XTI Aerospace, Inc. quarterly report, Q3 FY2019

Business context and reporting period

Entity clarification: The supplied filing is Inpixon’s Form 10-Q, not a filing under the requested company name XTI Aerospace, Inc. It covers the quarter and nine months ended September 30, 2019; financial statement amounts below are in thousands of dollars unless noted.

Inpixon provides indoor positioning, mapping, analytics and related digital products and services. During 2019 it acquired Locality, certain GPS assets from GTX, and Jibestream, expanding its indoor-location product portfolio. The 2018 comparative period includes discontinued operations related to the Sysorex spin-off.

Financial performance and position

Revenue rose 63% in Q3 and 67% for the first nine months, primarily reflecting growth in indoor positioning analytics and a new significant customer. Higher-margin revenue lifted gross margin, but increased operating costs and interest expense contributed to larger quarterly operating and net losses. The nine-month net loss improved slightly, while the common-stockholder loss was affected by preferred-stock and warrant deemed dividends in 2018 and a warrant-related deemed dividend in 2019. Reported per-share comparisons are also affected by substantial share-count changes and prior reverse splits.

For the nine months, operating cash outflow was $9,057, investing cash outflow $4,884, and financing cash inflow $13,318. Cash, cash equivalents and restricted cash ended at $565, including $494 of unrestricted cash. At September 30, current assets were $4,535 and current liabilities $16,236, a working-capital deficit of $11,701. Short-term debt was $10,059, long-term debt was zero, and total liabilities were $19,006. The balance sheet also included a $10,366 loan to related party, primarily to Sysorex.

Material changes versus the prior comparable period

• Revenue and gross margin increased, but Q3 operating expenses rose 73% to $6,836; nine-month expenses rose 39% to $18,550. The filing attributes increases to acquisitions, acquisition costs, stock-based compensation, professional fees, bad debts and other administrative costs.
• Q3 interest expense was $1,190, compared with $78 in the statement of operations for Q3 2018; nine-month interest expense was $2,053 versus $981.
• Cash used in operations improved to $9,057 from $23,455, partly because the prior-year period included substantial reductions in payables and accrued liabilities. Investing outflows rose with acquisition spending, including $3,714 for Jibestream.
• At September 30, 2019, goodwill was $3,097 and intangible assets were $9,338, compared with no goodwill and $4,509 of intangible assets at December 31, 2018; acquisitions also increased debt and acquisition liabilities.
• Common shares issued rose from 1.6 million at December 31, 2018 to 50.5 million at September 30, 2019. The filing reports 66.3 million shares outstanding as of October 31, 2019.

Outlook, risks, contingencies and unusual items

Management said it expects to continue growing its indoor positioning product line in 2019, but provided no quantified revenue, earnings or cash-flow guidance. It cited long sales cycles, customer budget and procurement processes, pilot programs and the early stage of the technology market. Management’s strategy is to integrate acquired mapping, positioning and GPS capabilities into a broader indoor-data offering.

Going concern: The filing states that available resources, Payplant availability and expected revenue are not sufficient to fund planned operations for the 12 months after issuance. Recurring losses and a working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Management plans to seek additional equity or debt financing, improve efficiency, reduce expenditures and grow revenue; the financial statements contain no adjustments for a possible failure to continue as a going concern.

Financing and dilution: The company relied on equity offerings and short-term promissory notes. Notes generally carried 10% interest, original issue discounts, redemption provisions and, for certain notes, 22% default interest and accelerated repayment terms. On October 10, 2019, it established an at-the-market equity program of up to $6.5 million; by October 31 it had sold 6,415,270 shares for net proceeds of approximately $589,000. Subsequent note exchanges through November 5 converted approximately $1.0 million of debt into 11.1 million shares at prices of $0.08–$0.11 per share.

Other key risks and items: One customer accounted for 33% of Q3 revenue and 46% of nine-month revenue; that customer represented about 59% of accounts receivable at quarter-end. Nasdaq had notified the company of a minimum-bid-price deficiency, with a November 26, 2019 deadline to regain compliance; the filing warned of potential delisting. The filing also cites uncertainty regarding an ongoing SEC investigation. Purchase-price allocations for GTX and Jibestream remained preliminary. No material pending legal proceedings were reported other than routine litigation. The company recorded no impairment charge for the periods presented, but noted that acquired technology development requires additional resources and could be impaired if funding or commercialization efforts fail.

Important facts for investors to verify

• Confirm the filing belongs to Inpixon and is not the requested XTI Aerospace filing.
• Verify the company’s cash runway, funding availability, debt maturities and ability to meet redemption or repayment demands; the filing explicitly identifies substantial going-concern doubt.
• Review dilution from the ATM, warrant exercises, debt-for-equity exchanges, acquisition shares and outstanding options and warrants.
• Assess customer concentration, receivable collectability and the sustainability of revenue growth and gross-margin gains.
• Check Nasdaq listing compliance developments, the status of the SEC investigation and final acquisition valuations or purchase-price adjustments.