What changed in this filing

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Item 1A. Risk Factors

2020-05-12 compared with 2019-11-05 · 152 added, 154 removed, 5 unchanged (98% of the section changed)

We face a number of significant risks and uncertainties in

connection with our operations.

Our business, results of operations and financial condition could be materially adversely affected

by these risks.

Except as disclosed below, there have been no material changes to the Risk Factors disclosed in our Annual Report

on Form 10-K for the year ended December 31, 2018 and our Quarterly Reports on Form 10-Q for the quarterly periods ended March

31, 2019 and June 30, 2019.

We face a number of

significant risks and uncertainties in connection with our operations.

Our business, results of operations and financial condition

could be materially adversely affected by these risks.

Except as disclosed below, there have been no material changes to the Risk

Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Risks Related to our Operations

Our financial status raises doubt

about our ability to continue as a going concern.

Our cash and cash equivalents

were approximately $6.1 million at March 31, 2020, compared with approximately $4.8 million at December 31, 2019.

We continue to

incur significant operating losses, and management expects that significant on-going operating expenditures will be necessary to

successfully implement our business plan and develop and market our products.

These circumstances raise substantial doubt about

our ability to continue as a going concern within one year after the date that the financial statements included elsewhere in this

Form 10-Q are issued.

Implementation of our plans and our ability to continue as a going concern will depend upon our ability to

market our technology and raise additional capital.

As a result of the

COVID-19 pandemic, U.S.

capital markets have experienced extreme volatility and disruption, which has resulted in illiquidity in

parts of the capital markets.

Despite such disruption, during the quarter ended March 31, 2020, we were able to access capital

resources through our ATM program with Maxim, pursuant to which we received net proceeds of approximately $1.3 million and an issuance

of a promissory note in an initial principal amount of $6.45 million for cash proceeds of $5.0 million.

We have continued to use

our ATM program subsequent to the quarter ended March 31, 2020 and management believes that we will be able to continue to do so.

Management also believes that the COVID-19 related capital markets disruption will not restrict our access to additional capital

resources through possible public or private equity offerings, exchange offers, debt financings, corporate collaborations or other

In addition, we continue to explore opportunities to strategically monetize our technology and our services, although there

can be no assurance that we will be successful with such plans.

We have historically been able to raise capital through debt and

equity offerings, although no assurance can be provided that we will continue to be successful in the future.

If we are unable

to raise sufficient capital to fund our operations, we will not be able to pay our obligations as they become due.

The effects of the COVID-19 pandemic

could adversely affect our business, operations, financial condition and results of operations, and the extent to which the effects

of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain.

The United States and

the global community we serve are facing unprecedented challenges posed by the COVID-19 pandemic.

The pandemic, and the preventative

measures taken in response (including “shelter-in-place”

or “stay-at-home”

and similar orders issued by

international, federal, state or local authorities), have resulted in, and are expected to continue to result in, significant volatility

and business and economic disruptions and uncertainty.

We have taken steps to protect our employees and we continue to operate

all of our services, but the extent to which the effects of the pandemic will impact our business, operations, financial condition

and results of operations is uncertain, rapidly changing and hard to predict and will depend on numerous evolving factors that

we may not be able to control or predict, including:

● the duration and scope of the pandemic;

● the extent and effectiveness of responsive

actions by authorities and the impact of these and other factors on our employees, customers and vendors;

● the impact of the pandemic on our employees,

including key personnel;

● the extent to which we are able to maintain

and replace critical internet infrastructure components, when necessary;

● any disruption of our supply chain and

the impact of such disruptions on our suppliers or our ability to deliver products and services to our customers;

● our continued ability to execute on business

continuity plans for the maintenance of our critical internet infrastructure, while most of our employees continue to work remotely;

● any negative impact on the demand for

our services and products resulting from the economic disruption caused by the pandemic and responses thereto.

If we are unable to

successfully respond to and manage the impact of the pandemic, and the resulting responses to it, our business, operations, financial

condition and results of operations could be adversely impacted.

We have a significant amount of

2 unchanged sentences

financial condition and results of operations.

As of October 27, 2019,

we have an aggregate outstanding balance of approximately $10.7 million underlying the promissory notes issued to Iliad and Chicago

Venture, which are affiliates of each other.

The ability to meet payment and other obligations under these notes depends on our

ability to generate significant cash flow in the future.

This, to some extent, is subject to general economic, financial, competitive,

legislative, regulatory and other factors beyond our control as described in this Form 10-Q.

If we are not able to generate sufficient

cash flow to service our debt obligations, we may need to refinance or restructure debt, exchange debt for other securities, sell

assets, reduce or delay capital investments, or seek to raise additional capital.

If we are unable to implement one or more of

these alternatives, we may not be able to meet debt payment and other obligations, which could have a material adverse effect on

our financial condition.

we may incur additional indebtedness in the future.

If new debt or other liabilities are added to our current consolidated debt

levels, the related risks that we now face could intensify.

We may be required to consolidate

the financial results of our former subsidiary, Sysorex, Inc., which could have a material adverse effect on our operating results

and financial condition.

On August 31, 2018,

the Company completed the spin-off of its value-added reseller business from its indoor positioning analytics business by

way of a distribution of all the shares of common stock of its wholly-owned subsidiary, Sysorex, Inc.

(“Sysorex”),

to its stockholders of record as of August 21, 2018 and certain warrant holders.

As of such time, Sysorex’s financial

results was deconsolidated from the Company’s financial statements.

As of the date

of this Form 10-Q, the Company has concluded that Sysorex does not meet the definition of a variable interest entity (“VIE”);

however, in the event that in the future Sysorex meets the definition of a VIE under applicable accounting rules, and we are deemed

to be the primary beneficiary, we will be required to consolidate line by line Sysorex’s financial results in our consolidated financial

statements for reporting purposes.

If Sysorex’s financial results were negative, this would have a corresponding negative

impact on our operating results for reporting purposes and could have a material adverse effect on our operating results and financial

Our IPA technologies have to continuously

evolve and respond to market changes.

If we are unable to commercially release products that are accepted in the market or that

generate significant revenues, our financial results will continue to suffer.

IPA technology is

rapidly changing, as are the products that our customers are demanding.

In order to be able to provide our customers with the

products and services that they desire, we too must continuously develop and offer new and improved products and services.

our acquisition of certain assets of GTX Corp and our acquisitions of Locality and Jibestream, we have attempted to adjust our

product offerings to address changing market conditions by offering products such as indoor maps, enhanced video management

system, GPS tracking products, and a WiFi only POD sensor.

These products have met with short-term or limited

commercial success, and there can be no assurances that consumer or commercial demand for our future products will meet, or even

approach, our expectations.

In addition, our pricing and marketing strategies may not be successful.

Lack of customer demand,

a change in marketing strategy and changes to our pricing models could dramatically alter our financial results.

Unless we are

able to release location based products that meet a significant market demand, we will not be able to improve our financial condition

or the results of our future operations.

If we unable to sell additional

products and services to our customers and increase our overall customer base, our future revenue and operating results may suffer.

Our future success

depends, in part, on our ability to expand the deployment of the Jibestream platform and technologies acquired from GTX Corp and

Locality 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.

Related to Our Securities

Future sales of our common stock

or other securities, or the perception that future sales may occur, may cause the market price of our common stock to decline,

even if our business is doing well.

Sales of substantial

amounts of our common stock or other securities, or the perception that these sales may occur, could materially and adversely affect

the price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

example, in June 2018, the SEC declared effective a shelf registration statement filed by us.

This shelf registration statement

allows us to issue any combination of our common stock, preferred stock, warrants, units, debt securities and subscription rights

from time to time until expiry in June 2021 for an aggregate initial offering price of up to $300 million, subject to certain limitations

for so long as our public float is less than $75 million.

The specific terms of future offerings, if any, under this shelf registration

statement would be established at the time of such offering.

Depending on a variety of factors, including market liquidity of our

common stock, the sale of shares under this shelf registration statement may cause the trading price of our common stock to decline.

The sale of a substantial number of shares of our common stock under this shelf registration statement, or anticipation of such

sales, could cause the trading price of our common stock to decline or make it more difficult for us to sell equity or equity-related

securities in the future at a time and at a price that we might otherwise desire.

In addition, in connection

with the acquisition of certain assets of GTX and the acquisition of Jibestream, we filed a registration statement with the SEC

registering the resale of up to 8,932,969 shares of our common stock issued to GTX and issuable to stockholders of Jibestream.

Such registration statement was declared effective by the SEC on October 18, 2019.

The perception of or actual sales of substantial

amounts of shares of our common stock in the public market could cause the trading price of our common stock to decline or make

it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise

We had outstanding 61,414,108 shares of common

stock as of October 28, 2019, all of which have been registered or are available for resale in accordance with the resale restrictions

under Rule 144 of the Securities Act as of such date, except 650,000 shares of restricted common stock.

In addition, as of October

28, 2019, there were 202 shares issuable upon conversion of 1 share of Series 4 Convertible Preferred Stock, 37,838 shares of common

stock issuable upon conversion of 126 shares of Series 5 Convertible Preferred Stock, 4,192,239 shares subject to outstanding warrants,

5,565,852 shares subject to outstanding options under the Company’s equity incentive plans, 39 shares subject to options

not under such plans, 1,100 shares of common stock reserved for issuance to investor relations firms, 2,864,000 shares of common

stock issuable pursuant to the Jibestream Share Purchase Agreement, an additional 158,234 shares reserved for future issuance under

the Company’s Amended and Restated 2011 Employee Stock Incentive Plan and up to an additional 2,750,714 shares of common

stock which may be issued under the Company’s 2018 Employee Stock Incentive Plan that will become, or have already become,

eligible for sale in the public market to the extent permitted by any applicable vesting requirements, lock-up agreements, if any,

Rule 144 under the Securities Act or in connection with their registration under the Securities Act.

The issuance or sale of such

shares could depress the market price of our common stock.

In the future,

we also may issue our securities if we need to raise additional capital.

The number of new shares of our common stock issued in

connection with raising additional capital could constitute a material portion of the then-outstanding shares of our common stock.

or issuance of our common stock in an at the market offering, pursuant to an equity distribution agreement with Maxim

Group LLC, may cause dilution and the sale of the shares of common stock sold pursuant to the equity distribution agreement,

or the perception that such sales may occur, could cause the price of our common stock to fall.

On October 10,

2019, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Maxim Group LLC (“Maxim”)

under which we may offer and sell shares of our common stock having an aggregate offering price of up to $6,500,000 from time to

time through Maxim, acting exclusively as our sales agent.

Under the Equity

Distribution Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time

period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day

and any minimum price below which sales may not be made.

Subject to the terms and conditions of the Equity Distribution Agreement,

Maxim may sell the shares by methods deemed to be an “at-the-market”

offering as defined in Rule 415 promulgated

under the Securities Act, including sales made directly on or through The Nasdaq Capital Market, the existing trading market

for our common stock, sales made to or through a market maker other than on an exchange or otherwise, in negotiated transactions

at market prices, and/or any other method permitted by law.

The Equity Distribution Agreement provides that Maxim will be entitled

to compensation for its services in an amount equal to 4.5% of the gross proceeds from the sale of shares sold under the Equity

Distribution Agreement.

market liquidity at the time, sales of shares under the Equity Distribution Agreement may cause the trading price of our common

stock to fall.

Additionally, further sales of our common stock, if any, under the Equity Distribution Agreement will depend upon

market conditions and other factors to be determined by us.

We ultimately may sell all, some or none of the shares of our common

stock that may be sold pursuant to the Equity Distribution Agreement and, after such shares have been sold, the purchasers may

sell all, some or none of those shares.

Therefore, sales under the Equity Distribution Agreement could result in substantial dilution

to the interests of other holders of our common stock.

Additionally, the sale of a substantial number of shares of our common

stock under the Equity Distribution Agreement, or the anticipation of such sales, could make it more difficult for us to sell

equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.

Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

Issuer Purchases of Equity Securities

Upon Senior Securities

Safety Disclosure

As of April 30,

2020, we have an aggregate outstanding principal and accrued interest balance of approximately $8.8 million underlying the

promissory notes issued to Iliad Research and Trading, L.P., Chicago Venture Partners, L.P.

George Investments LLC,

which are affiliates of each other.

These promissory notes mature at different times between March 2020 and May 2020.

addition, Iliad Research and Trading, L.P and Chicago Venture Partners, L.P may, subject to current standstill agreements,

require us to redeem 1/3 of the initial principal balance of their promissory notes each month in cash.

The ability to meet

payment and other obligations under these notes depends on our ability to generate significant cash flow in the future.

to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our

control as described in this Form 10-Q.

If we are not able to generate sufficient cash flow to service our debt obligations,

we may need to refinance or restructure debt, exchange debt for other securities, sell assets, reduce or delay capital

investments, or seek to raise additional capital.

If we are unable to implement one or more of these alternatives, we may not

be able to meet debt payment and other obligations, which could have a material adverse effect on our financial

In addition, so long

as the notes are outstanding, the holders will have a right of first refusal on more favorable equity-linked financings and will

be entitled to participate in certain equity or debt financings, in each case, subject to certain exceptions.

The existence of

these rights may deter potential financing sources and may lead to delays in our ability to close proposed financings.

or inability to complete a financing when needed could have a material adverse effect on our financial condition.

We may also incur

additional indebtedness in the future.

If new debt or other liabilities are added to our current consolidated debt levels, the

related risks that we now face could intensify.

We identified a material weakness in

our internal control over financial reporting for the year ended December 31, 2019 and may identify additional material weaknesses

in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements

of our financial statements or could have a material adverse effect on our business and trading price of our securities.

are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the

Nasdaq Capital Market.

Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation

and testing of our internal control over financial reporting to allow our management to report on the effectiveness of our internal

control over financial reporting.

connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2019, we identified

a material weakness in our internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies,

in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated

financial statements will not be prevented or detected on a timely basis.

The material weakness resulted from a determination following

initial audit procedures that the documentation underlying the preparation of forward projections which included copies of customer

contracts underlying the basis of projecting revenues and support for the projected cost structures associated with determining

the fair value of the Sysorex note as of December 31, 2019 was not supportable thereby requiring material adjustments to be made

to the carrying value of the note as determined by management as of December 31, 2019.

address the material weakness, during February 2020, we enhanced our internal technical accounting capabilities by engaging and

using third-party advisors to assist in areas requiring specialized technical accounting expertise, including with respect to designing

the procedures and processes associated with assessing the fair value of our equity and debt instruments.

we believe that these actions will be sufficient to remediate the material weakness, it will not be considered remediated until

the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls

are operating effectively.

We expect that the remediation of this material weakness will be completed by June 30, 2020.

Additionally,

with each prospective acquisition we may make we will conduct whatever due diligence is necessary or prudent to assure us that

the acquisition target can comply with the internal controls requirements of the Sarbanes-Oxley Act.

Notwithstanding our diligence,

certain internal controls deficiencies may not be detected.

As a result, any internal control deficiencies may adversely affect

our financial condition, results of operations and access to capital.

We have not performed an in-depth analysis to determine if

historical undiscovered failures of internal controls exist and may in the future discover areas of our internal controls that

need improvement.

assure you that the measures we have taken to date, together with any measures we may take in the future, will be sufficient to

avoid potential future material weaknesses.

If we are unable to successfully remediate any future material weakness in our internal

control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial

reporting may be adversely affected.

If we are unable to maintain effective internal controls, we may not have adequate, accurate

or timely financial information, and we may be unable to meet our reporting obligations as a public company, including the requirements

of the Sarbanes-Oxley Act.

Failure to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially

subject us to sanctions or investigations by the SEC or other regulatory authorities.

Any failure to maintain or implement required

new or improved controls, or any difficulties we encounter in their implementation, could result in identification of additional

material weaknesses or significant deficiencies, cause us to fail to meet our reporting obligations or result in material misstatements

in our financial statements.

Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results

of operations could be harmed and investors could lose confidence in our reported financial information.

Unregistered Sales of Equity Securities and Use of Proceeds

a) Sales of Unregistered Securities

c) Issuer Purchases of Equity Securities

Defaults Upon Senior Securities

Not applicable.

Mine Safety Disclosure

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors