XTI Aerospace, Inc. current report, 24 July 2023

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Business Context and Reporting Period

Company: Inpixon (to be renamed XTI Aerospace, Inc. upon closing)

Filing Date: July 24, 2023 (Form 8-K)

Event: Entry into a Material Definitive Agreement (Merger Agreement) with XTI Aircraft Company ("XTI").

Transaction Overview: Inpixon will merge with XTI via a wholly-owned subsidiary. XTI will survive as a wholly-owned subsidiary of Inpixon. The combined company will be renamed "XTI Aerospace, Inc." and will focus on the development of the TriFan 600, a vertical takeoff and landing (VTOL) aircraft.

Key Financial Metrics and Deal Terms

Merger Consideration:

  • Exchange Ratio: Determined based on fully diluted capitalization immediately prior to closing. Subject to adjustments based on Inpixon's Net Cash (target $21.5 million) and specific promissory notes.
  • Ownership Split: Post-closing, Inpixon stockholders will retain approximately 40% of the combined company, while XTI security holders will retain approximately 60%.
  • Debt Treatment: Most XTI convertible notes will convert to common stock. Two specific promissory notes will be amended: one extended to December 31, 2026, and another partially paid in cash ($507,323) with the remainder converted to stock.

Financing and Liquidity:

  • Bridge Loans: Inpixon agreed to provide senior secured loans to XTI totaling up to $1,775,000 prior to closing (plus $525,000 existing loans). Interest is 10% per annum.
  • Capital Raise Requirement: Inpixon must use commercially reasonable efforts to consummate permitted issuances for aggregate gross cash proceeds of at least $10 million.
  • Divestiture: Inpixon will divest its Shoom, SAVES, and Game Your Game business lines prior to closing.

Transaction Costs:

  • Advisory Fees: Maxim Group LLC to receive a cash fee of $800,000 and approximately 6,666,667 shares of Inpixon common stock (valued at $1,000,000 based on July 24 price of $0.1523).
  • Termination Fees: $2,000,000 payable by either party under specific breach or superior proposal scenarios.

Material Changes and Corporate Actions

  • Management Changes: Scott Pomeroy (XTI) will become CEO of the combined company. Inpixon's current CEO (Nadir Ali) and CFO (Wendy Loundermon) are expected to resign upon closing but will enter into consulting agreements.
  • Board Composition: The post-closing board will consist of 5 or 7 directors. Inpixon will nominate 2 or 3 directors respectively, with requirements for independent directors.
  • Executive Compensation: Adoption of two Transaction Bonus Plans. Executives are eligible for cash bonuses equal to 100% of base salary and target bonus, plus a percentage of the transaction value (4% aggregate for Schedule 2 participants).
  • Stock Issuance: Inpixon issued 4,450,922 shares to a noteholder in exchange for partitioned notes, resulting in 49,033,687 shares outstanding post-issuance.

Outlook, Risks, and Contingencies

Conditions to Closing:

  • Approval by stockholders of both Inpixon and XTI.
  • Effectiveness of the Form S-4 registration statement.
  • Nasdaq listing approval for the combined company.
  • Absence of a Material Adverse Effect (MAE).
  • Completion of Note Amendments and divestiture of Inpixon's non-core businesses.

Key Risks:

  • Development Risk: XTI has not yet manufactured a non-prototype aircraft or delivered any to a customer. The TriFan 600 requires FAA certification, a lengthy and costly process.
  • Financing Risk: The combined company may need to raise additional capital sooner than planned, potentially causing significant dilution or restricting operations via debt covenants.
  • Market Price Volatility: The merger consideration value fluctuates with Inpixon's stock price as there is no price-based termination right or fixed exchange ratio.
  • Integration Risk: Failure to realize strategic benefits or retain key employees could negatively impact the combined entity.

Investor Verification Checklist

  • Stockholder Approval: Verify the outcome of the Inpixon and XTI stockholder votes required to close the transaction.
  • Capital Raise Status: Confirm whether Inpixon has successfully raised the targeted $10 million in permitted issuances prior to closing.
  • Divestiture Completion: Monitor the successful sale or spin-off of Inpixon's Shoom, SAVES, and Game Your Game businesses.
  • Regulatory Approvals: Track the effectiveness of the Form S-4 and Nasdaq listing approvals.
  • XTI Development Milestones: Review updates on the TriFan 600 prototype testing and FAA certification progress, as XTI has no commercial revenue history.
  • Termination Fee Triggers: Monitor for any superior proposals or material breaches that could trigger the $2 million termination fees.