SEC Company Response from XTI Aerospace, Inc. (XTIA) (CIK 0001529113) (XTIA) — Nov 12, 2013
XTI Aerospace, Inc. (XTIA) (CIK 0001529113)
Date: Nov. 12, 2013 · CIK: 0001529113 · Accession: 0001398432-13-000727
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-191648
Referenced dates: November 5, 2013
Letter
Via Edgar Correspondence Securities and Exchange Commission Re: Sysorex Global Holdings Corp. Registration Statement on Form S-1 Filed October 9, 2013 File No. 333-191648
Dear Sir or Madam:
As counsel to Sysorex Global Holdings Corp. (the “Company”), we are responding to the Staff’s Comment Letter dated November 5, 2013 to the Company’s Registration Statement on Form S-1 (File No. 333-191648) (the “Registration Statement”). The comments are repeated in the order set forth with our responses following in order. The Company has filed Amendment No. 1 to its Registration Statement on Form S-1 on this date.
General
1.
We note that you are registering shares of common stock underlying the underwriter warrants. Please advise why you are not also registering the offer and sale of those warrants. Refer to Question 139.05 of the Securities Act Sections Compliance and Disclosure Interpretations.
Response:
Pursuant to Question 139.05, if the underwriter’s warrants are not exercisable for more than one year, there is not deemed to be a concurrent offering of the underlying common stock and the offer and sale of those securities need not be registered along with the underwriter’s warrants.
2.
We acknowledge your response to prior comment 6 and the related supplemental data that has been provided in support of factual assertions contained in the prospectus. We reissue the comment as it applies to the following statement, for which support does not appear to have been provided.
Securities and Exchange Commission
November 12, 2013
Page 2
●
Gartner predicts that by 2015, 20% of Global 1000 organizations will have established a strategic focus on information infrastructure equal to that of application management. This is one of five Gartner predictions about big data and information infrastructure discussed in “Predicts 2013: Big Data and Information Infrastructure;” a November 30, 2012 report that describes in detail how the big data phenomenon will affect organizations, resources and information infrastructure.
Response:
The statement in question came from a webpage titled “Invest in Information and Analytics to Benefit From Big Data” (available at http://www.gartner.com/id=2363115), from the website of Gartner, Inc., an information technology research and advisory company. A printout of the webpage with the statement in question highlighted is being provided supplementally to the Staff.
3.
Please update your disclosure to reflect changes in current events. For example, we refer to the disclosure regarding the recent government shut-down.
Response:
This comment has been complied with under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Overview.”
Prospectus Cover Page
4.
We note that you have disclosed that you have applied for listing on a national securities exchange and that approval of such listing is a condition to this offering. Please revise to state the national securities exchange on which you have applied for listing.
Response:
This comment has been complied with on the cover page as well as on page 7 under the heading “The Offering”, page 31 under the heading “Market For Registrant’s Common Equity and Related Stockholder Matters”, and page 73 under the heading “Description of Securities.”
Prospectus Summary
The Company, page 1
5.
Here or elsewhere as appropriate, please consider providing an organizational chart outlining your corporate structure and providing information on which lines of business are operated by each entity. Consider also including a cross-reference to the chart in your Business section.
Securities and Exchange Commission
November 12, 2013
Page 3
Response:
This comment has been complied with. The organizational chart has been included in the “Prospectus Summary” and under “Business - Overview.”
6.
Please quantify Shoom’s customer retention rate on page 2 and elsewhere in the document as appropriate.
Response:
This comment has been complied with under “Prospectus Summary” and “Business - Overview” and “Business - Shoom Products and Services.” Shoom’s retention rate has been over 90% over the past five years.
7.
Revise your statement that “Sysorex’ U.S. government operations are profitable and this division is growing” to clearly indicate whether this growth includes or excludes “expected” contracts and awards. Further, tell us whether any of your operations represent a reportable operating segment as defined in ASC 280-10-50-10. We note your statement on page 34 that you “rely on adjusted EBITDA to review and assess the operating performance of [y]our Company as permitted by SFAS No. 131.” In addition, when referencing pronouncements issued by the FASB, please reference the codifications instead of the legacy pronouncements.
Response:
This language has been modified on page 4 under “Prospectus Summary,” and page 35 under “Management’s Discussion and Analysis of Financial Condition and Results of Operation;” to indicate that this division is anticipated to grow with the award of the U.S. Navy SPAWAR contract that was awarded earlier this year. This statement does not include expected contracts and awards.
The Company has considered reporting segments as defined in ASC 280-10-50-10 and concluded that they are not material as of the six months ended June 30, 2013. The Company will continue to monitor this on a go forward basis and will report operating segments as they become applicable. We have updated the language on page 34 to include the codification instead of the legacy pronouncement as requested.
8.
With regard to your statement that “Lilien does not typically have long-term contracts” revise to explain why there are significant non-current deferred revenue balances associated with that business. Revise to disclose the terms typically granted for Lilien’s contracts.
Response:
This comment has been complied with on page 4 under “Prospectus Summary;” “Risk Factors” - Lilien does not have long term contracts from its clients . . .;” and page 35 under “Management’s Discussions and Analysis of Financial Condition and Results of Operations.” We have modified the language in this section to state the following:
Securities and Exchange Commission
November 12, 2013
Page 4
Lilien’s revenues are typically driven by purchase orders that are captured every month. Approximately 25% of Lilien’s revenues are long-term contracts that range from 1-5 years for warranty and maintenance support.
Where You Can Find More Information, page 9
9.
This section appears to duplicate disclosure on page 69. Please revise or advise.
Response:
This section has been complied with. The section on page 69 has been deleted and the one of page 6 modified.
Risk Factors, page 10
10.
We note that while the government contracting portion of your business now comprises less than 10% of your total revenues, a substantial portion of the risk factors, in particular those appearing at the beginning of this section, are focused on this portion of your business. Please revise to discuss significant risks to your business, organized logically and with the most significant risks appearing at the forepart of this section. We refer you to Item 503(c) of Regulation S-K.
Response:
This comment has been complied with. We have reordered the risk factors to put the most significant risks first and in descending order of priority. However, we have arranged them logically so the categories remain grouped together.
Use of Proceeds, page 30
11.
In regard to your acquisition of a developer of mobile device identification and locating systems, please provide all the information called for by Instruction 6 to Item 504 of Regulation S-K or advise why such information is not required.
Response:
This comment has been complied with. As set forth below under Response 15, financial statements and pro forma financial statements are not required for the business to be acquired.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview, page 34
Securities and Exchange Commission
November 12, 2013
Page 5
12.
Please revise your discussion to address the impact of your proposed acquisition of a developer of mobile device identification and locating systems on your future operations and liquidity needs. Refer to Section III of SEC Release 33-8350.
Response:
The Overview section has been updated to include the impact of the proposed acquisition as requested.
Critical Accounting Policies, page 32
13.
Revise to explain the policies that require significant management estimates and judgment. In this regard, a cross-reference to or recitation of the accounting policies contained in the footnotes to the audited financial statements is not appropriate. Your discussion should enable investors to understand the method by which management establishes its estimates, the potential variability in the most recent estimate, and the impact this variability may have on reported results, financial condition, and liquidity. If there have been changes to estimates during the periods presented in the filing disclose the nature of the changes and the impact to your financial statements. If changes have not historically been material, disclose this fact.
Response:
The Critical Accounting Policies section has been updated to include the Company’s policies that require significant management estimates and judgment as requested.
14.
Include in the discussion of your accounting policy for stock based compensation the following disclosures for each date on which options were granted or other equity instruments were issued, beginning on March 20, 2013 and continuing through the date of your filing:
●
The number of options or shares granted, the exercise price, the fair value of the common stock, and the fair value of each option, if applicable.
●
Discuss the significant factors considered, assumptions made, and methodologies used in determining the fair value of the instruments granted and the underlying stock; and
●
For the most recent grant or issuance, please reconcile and explain the difference between the fair value of the underlying stock as of the most recent valuation date and your IPO price of $5.00.
Response:
The Stock Based Compensation section of the Critical Accounting Policies has been updated to include the requested information on the Company’s options and other equity instruments issued from March 20, 2013 through the date of this filing. To achieve the $5.00 IPO price the company will need to reverse split its common stock so that it can be listed on Nasdaq and complete this offering. We will do so prior to the effective date.
Securities and Exchange Commission
November 12, 2013
Page 6
Business
Overview, page 49
15.
Although you are in the process of conducting due diligence, you have “allocated approximately $10.5 million of the proceeds” from this offering along with “stock and earnout components” you intend to use to acquire the target. Please tell us what consideration has been given to whether the target’s financial statements should be included in your registration statement pursuant to Rule 3-05 of Regulation S-X. Refer also to Refer to FRC 506.02(c)(ii). Tell us how you considered whether the acquisition is probable.
Response:
Rule 3-05 of Regulation S-X states that financial statements should be furnished if a business combination has occurred or is probable. FRC 506.02 (c)(ii) states that guidance on whether a transaction is probable cannot be given as it is dependent on the facts and circumstances, however, consummation of a transaction is considered to be probable whenever registrants financial statements alone would not provide investors with adequate financial information to make an informed decision. The Company has conveyed its acquisition strategy and has already completed two acquisitions. If the proposed transaction does not occur we expect to make other acquisitions. The Company’s financials and notes provide the investor an accurate picture of our strategy and are sustainable on their own. As of the date of this filing, the Company does not believe the acquisition would be deemed to be probable as there are several key points still being negotiated in the definitive agreement, as well as the employment agreements and the non-compete agreements are still being negotiated. It is a condition to complete the acquisition that Target's financial statements be audited, since Target's historical financial statements have never been audited there is a probability they will not be delivered and audited. We have signed a Letter of Interest with the target corporation, however, it is non-binding. Neither party has made a public announcement regarding the transaction, nor has either Company’s board of directors approved the acquisition as the companies are still in negotiations on material terms. Additionally, the closing of the transaction is contingent on the public offering contemplated in this registration statement. If we are unable to complete this offering we will be unable to complete this transaction. Therefore, the acquisition is not probable at this time.
The Lilien Acquisition, page 53
16.
We note your disclosure in this section and on this page under “The Shoom Acquisition” that shares issued in connection with these transactions are subject to lock-up provisions beginning on the effective date of your registration statement. Please clarify whether there are any waiver provisions to these lock-up arrangements, and if so, who holds the right to grant a waiver and under what circumstances.
Securities and Exchange Commission
November 12, 2013
Page 7
Response:
There are no waiver provisions for the lock-up agreements with either the former Shoom or Lilien shareholders.
Shoom Products and Services, page 54
17.
Please provide support for the assertion that Shoom is a “leading” provider of cloud based data analytics and enterprise solutions to the media, publishing, and entertainment industries.
Response:
This comment has been complied with. In the Prospectus Summary on page 3 and the Overview to Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page 31, we deleted the word “leading.” However, based on Management’s knowledge of the industry, we modified the disclosure on page 45 under “Shoom Products and Services.”
Pending Letter of Interest, page 54
18.
We note your disclosure regarding your non-binding Letter of Interest with your acquisition target and your plan to use a majority of the net proceeds you will receive from this offering to finance the transaction. Please revise your disclosure to update the status of your due diligence activities, any advances in the status of your negotiations with the target since the filing of your registration statement and to disclose the expected probability of completion of the acquisition as well as an estimate of when you expect to enter into a definitive agreement that will govern the acquisition. Additionally, please provide support for your claims that the target “is expected to generate in excess of $10 million in revenue without approximately 30% net income in 2014 with a 50% growth rate expected for at least 2015.”
Response:
This comment has been complied with. The Company has disclosed the status of the pending transaction. Provided the Company concludes its due diligence investigation to its satisfaction, determines, in as much if the Target’s financial statements which have not been previously audited can be audited and reaches an agreement on all material terms of a definitive purchase agreement, it intends to disclose the identity of Target prior to the
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CORRESP 1 filename1.htm syso20131111_corresp.htm November 12, 2013 Via Edgar Correspondence Barbara C. Jacobs Assistant Director Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re: Sysorex Global Holdings Corp. Registration Statement on Form S-1 Filed October 9, 2013 File No. 333-191648 Dear Sir or Madam: As counsel to Sysorex Global Holdings Corp. (the “Company”), we are responding to the Staff’s Comment Letter dated November 5, 2013 to the Company’s Registration Statement on Form S-1 (File No. 333-191648) (the “Registration Statement”). The comments are repeated in the order set forth with our responses following in order. The Company has filed Amendment No. 1 to its Registration Statement on Form S-1 on this date. General 1. We note that you are registering shares of common stock underlying the underwriter warrants. Please advise why you are not also registering the offer and sale of those warrants. Refer to Question 139.05 of the Securities Act Sections Compliance and Disclosure Interpretations. Response: Pursuant to Question 139.05, if the underwriter’s warrants are not exercisable for more than one year, there is not deemed to be a concurrent offering of the underlying common stock and the offer and sale of those securities need not be registered along with the underwriter’s warrants. 2. We acknowledge your response to prior comment 6 and the related supplemental data that has been provided in support of factual assertions contained in the prospectus. We reissue the comment as it applies to the following statement, for which support does not appear to have been provided. Securities and Exchange Commission November 12, 2013 Page 2 ● Gartner predicts that by 2015, 20% of Global 1000 organizations will have established a strategic focus on information infrastructure equal to that of application management. This is one of five Gartner predictions about big data and information infrastructure discussed in “Predicts 2013: Big Data and Information Infrastructure;” a November 30, 2012 report that describes in detail how the big data phenomenon will affect organizations, resources and information infrastructure. Response: The statement in question came from a webpage titled “Invest in Information and Analytics to Benefit From Big Data” (available at http://www.gartner.com/id=2363115), from the website of Gartner, Inc., an information technology research and advisory company. A printout of the webpage with the statement in question highlighted is being provided supplementally to the Staff. 3. Please update your disclosure to reflect changes in current events. For example, we refer to the disclosure regarding the recent government shut-down. Response: This comment has been complied with under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Overview.” Prospectus Cover Page 4. We note that you have disclosed that you have applied for listing on a national securities exchange and that approval of such listing is a condition to this offering. Please revise to state the national securities exchange on which you have applied for listing. Response: This comment has been complied with on the cover page as well as on page 7 under the heading “The Offering”, page 31 under the heading “Market For Registrant’s Common Equity and Related Stockholder Matters”, and page 73 under the heading “Description of Securities.” Prospectus Summary The Company, page 1 5. Here or elsewhere as appropriate, please consider providing an organizational chart outlining your corporate structure and providing information on which lines of business are operated by each entity. Consider also including a cross-reference to the chart in your Business section. Securities and Exchange Commission November 12, 2013 Page 3 Response: This comment has been complied with. The organizational chart has been included in the “Prospectus Summary” and under “Business - Overview.” 6. Please quantify Shoom’s customer retention rate on page 2 and elsewhere in the document as appropriate. Response: This comment has been complied with under “Prospectus Summary” and “Business - Overview” and “Business - Shoom Products and Services.” Shoom’s retention rate has been over 90% over the past five years. 7. Revise your statement that “Sysorex’ U.S. government operations are profitable and this division is growing” to clearly indicate whether this growth includes or excludes “expected” contracts and awards. Further, tell us whether any of your operations represent a reportable operating segment as defined in ASC 280-10-50-10. We note your statement on page 34 that you “rely on adjusted EBITDA to review and assess the operating performance of [y]our Company as permitted by SFAS No. 131.” In addition, when referencing pronouncements issued by the FASB, please reference the codifications instead of the legacy pronouncements. Response: This language has been modified on page 4 under “Prospectus Summary,” and page 35 under “Management’s Discussion and Analysis of Financial Condition and Results of Operation;” to indicate that this division is anticipated to grow with the award of the U.S. Navy SPAWAR contract that was awarded earlier this year. This statement does not include expected contracts and awards. The Company has considered reporting segments as defined in ASC 280-10-50-10 and concluded that they are not material as of the six months ended June 30, 2013. The Company will continue to monitor this on a go forward basis and will report operating segments as they become applicable. We have updated the language on page 34 to include the codification instead of the legacy pronouncement as requested. 8. With regard to your statement that “Lilien does not typically have long-term contracts” revise to explain why there are significant non-current deferred revenue balances associated with that business. Revise to disclose the terms typically granted for Lilien’s contracts. Response: This comment has been complied with on page 4 under “Prospectus Summary;” “Risk Factors” - Lilien does not have long term contracts from its clients . . .;” and page 35 under “Management’s Discussions and Analysis of Financial Condition and Results of Operations.” We have modified the language in this section to state the following: Securities and Exchange Commission November 12, 2013 Page 4 Lilien’s revenues are typically driven by purchase orders that are captured every month. Approximately 25% of Lilien’s revenues are long-term contracts that range from 1-5 years for warranty and maintenance support. Where You Can Find More Information, page 9 9. This section appears to duplicate disclosure on page 69. Please revise or advise. Response: This section has been complied with. The section on page 69 has been deleted and the one of page 6 modified. Risk Factors, page 10 10. We note that while the government contracting portion of your business now comprises less than 10% of your total revenues, a substantial portion of the risk factors, in particular those appearing at the beginning of this section, are focused on this portion of your business. Please revise to discuss significant risks to your business, organized logically and with the most significant risks appearing at the forepart of this section. We refer you to Item 503(c) of Regulation S-K. Response: This comment has been complied with. We have reordered the risk factors to put the most significant risks first and in descending order of priority. However, we have arranged them logically so the categories remain grouped together. Use of Proceeds, page 30 11. In regard to your acquisition of a developer of mobile device identification and locating systems, please provide all the information called for by Instruction 6 to Item 504 of Regulation S-K or advise why such information is not required. Response: This comment has been complied with. As set forth below under Response 15, financial statements and pro forma financial statements are not required for the business to be acquired. Management’s Discussion and Analysis of Financial Condition and Results of Operation Overview, page 34 Securities and Exchange Commission November 12, 2013 Page 5 12. Please revise your discussion to address the impact of your proposed acquisition of a developer of mobile device identification and locating systems on your future operations and liquidity needs. Refer to Section III of SEC Release 33-8350. Response: The Overview section has been updated to include the impact of the proposed acquisition as requested. Critical Accounting Policies, page 32 13. Revise to explain the policies that require significant management estimates and judgment. In this regard, a cross-reference to or recitation of the accounting policies contained in the footnotes to the audited financial statements is not appropriate. Your discussion should enable investors to understand the method by which management establishes its estimates, the potential variability in the most recent estimate, and the impact this variability may have on reported results, financial condition, and liquidity. If there have been changes to estimates during the periods presented in the filing disclose the nature of the changes and the impact to your financial statements. If changes have not historically been material, disclose this fact. Response: The Critical Accounting Policies section has been updated to include the Company’s policies that require significant management estimates and judgment as requested. 14. Include in the discussion of your accounting policy for stock based compensation the following disclosures for each date on which options were granted or other equity instruments were issued, beginning on March 20, 2013 and continuing through the date of your filing: ● The number of options or shares granted, the exercise price, the fair value of the common stock, and the fair value of each option, if applicable. ● Discuss the significant factors considered, assumptions made, and methodologies used in determining the fair value of the instruments granted and the underlying stock; and ● For the most recent grant or issuance, please reconcile and explain the difference between the fair value of the underlying stock as of the most recent valuation date and your IPO price of $5.00. Response: The Stock Based Compensation section of the Critical Accounting Policies has been updated to include the requested information on the Company’s options and other equity instruments issued from March 20, 2013 through the date of this filing. To achieve the $5.00 IPO price the company will need to reverse split its common stock so that it can be listed on Nasdaq and complete this offering. We will do so prior to the effective date. Securities and Exchange Commission November 12, 2013 Page 6 Business Overview, page 49 15. Although you are in the process of conducting due diligence, you have “allocated approximately $10.5 million of the proceeds” from this offering along with “stock and earnout components” you intend to use to acquire the target. Please tell us what consideration has been given to whether the target’s financial statements should be included in your registration statement pursuant to Rule 3-05 of Regulation S-X. Refer also to Refer to FRC 506.02(c)(ii). Tell us how you considered whether the acquisition is probable. Response: Rule 3-05 of Regulation S-X states that financial statements should be furnished if a business combination has occurred or is probable. FRC 506.02 (c)(ii) states that guidance on whether a transaction is probable cannot be given as it is dependent on the facts and circumstances, however, consummation of a transaction is considered to be probable whenever registrants financial statements alone would not provide investors with adequate financial information to make an informed decision. The Company has conveyed its acquisition strategy and has already completed two acquisitions. If the proposed transaction does not occur we expect to make other acquisitions. The Company’s financials and notes provide the investor an accurate picture of our strategy and are sustainable on their own. As of the date of this filing, the Company does not believe the acquisition would be deemed to be probable as there are several key points still being negotiated in the definitive agreement, as well as the employment agreements and the non-compete agreements are still being negotiated. It is a condition to complete the acquisition that Target's financial statements be audited, since Target's historical financial statements have never been audited there is a probability they will not be delivered and audited. We have signed a Letter of Interest with the target corporation, however, it is non-binding. Neither party has made a public announcement regarding the transaction, nor has either Company’s board of directors approved the acquisition as the companies are still in negotiations on material terms. Additionally, the closing of the transaction is contingent on the public offering contemplated in this registration statement. If we are unable to complete this offering we will be unable to complete this transaction. Therefore, the acquisition is not probable at this time. The Lilien Acquisition, page 53 16. We note your disclosure in this section and on this page under “The Shoom Acquisition” that shares issued in connection with these transactions are subject to lock-up provisions beginning on the effective date of your registration statement. Please clarify whether there are any waiver provisions to these lock-up arrangements, and if so, who holds the right to grant a waiver and under what circumstances. Securities and Exchange Commission November 12, 2013 Page 7 Response: There are no waiver provisions for the lock-up agreements with either the former Shoom or Lilien shareholders. Shoom Products and Services, page 54 17. Please provide support for the assertion that Shoom is a “leading” provider of cloud based data analytics and enterprise solutions to the media, publishing, and entertainment industries. Response: This comment has been complied with. In the Prospectus Summary on page 3 and the Overview to Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page 31, we deleted the word “leading.” However, based on Management’s knowledge of the industry, we modified the disclosure on page 45 under “Shoom Products and Services.” Pending Letter of Interest, page 54 18. We note your disclosure regarding your non-binding Letter of Interest with your acquisition target and your plan to use a majority of the net proceeds you will receive from this offering to finance the transaction. Please revise your disclosure to update the status of your due diligence activities, any advances in the status of your negotiations with the target since the filing of your registration statement and to disclose the expected probability of completion of the acquisition as well as an estimate of when you expect to enter into a definitive agreement that will govern the acquisition. Additionally, please provide support for your claims that the target “is expected to generate in excess of $10 million in revenue without approximately 30% net income in 2014 with a 50% growth rate expected for at least 2015.” Response: This comment has been complied with. The Company has disclosed the status of the pending transaction. Provided the Company concludes its due diligence investigation to its satisfaction, determines, in as much if the Target’s financial statements which have not been previously audited can be audited and reaches an agreement on all material terms of a definitive purchase agreement, it intends to disclose the identity of Target prior to the