performance of the Company. The Company has therefore re-aligned its operating segments along those division business lines and now operates in two segments, namely Indoor Positioning Analytics and Infrastructure. The company's premier proprietary product secures, digitizes and optimizes the interior of any premises with indoor positioning and data analytics that provide rich positional information, similar to a global positioning system, and browser-like intelligence for the indoors. Other products and services that the company provide include enterprise computing and storage, virtualization, business continuity, data migration, custom application development, networking and information technology, and business consulting services.

Indoor Positioning Analytics Segment

Revenues from its Indoor Positioning Analytics (“IPA”) segment were $848,000 for the first quarter of 2018. The company's IPA segment does have long sales cycles which are a result from customer related issues such as budget and procurement processes but also because of the early stages of indoor-positioning technology and the learning curve required for customers to implement such solutions. Customers also engage in a pilot program first which prolongs sales cycles and is typical of most emerging technology adoption curves. The company anticipate sales cycles to improve in 2018 as its customer base moves from innovators to mainstream customer adoption. The sales cycle is also improving with the increased presence and awareness of beacon and Wi-Fi locationing technologies in the market. IPA segment sales can be licensed based with government customers but are primarily on a SaaS model with commercial customers. The company's other SaaS products include cloud-based applications for media customers, which allow it to generate industry analytics that complement its indoor-positioning solutions.

Approximately 95% of its IPA segment purchase orders are recurring SaaS contracts and 4% are license based. The company find that its public sector customers prefer the licensing model approach while private sector companies are opting for the SaaS model. However, the sales mix can fluctuate significantly from quarter to quarter.

Infrastructure Segment

The company's professional services group provides consulting services ranging from enterprise architecture design to custom application development to data modeling. The company offer a full scope of information technology development and implementation services with expertise in a broad range of IT practices including project design and management, systems integration, outsourcing, independent validation and verification, cyber security and more.

Inpixon has many key vendor, technology, wholesale distribution and strategic partner relationships. These relationships are critical for it to deliver solutions to its customers. Inpixon has a variety of vendors and also products that the company provide to its customers, and most of these products are purchased through the distribution partners. The company also have partnerships and teaming agreements with various technology and service providers for this segment as well as its other business segments. These relationships range from joint-selling activities to product integration efforts. Inpixon has been facing serious credit challenges with these vendors given its financial circumstances but are working on solving these issues as the company move forward and improve its liquidity.

In addition its business is required to meet certain regulatory requirements. The company's federal government customers in particular have a range of regulatory requirements including ITAR certifications, DCAA compliancy in its government contracts and other technical or security clearance requirements as may be required from time to time.

The company experienced a net loss of approximately $6.2 million for the three months ended March 31, 2018. The company cannot assure that the company will ever earn revenues sufficient to support its operations, or that the company will ever be profitable. In order to continue its operations, Inpixon has supplemented the revenues the company earned with proceeds from the sale of its equity and debt securities and proceeds from loans and bank credit lines. The Company has raised an aggregate of gross proceeds of $31.3 million in equity capital so far in 2018 and also has availability on its Payplant facility. However, the company cannot assure that the company will be able to raise money in the future if and when the company need it to continue its operations. If the company cannot raise funds as and when the company need them, the company may be required to scale back its business operations by reducing expenditures for employees, consultants, business development and marketing efforts, selling assets or one or more segments of its business, or otherwise severely curtailing its operations.

In order to streamline its business the company currently plan to spin-off its Infrastructure segment or value-added reseller (“VAR”) business, which is conducted primarily by Inpixon USA and its wholly-owned subsidiary Inpixon Federal, Inc. The spin-off of this business segment would significantly reduce its revenues since they account for approximately 91% of its total revenues, however, such a spin-off would also significantly reduce operating expenses and eliminate substantially all of its trade debt. The spin-off of this segment would allow Inpixon to solely focus on the Indoor Positioning Analytics business for which Inpixon has historically recognized lower revenues, but which the company believe has greater growth potential and substantially better gross margins than the infrastructure segment. The spin-off would be beneficial to Inpixon USA and Inpixon Federal, Inc. as well because they could focus their resources on their core business without the burden of Inpixon and could reach profitability sooner.

On April 23, 2018, the Company issued a press release announcing the filing of a Form 10 registration statement with the SEC in connection with the planned spin-off of its wholly-owned subsidiary, Inpixon USA (including its subsidiary, Inpixon Federal, Inc.), which is expected to be renamed “Sysorex, Inc.” (“Sysorex”) following the consummation of the spin-off transaction. Following the spin-off there will be two distinct, publicly traded companies, Inpixon and Sysorex.

In order to effect the proposed transaction, Inpixon intends to distribute shares of Sysorex’s common stock as a dividend to holders of Inpixon’s common stock and certain other holders of Inpixon warrants that may be entitled to participate in the distribution as of a record date to be determined. The spin-off is subject to certain conditions, including, without limitation, the effectiveness of a Form 10 registration statement with SEC, the approval for quotation of Sysorex’s common stock on the OTCQB Venture Market operated by OTC Markets Group, Inc., final approval from Inpixon’s Board of Directors and other customary conditions. No assurance can be provided as to the timing of the completion of the spin-off or that all conditions to the spin-off will be met. Furthermore, until the distribution has occurred, Inpixon will have the right to terminate the distribution, even if all of the conditions are satisfied.

Recent Events

January 2018 Capital Raise

On January 5, 2018, the Company entered into a Securities Purchase Agreement (the “January 2018 SPA”) with certain investors pursuant to which the Company agreed to sell, in a registered direct offering, an aggregate of 599,812 shares (the “January 2018 Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), at a purchase price of $5.31 per share for aggregate gross proceeds of approximately $3,185,000. Concurrently with the sale of the January 2018 Shares, pursuant to the January 2018 SPA the Company also sold warrants to purchase up to 599,812 shares of Common Stock (the “January 2018 Warrants”). The aggregate gross proceeds for the sale of the January 2018 Shares and January 2018 Warrants was approximately $3.2 million. This offering closed on January 8, 2018.

The January 2018 Warrants became exercisable on February 2, 2018 (the “January 2018 Warrant Initial Exercise Date”), at an exercise price per share equal to $6.60, subject to certain adjustments pursuant to the terms of the January 2018 Warrants (the “January 2018 Warrant Exercise Price”), and will expire on the fifth anniversary of the January 2018 Warrant Initial Exercise Date. As a result of a Dilutive Issuance (as defined in the January 2018 Warrants) as of February 20, 2018, the January 2018 Warrant Exercise Price was adjusted to the floor price of $3.00 per share pursuant to the January 2018 Warrants.

Reverse Stock Split

At a meeting of its stockholders held on February 2, 2018, its stockholders holding a majority of its outstanding voting power approved an amendment to its Articles of Incorporation to effect a reverse stock split of its Common Stock at an exchange ratio between 1-for -5 and 1-for-60 with its Board of Directors retaining the discretion as to whether to implement the reverse stock split and the exact exchange ratio to implement. The Board of Directors approved the implementation of a reverse stock split at a ratio of 1 for 30 effective as of February 6, 2018.

February 2018 Public Offering

On February 20, 2018, the Company completed a public offering for approximately $18 million in securities, consisting of (i) an aggregate of 3,325,968 Class A Units, at a price to the public of $2.35 per Class A Unit, each consisting of one share of Common Stock, and a five-year warrant to purchase one share of Common Stock, and (ii) 10,184.9752 Class B Units, at a price to the public of $1,000 per Class B Unit, each consisting of one share of the Company’s newly designated Series 3 Convertible Preferred Stock, par value $0.001 per share (“Series 3 Preferred”), with a stated value of $1,000 and initially convertible into approximately 426 shares of Common Stock at a conversion price of $2.35 per share for up to an aggregate of 4,334,032 shares of Common Stock and warrants exercisable for the number of shares of Common Stock into which the shares of Series 3 Preferred is initially convertible. The warrants (“February 2018 Warrant”) were immediately exercisable at an exercise price of $3.50 per share (subject to adjustment).

The Company received approximately $18 million in gross proceeds from this offering, including the satisfaction of approximately $1 million in amounts payable to service providers. After satisfying the amounts due to service providers and deducting placement agent fees, the net cash proceeds from this offering was approximately $15.4 million. The Company used the net proceeds from the transactions for working capital and general corporate purposes, including research and development and sales and marketing.

The shares of Series 3 Preferred issued in this offering have all been converted into Common Stock. As a result of the April 2018 offering described below as of April 24, 2018, the exercise price of the February 2018 Warrants was adjusted to the floor price of $0.634 per share and the number of shares of common stock underlying the February 2018 Warrants was increased to an aggregate of 42,287,102 shares of common stock.

April 2018 Public Offering

On April 24, 2018, the Company completed a public offering consisting of 10,115 units at a price to the public of $1,000 per unit, each consisting of (i) one share of its newly designated Series 4 convertible preferred stock, par value $0.001 per share (the “Series 4 Preferred”), with a stated value of $1,000 and initially convertible into approximately 2,174 shares of Common Stock, at a conversion price of $0.46 per share (subject to adjustment) and (ii) one warrant to purchase such number of shares of Common Stock as each share of Series 4 Preferred is convertible into. The warrants are immediately exercisable at an exercise price of $0.67 per share (subject to adjustment).

The Series 4 Preferred contain an anti-dilution protection feature, to adjust the conversion price if shares of Common Stock are sold or issued for a consideration per share less than the conversion price then in effect (subject to certain exemptions), provided, that the conversion price will not be less than $0.124. In addition, on the 60th day following the original issuance date of the Series 4 Preferred, the conversion price will be reduced, and only reduced, to the lesser of (x) the then conversion price, as may be adjusted, and (y) 80% of the VWAP (as defined in the certificate of designation filed for the Series 4 Preferred) on the trading day immediately prior to the 60th day, provided that the conversion price will not be less than $0.124.

The Company received approximately $10.1 million in gross proceeds from this offering, before deducting placement agent fees and offering expenses payable by the Company. After deducting placement agent fees and expenses, the net proceeds from this offering were approximately $9.2 million. The Company intends to use the net proceeds from this offering for working capital, general corporate purposes (including research and development, sales and marketing and the satisfaction of outstanding amounts payable to its vendors in connection with trade payables). Additionally, the Company may use a portion of the net proceeds of this offering to finance acquisitions of, or investments in, competitive and complementary businesses, products or services as a part of its growth strategy. However, the Company does not have any current commitments with respect to any such acquisitions or investments.


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