Business context and reporting period
This is Inpixon, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2019—not a filing under the name XTI Aerospace, Inc. The company reported indoor positioning and analytics (IPA) products and other digital solutions after spinning off its value-added reseller business, Sysorex, in August 2018; Sysorex’s earlier results are presented as discontinued operations. Financial amounts below are in U.S. dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $1.363 million | $849,000; filing’s table indicates 61% growth |
| Gross profit and margin | $1.026 million; 75% | $584,000; 69% |
| Operating expenses | $5.889 million | $4.364 million |
| Operating loss | $4.863 million | $3.780 million |
| Net loss | $5.150 million | $6.243 million, including $1.711 million from discontinued operations; continuing-operations loss was $4.532 million |
| Net loss attributable to common stockholders | $6.395 million, including a $1.250 million deemed dividend related to warrant repricing | $7.751 million, including a $1.508 million preferred-stock deemed dividend |
| Adjusted EBITDA (non-GAAP) | Loss of $2.608 million | Loss of $3.391 million |
| Operating cash flow | Use of $3.493 million | Use of $10.976 million |
At March 31, 2019, cash and cash equivalents were $3.830 million ($3.970 million including restricted cash), versus $1.008 million at year-end 2018. Working capital was negative $93,000, improved from a $3.926 million deficit at December 31, 2018. Total liabilities were $7.214 million, including $3.970 million of short-term debt and $73,000 of long-term debt; lease obligations were a further $599,000. The Payplant facility had no balance outstanding, but borrowing is conditional and tied to eligible purchase orders.
Financing cash flow was $6.578 million, including $10.859 million of proceeds from stock, preferred stock and warrants, partly offset by $4.909 million advanced to Sysorex, a related party, and $652,000 received back. The related-party loan receivable was $7.026 million at quarter-end. Investing cash use was $255,000, mainly capitalized software development.
Material changes versus the prior comparable period
- Revenue and gross margin increased, which management attributed to greater focus on IPA and a new customer. Operating expenses rose by $1.525 million, primarily from IT infrastructure, compensation, legal and professional fees, and non-cash stock compensation; operating loss consequently widened.
- Net loss declined year over year mainly because Q1 2018 included discontinued-operation losses. The loss from continuing operations increased from $4.532 million to $5.150 million.
- Operating cash use decreased substantially from the prior-year quarter, when working-capital movements—especially reductions in deferred revenue and accrued liabilities—used significant cash.
- The January rights offering generated approximately $10.77 million net proceeds and issued 12,000 Series 5 preferred shares and 3.6 million warrants. Preferred conversions, warrant exercises and shares issued to settle obligations and for services materially increased common shares outstanding during the quarter.
Outlook, risks, contingencies and unusual items
- Going concern: Management and the filing state that substantial doubt exists about the company’s ability to continue as a going concern. The company said March 31 resources and expected available financing were insufficient for planned operations over the following 12 months. It expects to seek additional equity, equity-linked or debt financing, improve operating efficiency, reduce spending and grow revenue; success is uncertain.
- Business outlook: Management expects IPA growth in 2019, but notes long sales cycles, customer budget and procurement constraints, and adoption hurdles. The filing gives no quantified revenue, earnings or cash-flow guidance.
- Customer concentration: One customer contributed 55% of Q1 revenue. Several customers also represented significant portions of receivables, creating collection and concentration exposure.
- Related-party exposure: The company’s $7.026 million secured loan to Sysorex accrued interest at 10%; its maximum authorized principal was increased to $8 million after quarter-end. The CEO is also Sysorex’s board chairman.
- Debt and financing: Existing unsecured notes carried 10% interest and included original issue discounts and investor redemption rights. Subsequent to quarter-end, the company issued shares in exchanges for portions of notes and, on May 3, 2019, received $3 million for a new note with $3.770 million principal, 10% interest and a 10-month maturity. These transactions provide liquidity but involve dilution and repayment risk.
- Strategic activity: Inpixon reported a non-binding term sheet to acquire Locality Systems Inc.; negotiations and due diligence remained ongoing, with no definitive agreement. Completion was not assured.
- Legal and unusual items: An Atlas arbitration award was settled through 749,440 freely tradable shares after a reduction in the award; Sysorex was obligated to indemnify half the cost. The filing reports no other material pending legal proceedings. Adoption of lease accounting added right-of-use assets and lease liabilities to the balance sheet.
Important facts for investors to verify
- Confirm issuer identity: this supplied filing is for Inpixon (Nasdaq: INPX), not XTI Aerospace.
- Reconcile the revenue-growth narrative: the financial statements show $1.363 million versus $849,000, a difference of $514,000 and growth of about 61%; other MD&A wording cites approximately 65% and a $551,000 increase.
- Assess the going-concern warning, cash runway, financing availability and terms, near-term debt maturities, and the extent to which post-quarter financing offsets cash burn.
- Review the Sysorex loan’s collectability, collateral and related-party governance, as well as the concentration of revenue and receivables among customers.
- Assess dilution from preferred stock, warrants, stock-based compensation and debt-for-equity exchanges; common shares outstanding were 6,987,937 at March 31 and 9,350,787 at May 8, 2019.
- Interpret per-share comparisons cautiously: weighted-average shares were 4,495,536 in Q1 2019 versus 104,915 in Q1 2018, and the filing reflects multiple reverse stock splits. Verify the reported per-share data against the share history and deemed dividends.