Business context and reporting period
Entity and period: The supplied filing is Inpixon’s Form 10-K for the fiscal year ended December 31, 2018, filed March 28, 2019. This does not match the request metadata naming XTI Aerospace, Inc. or “2018 Q4”; the filing itself identifies the registrant as Inpixon and reports full-year results.
Inpixon focused on indoor positioning analytics (IPA), combining radio-frequency sensors and data analytics for security, location intelligence and customer-flow insights. On August 31, 2018, it spun off its value-added reseller business, Sysorex; that business’s results are presented as discontinued operations. Consequently, reported 2018 revenue is not directly comparable with 2017 revenue that included the spun-off business.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $3.756 million | $3.935 million |
| Gross profit / margin | $2.680 million / 71% | $2.703 million / 69% |
| Operating expenses | $21.082 million | $17.733 million |
| Loss from operations | $(18.402) million | $(15.030) million |
| Net loss | $(24.561) million | $(35.030) million |
| Adjusted EBITDA (non-GAAP) | $(15.049) million | $(12.130) million |
| Net cash from (used in) operating activities | $(26.765) million | $2.249 million |
- Product revenue rose 112% to $1.135 million; services revenue fell 23% to $2.621 million. Management attributed the broadly flat reported revenue to IPA product growth offset by lower Shoom services revenue.
- The reported gross margin improved to 71% from 69%. Operating expenses increased 19%, reflecting higher general and administrative costs, public-offering and professional fees, goodwill impairment, spin-off-related deconsolidation costs and litigation settlement costs.
- Net loss improved year over year largely because discontinued-operation losses were lower after the spin-off and other expense declined; however, continuing-operations net loss increased to $19.783 million from $18.081 million. Net loss attributable to common stockholders was $44.624 million in 2018, including $20.052 million of deemed dividends tied to preferred-stock and warrant terms.
- At December 31, 2018, cash and cash equivalents were $1.008 million, total assets $12.178 million, total liabilities $7.375 million, short-term debt $4.127 million and long-term debt $0.074 million. Working capital deficit was $3.926 million, versus $32.822 million at year-end 2017; the comparison reflects the spin-off and should be interpreted accordingly.
- The Payplant revolving facility had $23,000 outstanding at year-end and is secured by company assets. The October and December 2018 unsecured notes carried 10% interest and substantial original-issue discounts; their stated principal amounts were $2.520 million and $1.895 million, respectively.
- Cash increased by $0.797 million during 2018, supported by $28.996 million of financing cash flow despite substantial operating cash use. The company reported $29.0 million of net proceeds from stock, preferred stock and warrant issuances during the year.
Material changes, outlook and risks
- Spin-off: The August 2018 separation removed the VAR business from Inpixon and materially changed the company’s scale and reported financial profile. Sysorex’s results are classified as discontinued operations.
- Funding after year-end: A January 2019 rights offering generated approximately $10.77 million of net proceeds. The company also exchanged a remaining convertible-note balance for shares, and amended its secured loan to Sysorex, increasing the maximum principal from $3 million to $5 million. The Sysorex loan balance was $2.204 million at year-end; collectability is a related-party credit risk.
- Going concern: Management and the auditor stated that recurring losses, working-capital deficiency and the need for additional financing raise substantial doubt about Inpixon’s ability to continue as a going concern. Management said year-end resources and expected facility availability would not fund planned operations for the next 12 months; it planned to pursue financing, improve operating efficiency, reduce spending and grow revenue. The audited statements contain no adjustments for the outcome of this uncertainty.
- Management outlook: Management expected IPA revenue growth in 2019 and anticipated improving sales cycles as customers move beyond early adoption. It noted that long sales cycles, customer budget and procurement processes, pilots and technology adoption affect sales. The filing provides no quantified revenue, earnings or cash-flow guidance.
- Concentration and execution: The top three customers accounted for approximately 49% of 2018 gross revenue, and one customer represented 33%. Risks include reliance on key customers, competitive and rapidly changing technology markets, product adoption, privacy and data-protection regulation, cybersecurity, and the need for further capital. Research and development expense was approximately $2.4 million per the business section; the financial statements report $1.231 million for continuing operations, reflecting differing scope around the spin-off.
- Unusual items and contingencies: In February 2019, Inpixon disclosed receiving an SEC subpoena concerning certain past financing activities and press announcements, and said it was cooperating. An arbitration award involving Atlas was settled for 749,440 freely tradable shares; Sysorex was to indemnify Inpixon for half the related amount. Goodwill impairment was $636,000 in 2018. The filing also describes repeated reverse stock splits and potentially dilutive preferred stock, warrants and equity awards.
Most important facts for investors to verify
- Confirm the issuer and period: this is Inpixon’s FY 2018 10-K, not a filing identified as XTI Aerospace or a standalone fourth-quarter report.
- Assess the going-concern warning against the company’s cash burn, near-term debt maturities, financing needs and post-year-end capital raised.
- Review the SEC subpoena’s scope and any subsequent disclosures, outcomes or effects on the company.
- Evaluate customer concentration, the sustainability of IPA growth, sales-cycle assumptions and the effect of the Sysorex spin-off on comparable results.
- Check the terms and potential dilution from outstanding warrants, convertible preferred stock, equity plans and subsequent share issuances; distinguish deemed dividends and other non-cash charges from operating performance.
- Assess repayment prospects and collateral for the related-party Sysorex loan, as well as the company’s exposure under spin-off indemnities and other contingencies.