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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 September 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 November 14, 2023, there were 15,254,389 shares of Class A 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 September 30, 2023 (unaudited) (Successor) and December 31, 2022 (Predecessor)   1
      Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 2023 (Successor), the period from March 15, 2023 to September 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the three and nine months ended September 30, 2022 (Predecessor)   2
      Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the three and nine months ended September 30, 2022 (Predecessor)   3
      Unaudited Condensed Consolidated Statements of Cash Flows for the period from March 15, 2023 to September 30, 2023 (Successor), the period from January 1, 2023 to March 14, 2023 (Predecessor), and the nine months ended September 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 
   September 30,
2023
     December 31,
2022
 
   (unaudited)       
Assets            
             
Current Assets            
Cash and cash equivalents  $7,179     $6,308 
Accounts receivable   839      1,338 
Notes and other receivables   230      273 
Prepaid expenses and other current assets   1,016      650 
Total current assets   9,264      8,569 
             
Property and equipment, net   126      202 
Intangible assets, net   19,359      19,289 
Operating lease right-of-use asset, net   574      681 
Software development costs, net   -      487 
Goodwill   44,200      - 
Other assets   77      52 
             
Total Assets  $73,600     $29,280 
             
Liabilities and Stockholders’ Equity            
             
Current Liabilities            
Accounts payable  $983     $1,054 
Accrued liabilities   2,668      1,736 
Deferred revenue   1,973      2,162 
Acquisition liability   -      197 
Warrant liability   2,103      - 
Operating lease obligation, current   321      266 
Total current liabilities   8,048      5,415 
             
Operating lease obligation, noncurrent   273      444 
Other liabilities   -      30 
Deferred tax liability   1,397      - 
             
Total Liabilities   9,718      5,889 
             
Commitments and Contingencies            
             
Stockholders’ Equity            
Class A Common Stock, $0.0001 par value; 200,000,000 shares authorized, 15,254,389 shares issued and outstanding as of September 30, 2023   2      - 
Class C Common Stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2023   -      - 
Additional paid-in capital   83,162      - 
Accumulated deficit   (19,274)     - 
Accumulated other comprehensive income (loss)   (8)     1,155 
Net parent investment   -      22,236 
Total Stockholders’ Equity   63,882      23,391 
             
Total Liabilities and Stockholders’ Equity  $73,600     $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 INCOME (LOSS)

(in thousands, except share and per share data)

 

                             
   Successor      Predecessor 
   Three Months Ended
September 30,
2023
   Period from
March 15, 2023
to
September 30,
2023
      Period from
January 1, 2023
to
March 14,
2023
   Three Months Ended
September 30,
2022
   Nine Months Ended
September 30,
2022
 
Revenues  $1,770   $4,027      $1,620   $1,742   $6,473 
                             
Cost of Revenues   358    925       483    499    1,628 
                             
Gross Profit   1,412    3,102       1,137    1,243    4,845 
                             
Operating Expenses                            
Research and development   1,568    3,447       1,455    2,508    6,929 
Sales and marketing   1,068    2,419       964    1,146    3,872 
General and administrative   2,278    3,931       2,293    6,134    7,503 
Acquisition related costs   30    194       -    -    16 
Amortization of intangible assets   697    1,510       806    971    2,919 
Impairment of Goodwill   -    -       -    -    5,540 
Total Operating Expenses   5,641    11,501       5,518    10,759    26,779 
                             
Loss from Operations   (4,229)   (8,399)      (4,381)   (9,516)   (21,934)
                             
Other Income (Expense)                            
Interest income (expense), net   57    61       1    (6)   3 
Change in fair value of derivative liability   5,220    (5,134)      -    -    - 
Other expense, net   (24)   (17)      -    (1,407)   (1,641)
Total Other Income (Expense)   5,253    (5,090)      1    (1,413)   (1,638)
                             
Net Income (Loss), before tax   1,024    (13,489)      (4,380)   (10,929)   (23,572)
Income tax benefit/(provision)   417    2,958       -    -    (62)
Net Income (Loss)  $1,441   $(10,531)     $(4,380)  $(10,929)  $(23,634)
Unrealized foreign exchange gain/(loss) from cumulative translation adjustments   31    (8)      (28)   1,110    1,315 
Comprehensive Income (Loss)  $1,472   $(10,539)     $(4,408)  $(9,819)  $(22,319)
                             
Basic and diluted weighted average shares outstanding, Class A common stock   10,818    9,675                   
Basic and diluted net income (loss) per share, Class A common stock  $0.13   $(1.09)                  

 

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 (loss)
   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 
Net loss   (10,929)   -    (10,929)
Stock-based compensation allocated from parent   323    -    323 
Net investments from parent   8,466    -    8,466 
Cumulative translation adjustment   -    1,110    1,110 
Balance at September 30, 2022  $20,406   $1,371   $21,777 
                
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   income (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 
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 
Net income   -    -    -    -    -    1,441    -    1,441 
Stock-based compensation   -    -    -    -    653    -    -    653 
Warrant exchange to Class A common stock   600,000    -    -    -    4,914    -    -    4,914 
Warrant exercise – cash and cashless   484,608    -    -    -    5,768    -    -    5,768 
Mandatory conversion from Class C common stock to Class A common stock    5,487,300    1    (5,487,300)   (1)   -    -    -    - 
Common stock issuance   99,782    -    -    -    195    -    -    195 
Cumulative translation adjustment   -    -    -    -    -    -    31    31 
Balance at September 30, 2023   15,254,389   $2    -   $-   $83,162   $(19,274)  $(8)  $63,882 

 

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
September 30,
2023
     

Period from
January 1, 2023
to

March 14,
2023

   Nine Months ended
September 30,
2022
 
Operating activities                  
Net loss  $(10,531)     $(4,380)  $(23,634)
Adjustments to reconcile net loss to net cash used in operating activities                  
Depreciation and amortization   52       228    484 
Amortization of intangible assets   1,510       806    2,919 
Amortization of right of use asset   200       40    206 
Deferred income taxes   (2,957)      -    - 
Provision for bad debt expense   (11)      -    5 
Stock-based compensation expense   857       158    1,325 
Gain on change in fair value of earnout payable   -       -    (2,827)
(Gain) loss on foreign currency transactions   20       (32)   1,546 
Change in fair value of derivative liability   5,134       -    - 
Impairment of goodwill   -       -    5,540 
Other   -       -    (391)
Change in operating assets and liabilities:                  
Accounts receivable and other receivables   1,400       (857)   280 
Prepaid expenses and other current assets   339       (20)   (1,155)
Other assets   (37)      -    13 
Accounts payable   494       (796)   131 
Accrued liabilities   (4,666)      (787)   1,301 
Income tax liabilities   -       -    (517)
Operating lease liabilities   (202)      (38)   (197)
Deferred revenue   (539)      534    (510)
Net cash used in operating activities   (8,937)      (5,144)   (15,481)
                   
Investing activities                  
Purchases of property and equipment   (47)      (9)   (72)
Investment in capitalized software   -       (45)   (287)
Cash acquired in connection with Business Combination   10,003       -    - 
Net cash provided by (used in) investing activities   9,956       (54)   (359)
                   
Financing activities                  
Net equity investment from parent   -       9,089    18,967 
Taxes paid related to stock-based compensation   -       -    (104)
Repayment of CXApp acquisition liability   -       (197)   (1,957)
Warrant exercise - net   5,002              
Repayment of related party promissory note   (328)      -    - 
Net cash provided by financing activities   4,674       8,892    16,906 
                   
Effect of exchange rate changes on cash and cash equivalents   (17)      1    (75)
Net increase in cash and cash equivalents   5,676       3,695    991 
Cash and cash equivalents, beginning of period   1,503       6,308    5,028 
Cash and cash equivalents, end of period  $7,179      $10,003   $6,019 
                   
Supplemental disclosures of cash flow information                  
Cash paid for taxes  $1      $-   $100 
Cash paid for interest  $12      $-   $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      $-   $- 
Warrant exercise - cashless  $549       $-   $- 
Warrant exchange to Class A common stock  $4,914       $-   $- 

 

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 or any other period. 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 years ended December 31, 2022 and 2021 included in the annual report on Form 10-K/A for the years 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. 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 September 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 September 30, 2023 (Successor) the Company had a working capital of approximately $1,216 thousand and cash and cash equivalents of approximately $7,179 thousand. For the three months ended September 30, 2023 (Successor), and for the period from March 15, 2023 to September 30, 2023 (Successor) the Company generated net income of approximately $1,441 thousand and incurred $10,531 thousand of net loss, respectively. For the period from March 15, 2023 to September 30, 2023 (Successor) the Company used approximately $8,937 thousand of cash for operating activities, of which $4,666 thousand was from a reduction in accrued liabilities, primarily paying merger related transaction liabilities.

 

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 these actions when implemented will result to operational efficiencies, cost savings to the company, and access to funds when and if needed. 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 September 30, 2023 (Successor), the Company had cash equivalents of approximately $6,362 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 uncollectability. Allowance for credit losses 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 September 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 September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended September 30, 2022 (Predecessor), and for the nine months ended September 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 September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the three months ended September 30, 2022 (Predecessor). The Company incurred an impairment charge of approximately $5,540 thousand for the nine months ended September 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 September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended September 30, 2022 (Predecessor), and for the nine months ended September 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 differs 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 September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), three months ended September 30, 2022 (Predecessor), and nine months ended September 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 $1,973 thousand and $2,162 thousand as of September 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 $893 thousand, $865 thousand, and $2,747 thousand, that was included in the contract liability balance at the beginning of the period, for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the nine months ended September 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 minimis 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 nonemployee 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 nonemployee 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 $5,220 thousand of a gain for the three months ended September 30, 2023 (Successor) and $5,134 thousand of a loss for the period from March 15, 2023 to September 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 September 30, 2023 (Successor) and for the period from March 15, 2023 to September 30, 2023 (Successor) basic and dilutive net income (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 income per common share for the three months ended September 30, 2023 (Successor) and net loss for the period from March 15, 2023 to September 30, 2023 (Successor).

 

          
   Successor 
(in thousands)  Three Months Ended
September 30,
2023
   Period from
March 15, 2023
to
September 30,
2023
 
Stock options   985    985 
Restricted stock units   821    821 
Warrants   21,032    21,032 
Total   22,838    22,838 

 

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. The fair value of the warrants has been measured based on the listed market price of such warrants, a Level 1 measurement. For the three month ended September 30, 2023 (Successor), the Company recognized an unrealized gain in the Statements of Operations and Comprehensive Income of $5,220 thousand which is presented as change in fair value of derivative liability. See Note 10.

 

The Company accounts for its public and private warrants as a derivative liability initially measured at its fair values and remeasured in the condensed consolidated statements of operations at the end of each reporting period. When the warrants are exercised, the corresponding derivative liability is de-recognized at the underlying fair value of the Class A common stock that is issued to the warrant holder less any cash paid in accordance with the warrant agreement. Upon either cash or cashless exercise, the de-recognized derivative liability results in an increase in additional paid in capital equal to the difference between the fair value of the underlying Class A common stock and its par value. A cashless exercise results in the warrant holder surrendering Class A common stock equal to the stated warrant exercise price based on the contractual terms in the warrant agreement that governs the cashless conversion.

 

The following table shows the changes in fair value of the liabilities during the three months ended September 30, 2023:

 

     
Balance at March 15, 2023  $2,649 
Change in FV of derivative instruments   (1,686)
Balance at March 31, 2023   963 
Change in FV of derivative instruments   12,040 
Balance at June 30, 2023  $13,003 
Change in FV of derivative instruments   (5,220)
Warrants exchanged for Class A common stock (see Note 10 - Warrants)   (4,914)
Warrants exercised for Class A common stock (see Note 10 - Warrants)   (766)
Balance at September 30, 2023  $2,103 

 

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.

 

13

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

Based on its assessments, the Company recorded no impairment charges on long-lived assets for the three months ended September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended September 30, 2022 (Predecessor), and for the nine months ended September 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 evaluating the impact of the adoption of this ASU will have on the Company's consolidated financial position and results of operations.

 

In October 2023, the FASB issued ASU 2023-06 “Disclosure Improvements”, which amends the codification in response to the SEC’s Disclosure Update and Simplification Initiative. The effective date of this update is for fiscal years beginning after June 30, 2027, including interim periods within those fiscal years. The Company is currently assessing potential impacts of ASU 2023-03 and ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements and disclosures.

 

14

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 which has expired 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.

 

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   3 years  
Property and equipment, net   133   3 years  
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      

 

15

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 $3,194 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 $194 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 September 30, 2023 (Successor) and the period from March 15, 2023 to September 30, 2023 (Successor).

 

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 September 30, 2023 (Successor), there was no measurement period adjustment.

 

CXApp Proforma Financial Information

 

The following unaudited proforma financial information presents the condensed consolidated results of operations of the Company for the nine-month period ended September 30, 2023, the nine months ended September 30, 2022, and the three months ended September 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
Nine Months Ended
September 30,
2023
   For the
Nine Months Ended
September 30,
2022
   For the
Three Months Ended
September 30,
2022
 
Revenues  $5,647   $6,473   $1,742 
Net loss  $(19,197)  $(4,822)  $(10,057)

 

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

September 30,

2023

   Period from
March 15, 2023
to
September 30,
2023
    

Period from
January 1, 2023
to
March 14,

2023

   Three months ended
September 30,
2022
   Nine Months Ended
September 30,
2022
 
Subscription revenue                           
Software  $1,411   $3,164     $1,204   $1,371   $3,992 
Total subscription revenue  $1,411   $3,164     $1,204   $1,371   $3,992 
                            
Non-subscription revenue                           
Professional services  $359   $863     $416   $371   $2,481 
Total non-subscription revenue  $359   $863     $416   $371   $2,481 
                            
Total Revenue  $1,770   $4,027     $1,620   $1,742   $6,473 

 

   Successor     Predecessor 
   Three Months Ended
September 30,
2023
   Period from
March 15, 2023
to
September 30,
2023
     Period from
January 1, 2023
to
March 14,
2023
   Three months ended
September 30,
2022
   Nine Months Ended
September 30,
2022
 
Revenue recognized over time(1)(2)  $1,770   $4,027     $1,620   $1,742   $6,473 
Total  $1,770   $4,027     $1,620   $1,742   $6,473 

 

 
(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.
(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 
   September 30,
2023
     December 31,
2022
 
Computer and office equipment  $159     $992 
Furniture and fixtures   11      185 
Leasehold improvements   5      28 
Software   1      8 
Total   176      1,213 
Less: accumulated depreciation and amortization   (50)     (1,011)
Total Property and Equipment, Net  $126     $202 

 

Depreciation and amortization expense were approximately $24 thousand, $52 thousand, $19 thousand, $24 thousand, and $90 thousand for the three months ended September 30, 2023 (Successor), for the period from March 15, 2023 to September 30, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended September 30, 2022 (Predecessor), and for the nine months ended September 30, 2022 (Predecessor), respectively.

 

NOTE 6 – Software Development Costs, net

 

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

 

            
   Successor     Predecessor 
   September 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, $150 thousand, and $394 thousand for the period from January 1, 2023 to March 14, 2023 (Predecessor), for the three months ended September 30, 2022 (Predecessor), and for the nine months ended September 30, 2022 (Predecessor), respectively. There was no amortization expense for capitalized software development costs for the three months ended September 30, 2023 (Successor) and for the period from March 15, 2023 to September 30, 2023 (Successor).

 

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 September 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 September 30, 2023.

 

As of September 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 September 30, 2022 (Predecessor) and for the nine months ended September 30, 2022 (Predecessor), the Company recognized approximately $0 and $5,540 thousand of goodwill impairment, respectively.

 

18

 

 

CXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 September 30, 2023  $44,200 

 

Intangible assets consisted of the following (in thousands):

 

                                    
   September 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  6.4   $3,294   $ (255) $3,039     $2,183   $ (725) $1,458 
Customer Relationships  4.4    5,604     (607)  4,997      6,401     (1,765)  4,636 
Developed Technology  9.4    9,268     (502)  8,766      15,179     (3,398)  11,781 
Non-compete Agreements  -