Inpixon(INPX) - 2018 Q4 - Annual Report

Market Growth and Trends - Inpixon's Indoor Positioning Analytics market is projected to grow from $7.11 billion in 2017 to $40.99 billion by 2022, representing a CAGR of 42%[26] - The overall location-based services market is expected to grow from $22.18 billion in 2018 to $68.85 billion by 2023, at a CAGR of 25.4%[26] - The global location-based services market was estimated to be over $17.4 billion in 2017 and is projected to grow to $68.5 billion by 2023, at a CAGR of 25.4%[53] Financial Performance - The company incurred net losses of approximately $24.6 million and $35.0 million for the fiscal years ended 2018 and 2017, respectively[86] - Revenues declined by 4.6% for the year ended December 31, 2018, due to lower revenues from the Shoom product line[88] - The Company had a working capital deficiency of approximately $3.9 million and $32.8 million as of December 31, 2018 and December 31, 2017, respectively[86] - The company expects to need additional cash financing to support its growth plans, but may face challenges in obtaining financing on acceptable terms[128] - The company incurred significant transaction-related costs for the Spin-off, including legal, accounting, and consulting fees, which may impact financial performance[164] - Following the Spin-off, the company generates significantly less revenue, although it is positioned for future growth[169] Research and Development - Research and development expenses for the years ended December 31, 2018, and 2017 totaled approximately $2.4 million and $1.7 million, respectively[36] - The company’s future plans include significant investments in research and development, although these may not yield immediate revenue or expected benefits[134] Technology and Innovation - Inpixon plans to leverage blockchain technology to enhance device reputation profiles, improving security and data integrity[32] - Inpixon's AI engine aims to provide predictive analytics for security and marketing, enhancing customer insights and operational efficiency[33] - The asset tracking solution aims for accuracy of less than 0.5 meters, utilizing RFID, Dash7, and UWB technologies[35] - The company intends to leverage open-source blockchain technology in its IPA platform, which may face regulatory scrutiny and could limit its use within product offerings[148] - Rapid technological changes in the industry necessitate the development of new products and applications; failure to innovate could harm business and financial results[151] Customer Concentration and Revenue Sources - The Company's top three customers accounted for approximately 49% of gross revenue in 2018, with one customer alone representing 33%[39] - Approximately 49% of the company's gross revenue in 2018 came from its top three customers, indicating a significant reliance on a limited customer base[127] Acquisitions and Growth Strategy - The company is evaluating several complementary technology companies for potential acquisitions to enhance its product offerings and operational synergies[23] - Inpixon completed five acquisitions since 2013, including Lilien, Shoom, AirPatrol, LightMiner, and Integrio, and spun off its VAR business in August 2018[69] - The company acquired approximately 82.5% of Sysorex India for $666,000 in outstanding receivables[59] - The company acquired $1.2 million of goodwill and $2.8 million of intangible assets relating to the acquisition of Shoom, $7.4 million of goodwill and $13.3 million of intangible assets for AirPatrol, and $3.5 million of intangible assets for LightMiner[75] Operational Challenges - Significant operating losses are expected to continue, raising doubts about the company's ability to continue as a going concern[82] - The integration of acquired companies may expose the company to unknown or contingent liabilities that could materially affect its financial condition[77] - The company faces potential delays in contract completion due to challenges in attracting and retaining necessary personnel, which could adversely affect financial results and customer relationships[92] - Future acquisitions may disrupt business operations and could lead to dilution for stockholders, with risks including integration difficulties and unanticipated costs that may not justify the acquisition[94] Legal and Regulatory Risks - The company is subject to numerous legal and regulatory requirements, and violations could result in significant fines, reputational damage, and restrictions on business operations[111] - The company may face legal claims related to trade secrets and intellectual property, which could result in substantial costs and distract management from core operations[102] - Responding to governmental inquiries, such as those from the SEC, could have a materially adverse effect on the company's business and financial condition[103] - The uncertain regulatory environment surrounding data privacy may inhibit customer willingness to provide necessary data for effective service utilization[157] Stock and Market Risks - The market price of the common stock is likely to be highly volatile due to various factors, including the ability to execute business plans and complete acquisitions[188] - The common stock currently trades on the Nasdaq Capital Market under the symbol "INPX," with a minimum bid price requirement of $1.00 per share to maintain listing[197] - The company may face delisting from the Nasdaq Capital Market if it fails to meet continued listing requirements, which could adversely affect stock price and capital access[195] Employee and Management Considerations - As of March 20, 2019, the Company had 69 employees, including 49 technical/engineering personnel[45] - The loss of key personnel, including the CEO, could adversely affect operations and productivity, with challenges in hiring qualified successors[106] - The company anticipates needing to expand its employee infrastructure to manage future growth effectively[84] Financial Obligations and Debt - The company has approximately $23,000 in outstanding revolving credit loans as of December 31, 2018, secured by a security interest in substantially all assets, posing risks if obligations are not met[97] - The Payplant Loan Agreement includes restrictions on business activities, such as selling assets and incurring new debt, which could limit operational flexibility and access to credit[100] - A loan arrangement with Sysorex was established, allowing for up to $5 million, but repayment is not guaranteed, posing a risk to the company's financial condition[168] Compliance and Internal Controls - Internal control deficiencies could harm the company's ability to report financial results accurately, affecting reputation and stock price[186] - The company is subject to various compliance costs and management attention due to public company obligations, which may divert resources from growth strategies[184]