Item
8.01 Other Information
Exchange
Shares
Since
May 18, 2020, the Company has entered into agreements to issue an aggregate of 894,549 shares of Common Stock (the “Exchange
Shares”) to the holder of that certain outstanding promissory note issued on November 22, 2019 (the “Original Note”),
at a weighted average price per share equal to $1.36, which was equal to the Minimum Price as defined in Nasdaq Listing Rule 5635(d)
in each case. Pursuant to such exchange agreements, the Company and the noteholder agreed to (i) partition new promissory
notes in the form of the Original Note in the aggregate original principal amount equal to $1,215,176 and then cause the outstanding
balance of the Original Note to be reduced by the same amount; and (ii) exchange the partitioned notes for the delivery of the
Exchange Shares. The Original Note has been satisfied in full.
Risks
Related to the Systat License Agreement
There
are a number of significant risks related to the License Agreement, including the risk factors enumerated below.
We
may not be able to close the transactions described in the License Agreement and if we do close the transactions, we may not be
able to successfully integrate the licenses granted, or retain the existing customer base, which may result in our inability to
fully realize the intended benefits of the transactions. In addition the integration of the sale of these software products into
our business operation may disrupt our current operations, which could have a material adverse effect on our business, financial
position and/or results of operations.
On
June 19, 2020, we entered into the License Agreement to use, modify, develop, market and distribute certain software owned or
licensed by the Systat Parties. The closing of the transactions contemplated by the License Agreement are subject to certain conditions
to closing and there are no assurances that the transaction will be consummated. Incorporating the marketing and distribution
of this software on a worldwide basis into our operations may result in operational, technological and personnel-related challenges,
which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves a number
of risks, including, but not limited to:
|
●
|
difficulties
or complications in combining the acquired technologies, equipment and personnel into
our operations;
|
|
●
|
differences
in controls, procedures and policies, regulatory standards and business cultures between
the acquired personnel and our current personnel;
|
|
●
|
the
diversion of management’s attention from our ongoing core business operations;
|
|
●
|
the
potential loss of key personnel;
|
|
●
|
the
potential loss of key customers or suppliers who choose not to do business with us;
|
|
●
|
difficulties
or delays in consolidating the acquired technologies; and/or
|
|
●
|
unanticipated
costs and other assumed contingent liabilities.
|
These
factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the transactions, which could
have a material adverse effect on our business, financial condition and/or results of operations.
Several
of our directors may be deemed to be interested parties in the transactions by virtue of their relationships with Sysorex), Cranes,
or Systat. These interrelationships may create, or appear to create, conflicts of interest.
Nadir Ali, our chief executive
officer and director, is also a director of Sysorex, the issuer of the Sysorex Note that was assigned as consideration for the
transactions. Mr. Ali’s dual roles may create conflicts of interest between Mr. Ali’s obligations to our company and
its shareholders and his obligations to Sysorex and its shareholders. For example, Mr. Ali may be in a position to influence whether
Sysorex complies with its obligations under the note purchase agreement pursuant to which the promissory note was issued, and whether
we lend additional amounts to Sysorex, waive defaults or accelerate such indebtedness or take other steps as a secured creditor
in a manner that may be viewed as contrary to the best interests of either our company or Sysorex and their respective stockholders.
Any such decision would also affect Cranes as the holder of a substantial portion of the indebtedness under the note purchase agreement.
Tanveer
Khader and Kareem Irfan, are member of our board of directors and also have employment relationships with the Systat Parties.
There
is substantial risk that Cranes may be forced into involuntary bankruptcy or receivership because it is defending several petitions
from creditors seeking to wind-up its business, it is subject to considerable potential fines from Indian regulators, and owes
significant amounts in taxes to Indian tax authorities.
Should Cranes be forced
into bankruptcy or receivership, Cranes would likely reduce or discontinue its operations, and its assets and those of its subsidiaries
could be sold to the benefit of creditors or to satisfy statutory amounts due to Indian authorities and regulators. Creditors of
Cranes and Indian authorities may also seek to, in some circumstances, terminate, unwind or void, licensing agreements between
Cranes and other entities, including its subsidiaries,. Should Cranes be forced into bankruptcy or receivership, our rights and
remedies under our license agreement may be impaired or inadequate, including our ability to purchase the software licensed thereunder.
The bankruptcy of Cranes would only affect us to the extent that it affects the License Agreement, and the indemnification obligations
thereunder, or the Licenses. For example, creditors of Cranes or Indian authorities could seek to withdraw authorization or otherwise
void the License Agreement, in whole or in part, between us and Cranes, thereby depriving us of the intellectual property licenses
thereunder. If we are unable to remedy the situation under the applicable circumstances, such an event would cause substantial
harm to our business and any of our operations to the extent that they rely on or are structured around such licensed intellectual
property.
We
may not realize the full benefit of our licenses received in connection with the transactions if the licensed material has less
market appeal than expected.
In
addition to designing and developing our own products and services, we evaluate various strategic transactions and acquisitions
of companies with technologies and intellectual property that complement our products and services by adding technology, differentiation,
customers and/or revenue. We believe these complementary technologies will add value to the Company and allow us to provide a
comprehensive indoor intelligence platform, offering a one-stop shop to our customers. We anticipate that the licenses that we
will receive upon the closing of the transactions will result in an increase in our revenues; however, there can be no assurance
that we will be able to retain the existing customer base or expand the technologies and products licensed from Systat with existing
customers and finding new customers to sell our products and services to. This may require increasingly sophisticated and costly
sales efforts and may not result in additional sales. In addition, the rate at which our customers purchase additional products
and services, and our ability to attract new customers, depends on a number of factors, including the perceived need for indoor
mapping products and services, as well as general economic conditions. If our efforts to sell additional products and services
are not successful, our business may suffer.
If
we fail to comply with our obligations in our intellectual property licenses following the closing of the transactions, we could
lose license rights that may important to our business and results of operations.
The License Agreement imposes
certain obligations on us. If we fail to comply with the terms and obligations of the License Agreement, including the obligation
to assign a portion of our right to repayment from the Sysorex note in accordance with the schedule set forth in the License Agreement,
our rights may be reduced or terminated, in which event we may not be able to develop and market any product that is covered by
this intellectual property license. Termination of this license for failure to comply with such obligations or for other reasons,
or reduction or elimination of our licensed rights under it, may result in our having to negotiate new or reinstated licenses on
less favorable terms or cause us to enter into a new license for a similar intellectual property. The occurrence of such events
could materially harm our business and financial condition.
If
we do not adequately protect our intellectual property rights received in connection with the transactions, we may experience
a loss of revenue and our operations and growth prospects may be materially harmed.
The Systat Parties have
represented to us that the licensed intellectual property is legally and beneficially owned or licensed by the Systat Parties.
Although we are not aware of any infringement claims, it is possible that such claims are made during the Term. While the Systat
Parties have agreed to indemnify us in connection with any losses or claims relating to any infringement of the licensed intellectual
property, any loss of the intellectual property rights could result in a loss of revenue and our operations and growth prospects
may be materially harmed.
Additional
Risks Related to Our Operations
Domestic
and foreign government regulation and enforcement of data practices and data tracking technologies is expansive, broadly defined
and rapidly evolving. Such regulation could directly restrict portions of our business or indirectly affect our business by constraining
our customers’ use of our technology and services or limiting the growth of our markets.
Federal,
state, municipal and/or foreign governments and agencies have adopted and could in the future adopt, modify, apply or enforce
laws, policies, and regulations covering user privacy, data security, technologies that are used to collect, store and/or process
data, and/or the collection, use, processing, transfer, storage and/or disclosure of data associated with individuals. The categories
of data regulated under these laws vary widely, are often broadly defined, and subject to new applications or interpretation by
regulators. The uncertainty and inconsistency among these laws, coupled with a lack of guidance as to how these laws will be applied
to current and emerging indoor positioning analytics technologies, creates a risk that regulators, lawmakers or other third parties,
such as potential plaintiffs, may assert claims, pursue investigations or audits, or engage in civil or criminal enforcement.
These actions could limit the market for our services and technologies or impose burdensome requirements on our services and/or
customers’ use of our services, thereby rendering our business unprofitable.
Some
features of our services may trigger the data protection requirements of certain foreign jurisdictions, such as the EU General
Data Protection Regulation (the “GDPR”), and the EU ePrivacy Directive. In addition, our services may be subject to
regulation under current or future laws or regulations. For instance, the EU ePrivacy Directive is soon to be replaced in its
entirety by the ePrivacy Regulation, which will bring with it an updated set of rules relevant to many aspects of our business.
If our treatment of data, privacy practices or data security measures fail to comply with these current or future laws and regulations
in any of the jurisdictions in which we collect and/or process information, we may be subject to litigation, regulatory investigations,
civil or criminal enforcement, financial penalties, audits or other liabilities in such jurisdictions, or our customers may terminate
their relationships with us. In addition, data protection laws, such as the GDPR, foreign court judgments or regulatory actions
could affect our ability to transfer, process and/or receive transnational data that is critical to our operations, including
data relating to users, customers, or partners outside the United States. For instance, the GDPR restricts transfers of personal
data outside of the European Economic Area, including to the United States, subject to certain requirements. Such data protection
laws, judgments or actions could affect the manner in which we provide our services or adversely affect our financial results
if foreign customers and partners are not able to lawfully transfer data to us.
In
addition we recently announced the offering of our Workplace Readiness(TM) solutions which allow businesses to utilize
Inpixon solutions to create visibility around social distancing protocols, support digital contact tracing efforts, and identify
areas within facilities in which to focus increased cleaning efforts. Regulations around the use of technology for contact tracing
purposes are emerging and rapidly . These areas of the law are currently under intense government scrutiny and many governments,
including the U.S. government, are considering a variety of proposed regulations that would restrict or impact the conditions
under which data obtained from individuals could be collected, processed, stored, transferred, sold or shared with third parties,
including but not limited to technologies specifically directed at technologies that are used for contact tracing purposes. In
addition, regulators such as the Federal Trade Commission and the California Attorney General are continually proposing new regulations
and interpreting and applying existing regulations in new ways. For example, in June 2018, California passed the California Consumer
Privacy Act (the “CCPA”), which provides new data privacy rights for consumers and new informational, disclosure and
operational requirements for companies, effective January 2020. Fines for non-compliance may be up to $7,500 per violation. The
burdens imposed by the GDPR and CCPA, and changes to existing laws or new laws regulating the solicitation, collection, processing,
or sharing of personal and consumer information, and consumer protection could affect our customers’ utilization of our
services and technology and could potentially reduce demand, or impose restrictions that make it more difficult or expensive for
us to provide our services.
In
addition, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the European
Economic Area to the United States could result in further limitations on the ability to transfer data across borders, particularly
if governments are unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers,
such as the EU-U.S. and Swiss-U.S. Privacy Shield frameworks and the European Commission’s Model Contractual Clauses, each
of which are currently under particular scrutiny. Additionally, certain countries have passed or are considering passing laws
requiring local data residency. The costs of compliance with, and other burdens imposed by, privacy laws, regulations and standards
may limit the use and adoption of our services, reduce overall demand for our services, make it more difficult to meet expectations
from or commitments to customers, lead to significant fines, penalties or liabilities for noncompliance, impact our reputation,
or slow the pace at which we close sales transactions, any of which could harm our business.
Furthermore,
the uncertain and shifting regulatory environment and trust climate may cause concerns regarding data privacy and may cause our
customers or our customers’ customers to resist providing the data necessary to allow our customers to use our services
effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory
requirements could inhibit sales of our products or services and could limit adoption of our cloud-based solutions.