Filed Pursuant to Rule 424(b)(3)
  Registration No. 333-271340

 

Prospectus Supplement No. 3

(to prospectus dated April 19, 2023)

 

CXApp Inc.

6,977,776 Shares of Common Stock

10,280,000 Warrants to Purchase Shares of Common Stock

24,080,000 Shares of Common Stock Underlying Warrants

 

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated April 19, 2023 (as supplemented to date, the “Prospectus”), related to (i) the resale of up to 6,977,776 shares of common stock, par value $0.0001 per share (the “common stock”) previously issued to certain of the Selling Securityholders (as defined in the Prospectus) at a price of approximately $0.004 per share, (ii) the resale of up to 10,280,000 private placement warrants to purchase common stock at an exercise price of $11.50 per share, which were originally issued to our Sponsor (as defined in below) and the Direct Anchor Investors (as defined below) in a private placement at a price of $1.00 per private placement warrant, (iii) 24,080,000 shares of common stock reserved for issuance upon the exercise of warrants to purchase common stock, which are comprised of 13,800,000 shares of common stock issuable upon exercise of the public warrants and 10,280,000 shares of common stock issuable upon exercise of the private placement warrants, and (iv) the resale of up to 10,280,000 shares of common stock issuable upon exercise of the private warrants held by KINS Capital LLC (“Sponsor”), its affiliates and certain funds and accounts managed by BlackRock, Inc. (the “Direct Anchor Investors”), with the information contained in our Quarterly Report on Form 10-Q for the period ended June 30, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 14, 2023 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our common stock and warrants are traded on the The Nasdaq Capital Market (“Nasdaq”) under the symbols “CXAI” and “CXAIW”, respectively. On March 13, 2024, the closing price of our common stock was $3.24 per share and the closing price of our warrants was $0.17 per warrant.

 

Investing in our securities involves risks. See Risk Factorsbeginning on page 13 of the Prospectus and in any applicable prospectus supplement.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.

 

 

 

The date of this prospectus supplement is March 14, 2024.

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended June 30, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to          

 

Commission File Number: 001-39642

 

CXApp Inc.

(Exact name of Registrant as Specified in Its Charter)

 

Delaware   85-2104918

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Four Palo Alto Square, Suite 200

3000 El Camino Real

Palo Alto, CA 94306

(Address of principal executive offices, zip code)

 

(650) 575-4456

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Class A common stock, $0.0001 par value per share   CXAI   The Nasdaq Stock Market LLC
Warrants to purchase common stock   CXAIW   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐   No ☒

 

As of August 14, 2023, there were 9,617,699 shares of Class A common stock, $0.0001 par value, and 5,487,300 shares of Class C common stock, $0.0001 par value, issued and outstanding.

 

 

 

 

 

 

CXAPP, INC.

 

TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION    
       
  Item 1.   Interim Financial Statements   1
      Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) (Successor) and December 31, 2022 (Predecessor)   1
      Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2023 (Successor), the period from March 15, 2023 to June 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the three and six months ended June 30, 2022 (Predecessor)   2
      Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the three and six months ended June 30, 2022 (Predecessor)   3
      Unaudited Condensed Consolidated Statements of Cash Flows for the period from March 15, 2023 to June 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the six months ended June 30, 2022 (Predecessor)   4
      Notes to Unaudited Condensed Consolidated Financial Statements   5
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   28
  Item 3.   Quantitative and Qualitative Disclosures about Market Risk   39
  Item 4.   Controls and Procedures   40
       
Part II. OTHER INFORMATION    
       
  Item 1.   Legal Proceedings   41
  Item 1A.   Risk Factors   41
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   41
  Item 3.   Defaults Upon Senior Securities   41
  Item 4.   Mine Safety Disclosures   41
  Item 5.   Other Information   41
  Item 6.   Exhibits   42
       
SIGNATURES   44

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1: Interim Financial Statements

 

CXAPP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

                 
    Successor     Predecessor  
    June 30,
2023
    December 31,
2022
 
    (unaudited)        
Assets                
                 
Current Assets                
Cash and cash equivalents   $ 4,543     $ 6,308  
Accounts receivable     1,190       1,338  
Notes and other receivables     292       273  
Prepaid expenses and other current assets     1,115       650  
Total current assets     7,140       8,569  
                 
Property and equipment, net     131       202  
Intangible assets, net     20,056       19,289  
Operating lease right-of-use asset, net     684       681  
Software development costs, net     -       487  
Goodwill     44,200       -  
Other assets     78       52  
                 
Total Assets   $ 72,289     $ 29,280  
                 
Liabilities and Stockholders’ Equity                
                 
Current Liabilities                
Accounts payable   $ 742     $ 1,054  
Accrued liabilities     2,945       1,736  
Deferred revenue     2,200       2,162  
Acquisition liability     -       197  
Warrant liability     13,003       -  
Operating lease obligation, current     376       266  
Total current liabilities     19,266       5,415  
                 
Operating lease obligation, noncurrent     330       444  
Other liabilities     -       30  
Deferred tax liability     1,813       -  
                 
Total Liabilities     21,409       5,889  
                 
Commitments and Contingencies                
                 
Stockholders’ Equity                
Class A Common Stock, $0.0001 par value; 200,000,000 shares authorized, 8,582,699 shares issued and outstanding as of June 30, 2023     1       -  
Class C Common Stock, $0.0001 par value; 10,000,000 shares authorized, 5,487,300 shares issued and outstanding as of June 30, 2023     1       -  
Additional paid-in capital     71,632       -  
Accumulated deficit     (20,715 )     -  
Accumulated other comprehensive income (loss)     (39 )     1,155  
Net parent investment     -       22,236  
Total Stockholders’ Equity     50,880       23,391  
                 
Total Liabilities and Stockholders’ Equity   $ 72,289     $ 29,280  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

1

 

 

CXAPP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

 

                                         
    Successor     Predecessor  
    Three Months Ended
June 30,
2023
    Period from
March 15, 2023
to June 30,
2023
    Period from
January 1, 2023
to March 14,
2023
    Three Months Ended
June 30,
2022
    Six Months Ended
June 30,
2022
 
Revenues   $ 1,915     $ 2,257     $ 1,620     $ 2,149     $ 4,731  
                                         
Cost of Revenues     480       567       483       540       1,129  
                                         
Gross Profit     1,435       1,690       1,137       1,609       3,602  
                                         
Operating Expenses                                        
Research and development     1,668       1,879       1,455       2,430       4,421  
Sales and marketing     1,177       1,351       964       1,604       2,726  
General and administrative     1,412       1,653       2,293       1,892       4,196  
Acquisition related costs     164       164       -       16       16  
Amortization of intangible assets     697       813       806       973       1,948  
Impairment of Goodwill     -       -       -       5,540       5,540  
Change in fair value of earnout payable     -       -       -       -       (2,827 )
Total Operating Expenses     5,118       5,860       5,518       12,455       16,020  
                                         
Loss from Operations     (3,683 )     (4,170 )     (4,381 )     (10,846 )     (12,418 )
                                         
Other Income (Expense)                                        
Interest income, net     5       4       1       8       9  
Change in fair value of derivative liability     (12,040 )     (10,354 )     -       -       -  
Other income (expense), net     7       7       -       (234 )     (234 )
Total Other Income (Expense)     (12,028 )     (10,343 )     1       (226 )     (225 )
                                         
Net Loss, before tax     (15,711 )     (14,513 )     (4,380 )     (11,072 )     (12,643 )
Income tax benefit/(provision)     981       2,541       -       38       (62 )
Net Loss   $ (14,730 )   $ (11,972 )   $ (4,380 )   $ (11,034 )   $ (12,705 )
Unrealized foreign exchange gain/(loss) from cumulative translation adjustments     (39 )     (39 )     (28 )     394       205  
Comprehensive Loss   $ (14,769 )   $ (12,011 )   $ (4,408 )   $ (10,640 )   $ (12,500 )
                                         
Basic and diluted weighted average shares outstanding, Class A common stock     8,582,699       8,582,699                          
Basic and diluted net loss per share, Class A common stock   $ (1.05 )   $ (0.85 )                        
                                         
Basic and diluted weighted average shares outstanding, Class C common stock     5,487,300       5,487,300                          
Basic and diluted net loss per share, Class C common stock   $ (1.05 )   $ (0.85 )                        

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

2

 

 

CXAPP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

 

                         
Predecessor
   
    Net parent
investment
    Accumulated
other
comprehensive
income
    Total
Stockholders’
Equity
 
Balance at January 1, 2022   $ 20,155     $ 56     $ 20,211  
Net loss     (1,671 )     -       (1,671 )
Stock-based compensation allocated from parent     647       -       647  
Parent’s common shares issued for CXApp earnout     3,697       -       3,697  
Taxes paid related to net share settlement of restricted stock units     (104 )     -       (104 )
Net investments from parent     6,444       -       6,444  
Cumulative translation adjustment     -       (189 )     (189 )
Balance at March 31, 2022   $ 29,168     $ (133 )   $ 29,035  
Net loss     (11,034 )     -       (11,034 )
Stock-based compensation allocated from parent     355       -       355  
Net investments from parent     4,057       -       4,057  
Cumulative translation adjustment     -       394       394  
Balance at June 30, 2022   $ 22,546     $ 261     $ 22,807  
                         
Balance at January 1, 2023   $ 22,236     $ 1,155     $ 23,391  
Net loss     (4,380 )     -       (4,380 )
Stock-based compensation allocated from parent     158       -       158  
Net investments from parent     8,680       -       8,680  
Cumulative translation adjustment     -       (28 )     (28 )
Balance at March 14, 2023   $ 26,694     $ 1,127     $ 27,821  

 

                                                                 
Successor
   
    Class A
Common Stock
    Class C
Common Stock
    Additional
paid-in
    Accumulated    

Accumulated

other
comprehensive

    Total
Stockholders’
Equity
 
    Shares     Amount     Shares     Amount     capital     Deficit     loss     (Deficit)  
Balance at March 15, 2023     7,034,999     $ 1       -     $ -     $ 1,607     $ (8,743 )   $ -     $ (7,135 )
Shares issued in connection with Business Combination     1,547,700       -       5,487,300       1       69,927       -       -       69,928  
Net income     -       -       -       -       -       2,758       -       2,758  
Stock-based compensation     -       -       -       -       2       -       -       2  
Cumulative translation adjustment     -       -       -       -       -       -       -       -  
Balance at March 31, 2023     8,582,699     $ 1       5,487,300     $ 1     $ 71,536     $ (5,985 )   $ -     $ 65,553  
Net loss     -       -       -       -       -       (14,730 )     -       (14,730 )
Stock-based compensation     -       -       -       -       96       -       -       96  
Cumulative translation adjustment     -       -       -       -       -       -       (39 )     (39 )
Balance at June 30, 2023     8,582,699     $ 1       5,487,300     $ 1     $ 71,632     $ (20,715 )   $ (39 )   $ 50,880  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3

 

 

CXAPP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

                         
    Successor     Predecessor  
    Period from
March 15, 2023
to June 30,
2023
    Period from
January 1, 2023
to March 14,
2023
    Six Months ended
June 30,
2022
 
Operating activities                        
Net loss   $ (11,972 )   $ (4,380 )   $ (12,705 )
Adjustments to reconcile consolidated net loss to net cash used in operating activities                        
Depreciation and amortization     28       228       310  
Amortization of intangible assets     813       806       1,948  
Amortization of right of use asset     102       40       132  
Deferred income taxes     (2,541 )     -       -  
Provision for bad debt expense     1       -       -  
Stock-based compensation expense     98       158       1,002  
Gain on change in fair value of earnout payable     -       -       (2,827 )
(Gain) loss on foreign currency transactions     (4 )     (32 )     172  
Loss on change in fair value of derivative liability     10,354       -       -  
Impairment of goodwill     -       -       5,540  
Other     -       -       (166 )
Change in operating assets and liabilities:                        
Accounts receivable and other receivables     962       (857 )     599  
Prepaid expenses and other current assets     152       (20 )     (618 )
Other assets     (37 )     -       19  
Accounts payable     281       (796 )     (332 )
Accrued liabilities     (4,399 )     (787 )     874  
Income tax liabilities     -       -       (518 )
Operating lease liabilities     (102 )     (38 )     (131 )
Deferred revenue     (334 )     534       (685 )
Net cash used in operating activities     (6,598 )     (5,144 )     (7,386 )
                         
Investing activities                        
Purchases of property and equipment     (26 )     (9 )     (50 )
Investment in capitalized software     -       (45 )     (159 )
Cash acquired in connection with Business Combination     10,003       -       -  
Net cash provided by (used in) investing activities     9,977       (54 )     (209 )
                         
Financing activities                        
Net equity investment from parent     -       9,089       10,501  
Taxes paid related to stock-based compensation     -       -       (104 )
Repayment of CXApp acquisition liability     -       (197 )     (1,846 )
Repayment of related party promissory note     (328 )     -       -  
Net cash (used in) provided by financing activities     (328 )     8,892       8,551  
                         
Effect of exchange rate changes on cash and cash equivalents     (11 )     1       166  
Net increase in cash and cash equivalents     3,040       3,695       1,122  
Cash and cash equivalents, beginning of period     1,503       6,308       5,028  
Cash and cash equivalents, end of period   $ 4,543     $ 10,003     $ 6,150  
                         
Supplemental disclosures of cash flow information                        
Cash paid for taxes   $ -     $ -     $ 100  
Cash paid for interest   $ 6     $ -     $ 1  
                         
Supplemental schedule of noncash investing and financing activities                        
Right of use asset obtained in exchange for lease liability   $ 230     $ -     $ 284  
Parent’s common shares issued for CXApp earnout   $ -     $ -     $ 3,697  
Noncash investment from parent   $ -     $ 409     $ -  
Class A Common Stock and Class C Common Stock issued in connection with Business Combination   $ 69,928     $ -     $ -  
Financing of Director and Officer Insurance (see Note 9)   $ 671     $ -     $ -  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – Organization, Nature of Business and Basis of Presentation

 

CXApp Inc. and its subsidiaries (“CXApp” or the “Company”) is in the business of delivering intelligent enterprise workplace experiences. The CXApp SaaS platform is anchored on the intersection of customer experience (CX) and artificial intelligence (AI) providing digital transformation for the physical workplace for enhanced experiences across people, places and things.

 

The CXApp SaaS platform offers a suite of leading-edge technology workplace experience solutions including an enterprise employee application, indoor mapping, on-device positioning, augmented reality technologies, generative AI applications and an AI-based analytics platform, targeting the emerging hybrid workplace market. CXApp creates a connected workplace by reducing app overload, data fragmentation, and complex workflows and streamlines all capabilities through The Workplace SuperApp. All features, services and integrations are housed in one easy-to-access platform allowing businesses to deliver a more holistic employee experience in a hybrid workplace.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, CXApp does not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of CXApp, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the periods presented are not necessarily indicative of the results for the full year ending December 31, 2023. These interim unaudited condensed consolidated financial statement should be read in conjunction with KINS Technology Group Inc.’s (“KINS”) audited consolidated financial statements and notes for the year ended December 31, 2022 and 2021 included in the annual report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on April 19, 2023, and the annual report of Legacy CXApp (as defined below) for the year ended December 31, 2022 and 2021 included as an exhibit to Form 8-K filed with the SEC on March 20, 2023. All material inter-company balances and transactions have been eliminated.

 

On September 25, 2022, an Agreement and Plan of Merger (the “Merger Agreement”), was entered into by and among Inpixon, KINS, CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS acquired Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (“Legacy CXApp”) in exchange for the issuance of shares of KINS capital stock (the “Business Combination”). As a result of the Business Combination, KINS changed their name to CXApp Inc. (“CXApp”). The shares are now trading on the Nasdaq using the ticker CXAI. The transaction closed on March 14, 2023. See Note 3 for more details.

 

Unless the context otherwise requires, “we,” “us,” “our,” “CXApp” and the “Company” refer to CXApp Inc., a Delaware corporation, and its consolidated subsidiaries following the Business Combination (as defined below). Unless the context otherwise requires, references to “KINS” refer to KINS Technology Group Inc., a Delaware corporation (“KINS”), prior to the Business Combination. All references herein to the “Board” refer to the board of directors of the Company. “Legacy CXApp” refers to CXApp Holding Corp., a Delaware corporation and a wholly owned subsidiary of the Company, which the Company acquired through the Business Combination. Prior to the Separation (as defined below), Legacy CXApp was a wholly owned subsidiary of Inpixon, a Nevada corporation (“Inpixon”).

 

The Business Combination was accounted for using the acquisition method (as a forward merger), with goodwill and other identifiable intangible assets recorded in accordance with GAAP, as applicable. Under this method of accounting, the “Enterprise Apps Business” (formerly known as CXApp) is treated as the “acquired” company for financial reporting purposes. KINS (now known as CXApp Inc.) has been determined to be the accounting acquirer because KINS maintains control of the Board of Directors and management of the combined company.

 

The unaudited condensed consolidated financial statements of Successor and Predecessor are not comparable due to a new basis of accounting that was created from the business combination that occurred on the Closing Date (see Note 3). Therefore, the reporting period has been separated by a black line in the condensed consolidated financial statements with the Predecessor representing the pre-Closing Date period (January 1, 2023 through March 14, 2023) and the Successor representing the post-Closing Date period (March 15, 2023 through June 30, 2023). The Company noted that the “Predecessor” includes financial information related to the Enterprise Apps Business (as defined in Note 3), while the “Successor” includes financial information related to the newly formed company after the business combination.

 

5

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – Summary of Significant Accounting Policies

 

Liquidity

 

As of June 30, 2023 (Successor) the Company had a working capital deficit of approximately $12,126 thousand and cash and cash equivalents of approximately $4,543 thousand. For the three months ended June 30, 2023 (Successor), and for the period from March 15, 2023 to June 30, 2023 (Successor) the Company incurred net losses of approximately $14,730 thousand and $11,972 thousand, respectively. For the period from March 15, 2023 to June 30, 2023 (Successor) the Company used approximately $6,598 thousand of cash for operating activities, of which $4,399 thousand was from a reduction in accrued liabilities, primarily paying merger related transaction liabilities. Subsequent to June 30, 2023, 435 thousand public warrants were exercised at the strike price of $11.50 by investors resulting in proceeds of $5,003 thousand. See Note 18 for more details. In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and cash equivalents and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments.

 

The Company cannot assure that it will ever earn revenues sufficient to support their operations, or that it will ever achieve profitable operations. The Company’s recurring losses and utilization of cash in its operations are indicators of substantial doubt that the entity can continue as a going concern however with the Company’s current liquidity position the Company has taken steps to reduce operating expenses resulting in a more efficient cost structure. The Company intends to finance its future working capital requirements and capital expenditures from cash generated from operating activities and may consider raising funds from equity financings. Management believes that the actions presently being taken to further implement its business plan and generate its revenues provide the opportunity for the Company to continue as a going concern for at least 12 months from the issuance of these condensed consolidated financial statements. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect for the twelve months from the issuance of these condensed consolidated financial statements. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:

 

the valuation of stock-based compensation;

 

the valuation of warrant liabilities;

 

the allowance for credit losses;

 

the valuation allowance for deferred tax assets; and

 

impairment of long-lived assets and goodwill.

 

6

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash, checking accounts, money market accounts, temporary investments and certificates of deposit with maturities of three months or less when purchased. As of June 30, 2023 (Successor), the Company had cash equivalents of approximately $3,863 thousand of certificates of deposit held by a number of banks limited to $250 thousand per bank with a duration of 90 days or less. As of December 31, 2022 (Predecessor), the Company had no cash equivalents.

 

Accounts Receivable, net and Allowance for Credit Losses

 

Accounts receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for credit losses to ensure accounts receivables are not overstated due to un-collectability. Bad debt reserves are maintained for various customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings, or deterioration in such customer’s operating results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would be further adjusted. The Company’s allowance for credit losses is not significant as of June 30, 2023 (Successor) and December 31, 2022 (Predecessor).

 

Property and Equipment, net

 

Property and equipment are recorded at cost, less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 5 to 10 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.

 

Intangible Assets

 

Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, intellectual property agreements, export licenses and trade names/trademarks. They are amortized ratably over a range of 5 to 10 years, which approximates customer attrition rate and technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment annually, or more frequently if an event or other circumstances indicates that the Company may not be able to recover the carrying amount of the assets. Based on its assessments, the Company did not incur any impairment charges for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor).

 

Goodwill

 

The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.

 

7

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations. Based on its assessments, the Company did not incur any impairment charges for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor). The Company incurred an impairment charge of approximately $5,540 thousand for the three months ended June 30, 2022 (Predecessor) and for the six months ended June 30, 2022 (Predecessor).

 

Leases and Right-of-Use Assets

 

The Company determines if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company generally uses their incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use assets related to the Company’s operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. The Company’s lease terms that are used in determining their operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that the Company will exercise such options. The Company amortizes their right-of-use assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. The Company does not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

 

Comprehensive Income (Loss) and Foreign Currency Translation

 

The Company reports comprehensive income (loss) and its components in its unaudited condensed consolidated financial statements. Comprehensive loss consists of net loss and foreign currency translation adjustments, affecting stockholders’ equity that, under GAAP, are excluded from net loss.

 

Assets and liabilities related to the Company’s foreign operations are calculated using the Philippine Peso and Canadian Dollar, and are translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates prevailing during the period. Gains or losses resulting from transactions denominated in foreign currencies are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. The Company engages in foreign currency denominated transactions with customers that operate in functional currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were not material for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor).

 

8

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Recognition

 

The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from its software as a service for cloud based software, as well as design, implementation and other professional services for work performed in conjunction with its cloud based software. The Company enters into contracts with its customers whereby it grants a non-exclusive cloud-based license for the use of its proprietary software and for professional services. The contracts may also provide for on-going services for a specified price, which may include maintenance services, designated support, and enhancements, upgrades and improvements to the software, depending on the contract. Licenses for cloud software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

 

License Subscription Revenue Recognition (Software As A Service)

 

With respect to sales of the Company’s license agreements, customers generally pay fixed annual fees in advance in exchange for the Company’s software service provided via electronic means, which are generally recognized ratably over the license term. Some agreements allow the customer to terminate their subscription contracts before the end of the applicable term, and in such cases the customer is generally entitled to a refund pro-rata but only for the elapsed time remaining at the point of termination, which would approximate the deferred revenue at such time. The Company’s performance obligation is satisfied over time as the electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice.

 

The timing of the Company’s revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

 

Renewals or extensions of licenses are evaluated as distinct licenses and revenue attributed to the distinct service is not recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. The Company recognizes revenue resulting from renewal of licensed software over time.

 

Professional Services Revenue Recognition

 

The Company’s professional services include milestone, fixed fee and time and materials contracts.

 

Professional services under milestone contracts are accounted for using the percentage of completion method. As soon as the outcome of a contract can be estimated reliably, contract revenue is recognized in the statement of operations in proportion to the stage of completion of the contract. Contract costs are expensed as incurred. Contract costs include all amounts that relate directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under the terms of the contract.

 

9

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Professional services are also contracted on the fixed fee and in some cases on a time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company’s time and materials contracts are paid weekly or monthly based on hours worked. Revenue on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended. Materials, or other specified direct costs, are reimbursed as actual costs and may include markup. The Company has elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date. For fixed fee contracts provided by in house personnel, the Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous service. Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations. Anticipated losses are recognized as soon as they become known. For the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), three months ended June 30, 2022 (Predecessor), and six months ended June 30, 2022 (Predecessor), the Company did not incur any such losses. These amounts are based on known and estimated factors.

 

Contract Balances

 

The timing of the Company’s revenue recognition may differ from the timing of invoicing to and payment by its customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing and the Company has an unconditional right to payment. Alternatively, when invoicing a customer precedes the Company providing of the related services, the Company records deferred revenue until the performance obligations are satisfied. The Company had deferred revenue of approximately $2,200 thousand and $2,162 thousand as of June 30, 2023 (Successor) and December 31, 2022 (Predecessor), respectively, related to customer invoices rendered in advance for software licenses and professional services provided by the Company’s technical staff. The Company expects to satisfy its remaining performance obligations for the deferred revenue associated with professional services, and recognize the deferred revenue related to licenses generally over the remaining contract term which is generally twelve months following the commencement of the license. The Company recognized revenue in the reporting period of $729 thousand, $865 thousand, and $2,198 thousand, that was included in the contract liability balance at the beginning of the period, for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the six months ended June 30, 2022 (Predecessor), respectively.

 

Costs to Obtain a Contract

 

The Company recognizes eligible sales commissions as an asset within prepaid expenses and other current assets as the commissions are an incremental cost of obtaining a contract with the customer and the Company expects to recover these costs. The capitalized costs are amortized over the expected contract term.

 

Cost to Fulfill a Contract

 

The Company incurs costs to fulfill their obligations under a contract once it has obtained the contract. These costs are generally not significant and are recorded to expense as incurred.

 

Multiple Performance Obligations

 

The Company enters into contracts with customers for its technology that include multiple performance obligations. Each distinct performance obligation was determined by whether the customer could benefit from the good or service on its own or together with readily available resources. The Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company’s process for determining standalone selling price considers multiple factors including the Company’s internal pricing model and market trends that may vary depending upon the facts and circumstances related to each performance obligation.

 

10

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Sales and Use Taxes

 

The Company presents transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.

 

Shipping and Handling Costs

 

Shipping and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be de minimus during each of the reporting periods.

 

Business Combinations

 

The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and results of operations are included as of and subsequent to the acquisition date.

 

Segments

 

The Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

 

Stock-Based Compensation

 

The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The Company has issued stock-based compensation awards in the form of options and restricted stock units. Fair value for options and restricted stock units are valued using the closing price of the Company’s common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee and non-employee is required to provide service in exchange for the award.

 

The grant date fair value of options is estimated using the Black-Scholes option pricing model based on the average of the high and low stock prices at the grant date for awards under the CXApp Inc. 2023 Equity Incentive Plan (the “Incentive Plan”). The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield is assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The Company uses the simplified method to estimate the expected term.

 

The Company estimates forfeitures at the time of grant and revises these estimates in subsequent periods if actual forfeitures differ from those estimates.

 

11

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Derivative Warrant Liabilities

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. The Company currently has two sets of warrants outstanding, known as the Private Placement Warrants and the Public Warrants, which are both classified as a liability.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance or modification. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance as a warrant liability, and adjusted to the then fair value in each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed consolidated statements of operations and amounted to approximately $12,040 thousand of a loss for the three months ended June 30, 2023 (Successor) and $10,354 thousand of a loss for the period from March 15, 2023 to June 30, 2023 (Successor). The Company utilized the Public Warrant quoted market price as the fair value of the Warrants as of each relevant date.

 

Earnings Per Share

 

The Company computes basic and diluted earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. For the three months ended June 30, 2023 (Successor) and for the period from March 15, 2023 to June 30, 2023 (Successor) basic and dilutive net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options, warrants, and vesting of restricted units in the calculation of diluted net loss per common shares would have been anti-dilutive.

 

The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the three months ended June 30, 2023 (Successor) and for the period from March 15, 2023 to June 30, 2023 (Successor).

 

    Successor  
(in thousands)   Three Months Ended
June 30,
2023
    Period from
March 15, 2023
to June 30,
2023
 
Stock options     985       985  
Restricted stock units     160       160  
Warrants     24,080       24,080  
Total     25,225       25,225  

 

12

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Fair Value Measurements

 

FASB ASC 820, “Fair Value Measurements” (“ASC 820”), provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

 

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

 

Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management. Fair value measurements are applied, when applicable, to determine the fair value of the Company’s warrant liability at each reporting period. See Note 10.

 

Fair Value of Financial Instruments

 

Financial instruments consist of cash and cash equivalents, accounts receivable, notes and other receivables and accounts payable. The Company determines the estimated fair value of such financial instruments presented in these financial statements using available market information and appropriate methodologies. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company follows FASB ASC 360 “Property, Plant, and Equipment” (“ASC 360”) for its long-lived assets. Pursuant to ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

 

Pursuant to ASC 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

13

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Based on its assessments, the Company recorded no impairment charges on long-lived assets for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor).

 

Recently Issued Accounting Standards Not Yet Adopted

 

In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)”, which updates codification on how an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The effective date of this update is for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently assessing potential impacts of ASU 2023-03 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures.

 

NOTE 3 – Business Combination

 

On March 14, 2023, the Company completed the Agreement and Plan of Merger (the “Merger Agreement”), by and among KINS, Inpixon, CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS combined with Legacy CXApp, Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”). In exchange for the aggregate purchase price of approximately $69,928 thousand, the Company acquired all of the related assets and liabilities of Legacy CXApp. The consideration transferred in connection with the Business Combination consisted of 1,547,700 shares of the Company’s Class A Common Stock and 5,487,300 shares of the Company’s Class C Common Stock valued at a price of $9.94 per share. The preliminary estimated goodwill of approximately $44,200 thousand arising from the Business Combination consists of an acquired workforce, as well as synergies expected from combined operations of KINS and the CXApp.

 

The Company has authorized Class A and Class C common stock. Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger.

 

The Business Combination is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Business Combination. These values are subject to change as we perform additional reviews of our assumptions utilized.

 

14

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has made a provisional allocation of the purchase price of the Business Combination to the assets acquired and the liabilities assumed as of the closing date. The following table summarizes the preliminary purchase price allocations relating to the Business Combination (in thousands):

 

Description   Fair Value     Weighted Average
Useful Life
(in years)
Purchase Price   $ 69,928      
             
Assets acquired:            
Cash and cash equivalents   $ 10,003      
Accounts receivable     2,226      
Notes and other receivables     209      
Prepaid assets and other current assets     588      
Operating lease right of use asset     557      
Property and equipment, net     133      
Other assets     42      
Developed technology     9,268     10 years
Patents     2,703     10 years
Customer relationships     5,604     5 years
Tradenames and trademarks     3,294     7 years
Total assets acquired   $ 34,627      
             
Liabilities assumed:            
Accounts payable   $ 461      
Accrued liabilities     972      
Deferred revenues     2,534      
Operating lease obligation, current     194      
Operating lease obligation, noncurrent     384      
Deferred tax liability     4,354      
Total liabilities assumed     8,899      
Goodwill   $ 44,200      

 

The value of the intangible assets were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. Goodwill represents the excess fair value after allocation to the intangible assets. The calculated goodwill is not deductible for tax purposes.

 

Total acquisition-related costs for the Business Combination were approximately $3,164 thousand. Of the total acquisition-related costs, approximately $3,000 thousand were incurred by KINS prior to the close of the Business Combination. These costs are included in the opening retained earnings of the Company on March 15, 2023. The remaining $164 thousand of acquisition-related costs were recorded as expense in the successor period and are included in acquisition related costs on the statements of operations for the three months ended June 30, 2023 (Successor) and the period from March 15, 2023 to June 30, 2023 (Successor).

 

15

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Measurement Period

 

The preliminary purchase price allocations for the acquisitions described above are based on initial estimates and provisional amounts. In accordance with ASC 805-10-25-13, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The Company continues to refine its inputs and estimates inherent in (i) the valuation of intangible assets, (ii) deferred income taxes, (iii) realization of tangible assets and (iv) the accuracy and completeness of liabilities. For the three months ended June 30, 2023 (Successor), the Company recognized a measurement period adjustment, which increased accrued liabilities, deferred tax liability and goodwill by approximately $78 thousand.

 

CXApp Proforma Financial Information

 

The following unaudited proforma financial information presents the condensed consolidated results of operations of the Company for the six month periods ended June 30, 2023, the six months ended June 30, 2022, and the three months ended June 30, 2022, as if the acquisition had occurred as of the beginning of the first period presented (January 1, 2022) instead of on March 14, 2023. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.

 

The proforma financial information for the Company, including the predecessor information of KINS, and the acquired CXApp is as follows (in thousands):

 

    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
    For the
Three Months Ended
June 30,
2022
 
Revenues   $ 3,877     $ 4,731     $ 2,149  
Net income (loss)   $ (20,637 )   $ 5,235     $ (963 )

 

16

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 – Disaggregation of Revenue

 

The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its enterprise apps solutions systems, and professional services for work performed in conjunction with its systems.

 

Revenues consisted of the following (in thousands):

 

    Successor     Predecessor  
   

Three Months Ended

June 30,

2023

    Period from
March 15, 2023
to June 30,
2023
   

Period from
January 1, 2023
to March 14,

2023

    Three months ended
June 30,
2022
    Six Months Ended
June 30,
2022
 
Subscription revenue                                        
Software   $ 1,513     $ 1,753     $ 1,204     $ 1,362     $ 2,621  
Total subscription revenue   $ 1,513     $ 1,753     $ 1,204     $ 1,362     $ 2,621  
                                         
Non-subscription revenue                                        
Professional services   $ 402     $ 504     $ 416     $ 787     $ 2,110  
Total non-subscription revenue   $ 402     $ 504     $ 416     $ 787     $ 2,110  
                                         
Total Revenue   $ 1,915     $ 2,257     $ 1,620     $ 2,149     $ 4,731  

 

    Successor     Predecessor  
    Three Months Ended
June 30,
2023
    Period from
March 15, 2023
to June 30,
2023
    Period from
January 1, 2023
to March 14,
2023
    Three months ended
June 30,
2022
    Six Months Ended
June 30,
2022
 
Revenue recognized over time(1)(2)   $ 1,915     $ 2,257     $ 1,620     $ 2,149     $ 4,731  
Total   $ 1,915     $ 2,257     $ 1,620     $ 2,149     $ 4,731  

 

 
(1) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has generally elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time.
(2) Software As A Service Subscription Revenue’s performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and service is recognized over time.

 

17

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – Property and Equipment, net

 

Property and equipment consisted of the following (in thousands):

 

    Successor     Predecessor  
    June 30,
2023
    December 31,
2022
 
Computer and office equipment   $ 140     $ 992  
Furniture and fixtures     12       185  
Leasehold improvements     6       28  
Software     1       8  
Total     159       1,213  
Less: accumulated depreciation and amortization     (28 )     (1,011 )
Total Property and Equipment, Net   $ 131     $ 202  

 

Depreciation and amortization expense were approximately $24 thousand, $28 thousand, $19 thousand, $30 thousand, and $66 thousand for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor), respectively.

 

NOTE 6 – Software Development Costs, net

 

Capitalized software development costs consisted of the following (in thousands):

 

    Successor     Predecessor  
    June 30,
2023
    December 31,
2022
 
Capitalized software development costs   $ -     $ 2,680  
Accumulated amortization     -       (2,193 )
Software development costs, net     -       487  

 

Amortization expense for capitalized software development costs was approximately $209 thousand, $130 thousand, and $244 thousand for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor), respectively. There was no amortization expense for capitalized software development costs for the three months ended June 30, 2023 (Successor) and for the period from March 15, 2023 to June 30, 2023 (Successor).

 

18

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – Goodwill and Intangible Assets

 

The Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company noted that the carrying amount of Goodwill as of June 30, 2023 (Successor) was $44,200 thousand, which was entirely due to the business combination noted in Note 3. The Company noted that there were no qualitative or quantitative indicators of impairment present at the reporting date as of June 30, 2023.

 

As of June 30, 2022 (Predecessor), the Company’s goodwill balance and other assets with indefinite lives were evaluated for potential goodwill impairment as certain indications on a qualitative and a quantitative basis were identified that an impairment exists as of the reporting date primarily from a sustained decrease in the Parent’s stock price. During the three months ended June 30, 2022 (Predecessor) and for the six months ended June 30, 2022 (Predecessor), the Company recognized approximately $5,540 thousand of goodwill impairment.

 

Goodwill consisted of the following (in thousands):

 

Acquisition   Amount  
Balance as of March 15, 2023   $ -  
Acquisition of Legacy CXApp     44,122  
Measurement Period Adjustments     78  
Balance as of June 30, 2023   $ 44,200  

 

Intangible assets consisted of the following (in thousands):

 

    June 30, 2023
(Successor)
   

December 31, 2022

(Predecessor)

 
    Weighted Average Remaining
Useful Life
(Years)
    Gross
Amount
    Accumulated Amortization     Net Carrying
Amount
    Gross
Amount
    Accumulated
Amortization
    Net Carrying
Amount
 
Trade Name/Trademarks   6.6     $ 3,294     $ (137 )   $ 3,157     $ 2,183     $ (725 )   $ 1,458  
Customer Relationships   4.6       5,604       (327 )     5,277       6,401       (1,765 )     4,636  
Developed Technology   9.6       9,268       (270 )     8,998       15,179       (3,398 )     11,781  
Non-compete Agreements   -       -       -       -       3,150       (1,736 )     1,414  
Patents and Intellectual Property   9.6       2,703       (79 )     2,624       -       -       -  
Totals         $ 20,869     $ (813 )   $ 20,056     $ 26,913     $ (7,624 )   $ 19,289  

 

Future amortization expense on intangible assets as of June 30, 2023 is anticipated to be as follows (in thousands):

 

For the Years Ending December 31,   Amount  
2023   $ 1,394  
2024     2,788  
2025     2,788  
2026     2,788  
2027     2,788  
2028 and thereafter     7,510  
Total   $ 20,056  

 

19

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – Deferred Revenue

 

Deferred revenue consisted of the following (in thousands):

 

    Successor  
    License
Agreements
    Professional
Service
Agreements
    Total  
Deferred Revenue - March 15, 2023   $ 2,148     $ 386     $ 2,534  
Revenue recognized     (1,753 )     (504 )     (2,257 )
Revenue deferred     1,487       436       1,923  
Deferred Revenue - June 30, 2023   $ 1,882     $ 318     $ 2,200  

 

    Predecessor  
    License
Agreements
    Professional
Service
Agreements
    Total  
Deferred Revenue - January 1, 2022   $ 2,524     $ 622     $ 3,146  
Revenue recognized     (2,997 )     (2,044 )     (5,041 )
Revenue deferred     2,493       1,854       4,347  
Deferred Revenue - June 30, 2022   $ 2,020     $ 432     $ 2,452  

 

The fair value of the deferred revenue approximates the services to be rendered.

 

NOTE 9 – Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

    Successor     Predecessor  
    June 30,
2023
    December 31,
2022
 
Insurance premiums and accrued interest   $ 359     $ -  
Income tax payables     61       -  
Accrued services     120       -  
Accrued compensation and benefits   718       586  
Accrued bonus and commissions     298       422  
Accrued rent     -       559  
Accrued transaction costs     872       -  
Accrued other     504       83  
Accrued sales and other indirect taxes payable     13       86  
Accrued liabilities    $ 2,945     $ 1,736  

 

Financed Director & Officers Insurance

 

The Company entered into a Directors & Officers (“D&O”) insurance agreement with Oakwood D&O Insurance, effective on March 14, 2023. The agreement states that the Company will pay a total of $671 thousand in premiums at an annual percentage rate of 8%. The first of nine monthly separate installment payments began on April 14, 2023. As of June 30, 2023 (Successor) the Company has paid $313 thousand in premiums and currently owes $359 thousand on the D&O insurance policy.

 

20

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 10 – Warrant Liabilities

 

As of June 30, 2023 (Successor) there were 13,800 thousand Public Warrants outstanding. Each whole warrant entitles the holder thereof to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustments described in the Company’s registration statement on Form S-1 (Registration No. 333-249177) filed in connection with its initial public offering.

 

Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) April 13, 2023 which is 30 days after the completion of a Business Combination and (b) 12 months from the closing of the Initial Public Offering. The Public Warrants will expire on March 15, 2028 or earlier upon redemption or liquidation.

 

The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.

 

The Company has filed a registration statement on Form S-1 (Registration No. 333-271340) under the Securities Act on April 19, 2023 covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants, and will use its commercially reasonable efforts to have it declared effective by the SEC within 60 business days following a Business Combination. The Company will use its commercially reasonable efforts to maintain the effectiveness of such registration statement and a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but we will be required to use our commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

 

Redemptions of warrants when the price of Class A common stock equals or exceeds $18.00 – Once the warrants become exercisable, the Company may redeem the Public Warrants:

 

In whole and not in part;

 

At a price of $0.01 per warrant;

 

Upon not less than 30 days’ prior written notice of redemption, or the 30-day redemption period, to each warrant holder; and

 

If, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within a 30-day trading period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

 

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

 

21

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00 – Once the warrants become exercisable, the Company may redeem the outstanding warrants:

 

In whole and not in part;

 

At a price of $0.10 per warrant provided that holders will be able to exercise their warrants prior to redemption and receive that number of shares of Class A common stock determined based on the redemption date and the “fair market value” of the Company’s Class A common stock;

 

upon not less than 30 days’ prior written notice of redemption, or the 30-day redemption period;

 

if, and only if, the last reported sale price of the Company’s Class A common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) on the trading day prior to the date on which the Company sends the notice of redemption to the warrant holders;

 

if, and only if, there is an effective registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating thereto is available throughout the 30-day period after the written notice of redemption is given.

 

As of June 30, 2023 (Successor), there were 10,280 thousand Private Placement Warrants outstanding. The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

NOTE 11 – Stock Option Plan and Stock-Based Compensation

 

To calculate the stock-based compensation resulting from the issuance of options the Company uses the Black-Scholes option pricing model, which is affected by the Company’s fair value of its stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

 

2023 Equity Incentive Plan

 

At the special meeting held on March 10, 2023, the KINS stockholders considered and approved, among other things, the Incentive Plan. The Incentive Plan was previously approved, subject to stockholder approval, by KINS’ board of directors. The Incentive Plan became effective immediately upon the closing of the Business Combination. Pursuant to the terms of the Incentive Plan, there are 2,110,500 shares of CXApp Class A Common Stock available for issuance under the Incentive Plan, which is equal to 15% of the aggregate number of shares of CXApp common stock issued and outstanding immediately after the closing of the Business Combination(giving effect to the redemptions).

 

Employee Stock Options

 

During the period from March 15, 2023 to June 30, 2023 (Successor), a total of 1,377 thousand of stock options for the purchase of the Company’s common stock were granted to employees and directors of the Company. These options vest over a 2 year period, with 50% vested at the end of year one and 50% vested at the end of year two. The options have a life of 5 to 10 years and an exercise price of $1.53 per option. The stock options were valued using the Black-Scholes option valuation model and the weighted average fair value of the awards granted during the period was determined to be $0.63 per option on the grant date. The fair value of the common stock as of the grant date utilized in the Black-Scholes option valuation model was $1.53 per share.

 

22

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

See below for a summary of the stock options granted under the Incentive Plan:

 

    Number of
Options
    Weighted-average
exercise price
    Weighted average
remaining contractual
term (years)
   

Weighted-Average

Fair Value at
Grant Date

 
Options outstanding at March 15, 2023     -     $ -       -     $ -  
Granted     1,377,172       1.53                  
Forfeited     (392,272 )     1.53                  
Options outstanding at June 30, 2023     984,900     $ 1.53       5.47     $ 0.61  
Options exercisable at June 30, 2023     -     $ -       -          

 

The Company incurred stock-based compensation expenses associated with options of approximately $55 thousand, $57 thousand, $158 thousand, $355 thousand, and $1,002 thousand for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor), respectively, which is included in general and administrative expenses of the condensed consolidated statement of operations.

 

As of June 30, 2023 (Successor), the remaining unrecognized stock compensation expense totaled approximately $412 thousand. This amount will be recognized as expense over the weighted average remaining term of 1.75 years.

 

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key weighted-average assumptions used to apply this pricing model during the period from March 15, 2023 to June 30, 2023 (Successor) were as follows:

 

Risk-free interest rate     3.62% - 3.67%  
Expected life of option grants     5 - 7 years  
Expected volatility of underlying stock     37.35%
Dividends assumption   $-  

 

Restricted Stock Units

 

During the period from March 15, 2023 to June 30, 2023 (Successor), a total of 160 thousand restricted stock units of the Company’s common stock were granted to employees of the Company under the Incentive Plan at various dates. These restricted units vest over a 2 year period, with 50% vested at the end of year one and 50% vested at the end of year two. The fair value of the common stock as of the various grant dates was determined to be $9.98 to $11.80 per restricted stock unit, for a weighted average fair value of $11.12 per restricted stock unit. There was no other activity related to restricted stock units during the period from March 15, 2023 to June 30, 2023 (Successor).

 

Restricted stock unit compensation expense was $41 thousand for the three months ended June 30, 2023 (Successor) and for the period from March 15, 2023 to June 30, 2023 (Successor), which is included in general and administrative expenses of the condensed consolidated statement of operations.

 

As of June 30, 2023 (Successor), the Company has approximately $1,116 thousand of unrecognized restricted stock unit compensation to be expensed over a weighted average period of 2 years.

 

23

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12 – Fair Value of Financial Instruments

 

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The Company noted that the only financial asset or financial liability that is subject to the fair value framework established in ASC 820 are the Warrant Liabilities (Note 10). The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The Company classified the public placement warrants recorded at fair value on a recurring basis of $7,452 thousand as a level 1 input, as the fair value was determined using quoted prices of the security in active markets. The Company classified the private placement warrants liabilities recorded at fair value of $5,551 thousand as a level 2 input, as the fair value was determined utilizing the observable market price for the public placement warrants as the private placement warrants are not actively traded.

 

NOTE 13 – Income Taxes

 

The Company recorded an income tax benefit of approximately $981 thousand, $2,541 thousand, and $38 thousand for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor) and for the three months ended June 30, 2022 (Predecessor), respectively. The Company recorded an income tax expense of approximately $62 thousand for the six months ended June 30, 2022 (Predecessor). The Company did not incur income tax expense for the period from January 1, 2023 to March 14, 2023 (Predecessor).

 

The effective tax rate for three months ended June 30, 2023 (Successor) and for the period from March 15, 2023 to June 30, 2023 (Successor) was (6.24)% and (17.51)%, respectively. The income tax benefit for the period from March 15, 2023 to June 30, 2023 (Successor) is a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination. The effective tax rate differs from the U.S. Federal statutory rate primarily due to reversal of a valuation allowance on deferred tax assets and disallowance of losses relating to change in fair value of warrant liabilities. The Company acquired approximately $4,354 thousand of deferred tax liability associated with the Business Combination. As a result the Company released its valuation allowance as deferred tax assets become realizable.

 

NOTE 14 – Credit Risk and Concentrations

 

Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited.

 

The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. Cash is also maintained at foreign financial institutions for its Canadian and Philippines subsidiaries and its majority-owned India subsidiary. Cash in foreign financial institutions as of June 30, 2023 (Successor) was $195 thousand. Cash in foreign financial institutions as of December 31, 2022 (Predecessor) was not significant. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash.

 

24

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 15 – Foreign Operations

 

The Company’s operations are located primarily in the United States, Canada, and the Philippines. Revenues by geographic area are attributed by country of domicile of the Company’s subsidiaries. The financial data by geographic area are as follows (in thousands):

 

   

United

States

    Canada     India     Philippines     Eliminations     Total  
For the Three Months Ended June 30, 2023 (Successor):                                                
Revenues by geographic area   $ 1,550     $ 365     $ -     $ 219     $ (219 )   $ 1,915  
Operating income (loss) by geographic area   $ (2,926 )   $ (766 )   $ -     $ 9     $ -     $ (3,683 )
Net income (loss) by geographic area   $ (13,980 )   $ (761 )   $ -     $ 11     $ -     $ (14,730 )
                                                 
For the Period from March 15, 2023 to June 30, 2023 (Successor):                                                
Revenues by geographic area   $ 1,822     $ 435     $ -     $ 415     $ (415 )   $ 2,257  
Operating income (loss) by geographic area   $ (3,412 )   $ (924 )   $ -     $ 166     $ -     $ (4,170 )
Net income (loss) by geographic area   $ (11,200 )   $ (919 )   $ -     $ 168   $ (21 )    $ (11,972 )
                                                 
                                                 
For the Period from January 1, 2023 to March 14, 2023 (Predecessor):                                                
Revenues by geographic area   $ 1,395     $ 285     $ -     $ 160     $ (220 )   $ 1,620  
Operating income (loss) by geographic area   $ (3,479 )   $ (905 )   $ -     $ 3     $ -     $ (4,381 )
Net income (loss) by geographic area   $ (3,342 )   $ (1,041 )   $ -     $ 3     $ -     $ (4,380 )
                                                 
For the Three Months Ended June 30, 2022 (Predecessor):                                                
Revenues by geographic area   $ 1,718     $ 616     $ 144     $ -     $ (329 )   $ 2,149  
Operating income (loss) by geographic area   $ (8,710 )   $ (2,067 )   $ (29 )   $ (26 )   $ (14 )   $ (10,846 )
Net income (loss) by geographic area   $ (8,563 )   $ (2,460 )   $ 31     $ (28 )   $ (14 )   $ (11,034 )
                                                 
For the Six Months Ended June 30, 2022 (Predecessor):                                                
Revenues by geographic area   $ 3,885     $ 1,217     $ 414     $ -     $ (785 )   $ 4,731  
Operating income (loss) by geographic area   $ (9,360 )   $ (3,075 )   $ 43     $ (26 )   $ -     $ (12,418 )
Net income (loss) by geographic area   $ (9,082 )   $ (3,599 )   $ 4     $ (28 )   $ -     $ (12,705 )
                                                 
As of June 30, 2023 (Successor)                                                
Identifiable assets by geographic area   $ 71,911     $ 41     $ -     $ 410     $ (73 )    $ 72,289  
Long lived assets by geographic area   $ 20,290     $ 386     $ -     $ 195     $ -     $ 20,871  
Goodwill by geographic area   $ 44,200     $ -     $ -     $ -     $ -     $ 44,200  
                                                 
                                                 
As of December 31, 2022 (Predecessor)                                                
Identifiable assets by geographic area   $ 24,591     $ 5,484     $ 228     $ 415     $ (1,438 )   $ 29,280  
Long lived assets by geographic area   $ 15,558     $ 4,788     $ 98     $ 215     $ -     $ 20,659  
Goodwill by geographic area   $ -     $ -     $ -     $ -     $ -     $ -  

 

25

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 16 – Leases

 

The Company has operating leases for administrative offices in Canada, the Philippines, and the United States. The Manila, Philippines office lease expires in May 2025, the Canada lease expires in June 2026, and the United States office lease expires in May 2024. The Company has no other operating or financing leases with terms greater than 12 months.

 

Lease expense for operating leases recorded on the balance sheet is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in the Company’s condensed consolidated statement of operations for the three months ended June 30, 2023 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended June 30, 2022 (Predecessor), and for the six months ended June 30, 2022 (Predecessor) was approximately $56 thousand, $65 thousand, $57 thousand, $203 thousand, and $300 thousand, respectively.

 

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of ASC 842 “Leases” (“ASC 842”). As of June 30, 2023 (Successor), the weighted average remaining lease term is 2.7 years and the weighted average discount rate used to determine the operating lease liabilities was 8.0%. As of December 31, 2022 (Predecessor), the weighted average remaining lease term is 2.8 years and the weighted average discount rate used to determine the operating lease liabilities was 8.0%.

 

NOTE 17 – Commitments and Contingencies

 

Litigation

 

Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

26

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 18 – Subsequent Events

 

Warrant Exchange Agreement

 

On July 14, 2023, the Company entered into a Warrant Exchange Agreement (the “Agreement”) with an unaffiliated third party investor (the “Warrant Holder”) with respect to warrants to purchase an aggregate of 2,000 thousand shares of its common stock, par value $0.0001 per share (the “Common Stock”) initially issued by the Company in its initial public offering on December 15, 2020 (the “Public Warrants”). Pursuant to the Agreement, on July 14, 2023, the Company is issuing an aggregate of 600 thousand shares of Common Stock to the Warrant Holder in exchange for the surrender and cancellation of the Public Warrants held by such holder.

 

Exercise of Warrants

 

The Company notes that from July 1, 2023 to the date of these financial statements (August 14, 2023), warrant holders have redeemed approximately 435 thousand warrants at an exercise price of $11.50, for a total of approximately $5,003 thousand of cash proceeds to the Company.

 

27

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, with KIN’s consolidated financial statements included in its annual report on Form 10-K/A for the year ended December 31, 2022, as filed with the SEC on April 19, 2023, and the annual report of Legacy CXApp included as an exhibit in the Form 8-K, as filed with the SEC on March 20, 2023. References in this report (the “Quarterly Report”) to “we”, “us” or the “Company” refer to CXApp Inc. References to our “management” or our “management team” refer to our officers and directors. The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the period ended, June 30, 2023, for the predecessor and successor.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K/A filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview of Our Business

 

The CXApp SaaS platform offers a suite of leading-edge technology workplace experience solutions including an enterprise employee application, indoor mapping, on-device positioning, augmented reality technologies and an AI-based analytics platform, targeting the emerging hybrid workplace market to provide enhanced experiences across people, places, and things.

 

CXApp creates a connected workplace by reducing app overload, data fragmentation, and complex workflows and streamlines all capabilities through The Workplace SuperApp. All features, services, and integrations are housed in one easy-to-access platform allowing businesses to deliver a more holistic employee experience in a hybrid workplace.

 

Recent Events

 

The Business Combination

 

On September 25, 2022, Inpixon entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Inpixon, KINS Technology Group Inc., a Delaware corporation (“KINS”), CXApp Holding Corp., a Delaware corporation and newly formed wholly-owned subsidiary of Inpixon (“CXApp” and, together with Inpixon, collectively, the “Companies”), and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS acquired the company which consisted of Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”) in exchange for the issuance of shares of KINS capital stock valued at approximately $70,000 thousand (the “Business Combination”).

 

28

 

 

Immediately prior to the Merger (as defined below) and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon, CXApp and Design Reactor, Inc., a California corporation (“Design Reactor”) (the “Separation and Distribution Agreement”), and other ancillary conveyance documents, Inpixon, among other things and on the terms and subject to the conditions of the Separation and Distribution Agreement, transferred the Enterprise Apps Business, including certain related subsidiaries of Inpixon, including Design Reactor, to CXApp (the “Reorganization”) and, in connection therewith, distributed (the “Distribution”) to Inpixon securityholders and other security holders 100% of the common stock of CXApp, par value $0.00001 (the “CXApp Common Stock”), as further described below.

 

Immediately following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub merged with and into CXApp (the “Merger”), with CXApp continuing as the surviving company in the Merger and as a wholly-owned subsidiary of KINS.

 

On March 14, 2023 (the “Distribution Date”), Inpixon completed the Separation of its enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) and certain related assets and liabilities through a spin-off of Legacy CXApp to Inpixon’s shareholders of record as of March 6, 2023 (the “Record Date”) on a pro rata basis. Pursuant to the Transaction Agreements, Inpixon contributed (the “Contribution”) to Legacy CXApp cash and certain assets and liabilities constituting the Enterprise Apps Business, including certain related subsidiaries of Inpixon, to Legacy CXApp. In consideration for the Contribution, Legacy CXApp issued to Inpixon additional shares of Legacy CXApp common stock such that the number of shares of Legacy CXApp common stock then outstanding equaled the number of shares of Legacy CXApp common stock necessary to effect the Distribution. Pursuant to the Distribution, Inpixon shareholders as of the Record Date received one share of Legacy CXApp common stock for each share of Inpixon common stock held as of such date. Pursuant to the Merger Agreement, each share of Legacy CXApp common stock was thereafter exchanged for the right to receive 0.09752221612415190 of a share of New CXApp Class A common stock and 0.3457605844401750 of a share of New CXApp Class C common stock. New CXApp Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger.

 

Tax Matters Agreement

 

On March 14, 2023, in connection with the consummation of the Business Combination and as contemplated by the Separation Agreement, CXApp, Legacy CXApp and Inpixon entered into the Tax Matters Agreement (the “Tax Matters Agreement”) which governs each party’s respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes.

 

Warrant Exchange Agreement

 

On July 14, 2023, CXApp Inc. (the “Company”) entered into a Warrant Exchange Agreement (the “Agreement”) with an unaffiliated third party investor (the “Warrant Holder”) with respect to warrants to purchase an aggregate of 2,000 thousand shares of its common stock, par value $0.0001 per share (the “Common Stock”) initially issued by the Company in its initial public offering on December 15, 2020 (the “Public Warrants”). Pursuant to the Agreement, on July 14, 2023, the Company is issuing an aggregate of 600 thousand shares of Common Stock to the Warrant Holder in exchange for the surrender and cancellation of the Public Warrants held by such holder.

 

Exercise of Warrants

 

The Company notes that from July 1, 2023 to the date of these financial statements (August 14, 2023), warrant holders have exercised approximately 435 thousand warrants at an exercise price of $11.50, for a total of approximately $5,000 thousand of cash proceeds to the Company.

 

29

 

 

RESULTS OF OPERATIONS

 

Comparison of the results of operations for the three months ended June 30, 2023 and June 30, 2022

 

The following table sets forth our results of operations. This data should be read together with our unaudited financial statements and related notes.

 

    Successor     Predecessor  
(in thousands)   Three Months Ended
June 30,
2023
    Three Months Ended
June 30,
2022
 
Condensed Consolidated Statements of Operations Data                
Revenues   $ 1,915     $ 2,149  
Cost of revenues     480       540  
Gross profit     1,435       1,609  
Operating expenses     5,118       12,455  
Loss from operations     (3,683 )     (10,846 )
Other income (expense), net     (12,028 )     (226 )
Income tax benefit/(provision)     981       38  
Net loss   $ (14,730 )   $ (11,034 )

 

Revenues

 

The Company derives revenue from subscription software as a service, design, deployment and implementation services for its enterprise apps business. Revenue was $1,915 thousand and $2,149 thousand for the three months ended June 30, 2023 (Successor) and the three months ended June 30, 2022 (Predecessor), respectively. This decrease of $234 thousand is primarily attributable to timing of sales and level of bookings.

 

Gross Margin

 

Cost of revenues includes the direct costs to deliver the services including labor and overhead. Cost of revenues were $480 thousand and $540 thousand for the three months ended June 30, 2023 (Successor) and the three months ended June 30, 2022 (Predecessor), respectively. The gross profit margin was 75% and 75% for the three months ended June 30, 2023 (Successor) and the three months ended June 30, 2022 (Predecessor), respectively.

 

Operating Expenses

 

Operating expenses consist primarily of research and development costs, sales and marketing costs, and general and administrative costs. Operating expenses were $5,118 thousand and $12,455 thousand for the three months ended June 30, 2023 (Successor) and the three months ended June 30, 2022 (Predecessor), respectively. The decrease of $7,337 thousand for the three months ended June 30, 2023 (Successor) in operating expenses is primarily due to impairment of goodwill of approximately $5,540 thousand for the three months ended June 30, 2022 (Predecessor), and management making a concerted effort to cut costs post-business combination.

 

Other Income/(Expense)

 

Other income/(expense) was a $12,028 thousand expense and $226 thousand expense for the three months ended June 30, 2023 (Successor) and the three months ended June 30, 2022 (Predecessor), respectively. This increase in other expense was primarily attributable to changes in fair value of derivative warrant liabilities of $12,040 thousand during the three months ended June 30, 2023 (Successor).

 

30

 

 

Comparison of the results of operations for the period ended June 30, 2023 (Successor), period ended March 14, 2023 (Predecessor), and the six months ended June 30, 2022 (Predecessor)

 

The following table sets forth our results of operations. This data should be read together with our unaudited financial statements and related notes.

 

    Successor     Predecessor  
(in thousands)   Period from
March 15, 2023
to June 30,
2023
    Period from
January 1, 2023
to March 14,
2023
   

Six months ended
June 30,

2022

 
Condensed Consolidated Statements of Operations Data                        
Revenues   $ 2,257     $ 1,620     $ 4,731  
Cost of revenues     567       483       1,129  
Gross profit     1,690       1,137       3,602  
Operating expenses     5,860       5,518       16,020  
Loss from operations     (4,170 )     (4,381 )     (12,418 )
Other income (expense), net     (10,343 )     1       (225 )
Income tax benefit/(provision)     2,541       -       (62 )
Net loss   $ (11,972 )   $ (4,380 )   $ (12,705 )

 

Revenues

 

The Company derives revenue from subscription software as a service, design, deployment and implementation services for its enterprise apps business. Revenue was $2,257 thousand and $1,620 thousand for the period from March 15, 2023 to June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively, compared to $4,731 thousand for the six months ended June 30, 2022 (Predecessor). This decrease of $854 thousand is primarily attributable to timing of sales and level of bookings.

 

Gross Margin

 

Cost of revenues includes the direct costs to deliver the services including labor and overhead. Cost of revenues were $567 thousand and $483 thousand for the period from March 15, 2023 to June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively, compared to $1,129 thousand for the six months ended June 30, 2022 (Predecessor). The gross profit margin was 75% and 70% for the period from March 15, 2023 to June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively, compared to 76% for the six months ended June 30, 2022 (Predecessor). This fluctuation in gross margin is primarily due to the sales mix during the year and the timing of related support expenses.

 

Operating Expenses

 

Operating expenses consist primarily of research and development costs, sales and marketing costs, and general and administrative costs. Operating expenses were $5,860 thousand and $5,518 thousand for the period from March 15, 2023 to June 30, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively, compared to $16,020 thousand for the six months ended June 30, 2022 (Predecessor). This decrease of $4,642 thousand is primarily attributable to impairment of goodwill of $5,540 thousand for the six months ended June 30, 2022 (Predecessor), and management making a concerted effort to cut costs post-business combination. For the six months ended June 30, 2022 (Predecessor) recorded approximately $2,827 thousand benefit related to the change in fair value of an earnout.

 

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Other Income/(Expense)

 

Other income/(expense) was $10,343 thousand in expense and $1 thousand in income for the period from March 15, 2023 to June 30, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively, compared to $225 thousand in expense for the six months ended June 30, 2022 (Predecessor). This increase in other income (expense) was primarily attributable to changes in fair value of derivative warrant liabilities of $10,354 thousand during the six months ended June 30, 2022 (Predecessor).

 

Provision for Income Taxes

 

There was an income tax benefit of approximately $2,541 thousand and zero for the period from March 15, 2023 to June 30, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively, compared income tax expense of $62 thousand for the six months ended June 30, 2022 (Predecessor). The income tax benefit for the six months ended June 30, 2023 (Successor) is primarily a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination recorded in the first quarter of 2023.

 

Non-GAAP Financial information

 

EBITDA

 

The Company includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as earnings before interest and other income, tax and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non- recurring items and non-cash stock-based compensation. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability between periods.

 

Adjusted EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net income for the periods indicated (in thousands).

 

    Successor     Predecessor  
   

Three Months Ended
June 30,

2023

    Period from
March 15, 2023
to June 30,
2023
   

Period from

January 1, 2023
to March 14,
2023

    Three Months Ended
June 30,
2022
   

Six months ended
June 30,

2022

 
Net loss   $ (14,730 )   $ (11,972 )   $ (4,380 )   $ (11,034 )   $ (12,705 )
Interest and other income     (5 )      (4 )      (1 )      (8 )      (9 ) 
Income tax (benefit)/provision     (981 )      (2,541 )      -       (38 )      62
Depreciation and amortization     721       841       1,034       1,138       2,258  
EBITDA     (14,995 )     (13,676 )     (3,347 )     (9,942 )     (10,394 )
Adjusted for:                                        
Earnout compensation expense (benefit)     -       -       -       -       (2,827 )
Changes in fair value of warrant liabilities     12,040       10,354       -       -       -  
Unrealized (gains) losses     -       (4 )     (32 )     -       172  
Impairment of goodwill     -       -       -       5,540       5,540  
Stock-based compensation - compensation and related benefits     96       98       158       355       1,002  
Adjusted EBITDA   $ (2,859 )   $ (3,228 )    $ (3,221 )   $ (4,047 )   $ (6,507 )

 

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We rely on Adjusted EBITDA, which is a non-GAAP financial measure for the following:

 

To compare our current operating results with corresponding periods and with the operating results of other companies in our industry;

 

As a basis for allocating resources to various projects;

 

As a measure to evaluate potential economic outcomes of acquisitions, operational alternatives and strategic decisions; and

 

To evaluate internally the performance of our personnel.

 

We have presented Adjusted EBITDA above because we believe it conveys useful information to investors regarding our operating results. We believe it provides an additional way for investors to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss). By including this information, we can provide investors with a more complete understanding of our business. Specifically, we present Adjusted EBITDA as supplemental disclosure because of the following:

 

We believe Adjusted EBITDA is a useful tool for investors to assess the operating performance of our business without the effect of interest, income taxes, depreciation and amortization and other non- cash items including acquisition transaction and financing costs, impairment, unrealized gains, stock based compensation, interest income and expense, and income tax benefit.

 

We believe that it is useful to provide to investors with a standard operating metric used by management to evaluate our operating performance; and

 

We believe that the use of Adjusted EBITDA is helpful to compare our results to other companies.

 

Even though we believe Adjusted EBITDA is useful for investors, it does have limitations as an analytical tool. Thus, we strongly urge investors not to consider this metric in isolation or as a substitute for net income (loss) and the other condensed consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include the fact that:

 

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

Adjusted EBITDA does not reflect income or other taxes or the cash requirements to make any tax payments; and

 

Other companies in our industry may calculate Adjusted EBITDA differently than we do, thereby potentially limiting its usefulness as a comparative measure.

 

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of performance in compliance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and providing Adjusted EBITDA only as supplemental information.

 

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Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities.

 

As of June 30, 2023 (Successor) the Company has a working capital deficit of approximately $12,126 thousand and cash of approximately $4,543 thousand. For the three months ended June 30, 2023 (Successor), and for the period from March 15, 2023 to June 30, 2023 (Successor) the Company incurred net loss of approximately $14,730 thousand and $11,972 thousand, respectively. For the period from March 15, 2023 to June 30, 2023 (Successor) the Company used approximately $6,598 thousand of cash for operating activities, of which $4,399 thousand was from a reduction in accrued liabilities, primarily paying merger related transaction liabilities. The Company notes that from July 1, 2023 to the date of these financial statements (August 14, 2023), warrant holders have exercised approximately 435 thousand warrants at an exercise price of $11.50, for a total of $5,000 thousand in cash proceeds to the Company. Additionally, the Company has a cash balance of $8,490,084.25 as of August 1, 2023.

 

Financing Obligations and Requirements

 

The Company cannot assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. To the extent that our resources from the business combination are insufficient to satisfy our cash requirements, we may enter into equity or debt financing transactions. These transactions are expected to provide us additional cash to fund our capital and liquidity requirements in the short and long-term. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, or eliminating redundancies, which may adversely affect our business, operating results, financial condition and prospects. Our business has been impacted by the COVID-19 pandemic and general macroeconomic conditions and may continue to be impacted. While we have been able to continue operations remotely, we have and continue to experience impact in the demand of certain products and delays in certain projects and customer orders either because customer facilities being partially or fully closed during the pandemic or because of the uncertainty of the customer’s financial position and ability to invest in our technology.

 

The total impact that COVID-19 and general macroeconomic conditions may continue to impact our results of operations continues to remain uncertain and there are no assurances that we will be able to continue to experience the same growth or not be materially adversely affected. The Company’s recurring losses and utilization of cash in its operations are indicators of going concern however with the Company’s current liquidity position and access to capital markets, the Company believes it has the ability to mitigate such concerns for a period of at least one year from the date this financial statements were made issued.

 

34

 

 

Liquidity and Capital Resources

 

The Company’s net cash flows used in operating, investing and financing activities and certain balances are as follows (in thousands):

 

    Successor     Predecessor  
   

Period from
March 15, 2023
to June 30,
2023

    Period from
January 1, 2023
to March 14,
2023
    Six Months ended
June 30,
2022
 
Cash flows (used in) provided by                  
Net cash used in operating activities   $ (6,598 )   $ (5,144 )   $ (7,386 )
Net cash provided by (used in) investing activities     9,977       (54 )     (209 )
Net cash (used in) provided by financing activities     (328 )     8,892       8,551  
Effect of exchange rates on cash     (11 )     1       166  
Net increase in cash and cash equivalents   $ 3,040     $ 3,695     $ 1,122  

 

    Successor     Predecessor  
    June 30,
2023
   

December 31,

2022

 
Cash and cash equivalents   $ 4,543     $ 6,308  
Working capital deficit   $