UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-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, 2023March 31, 2021
☐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: File Number: 001-39642
001-39642CXApp Inc.
(Exact name of Registrant as Specified in Its Charter)
| 85-2104918 | |
| ||
|
|
|
|
|
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Four Palo Alto Square
, |
|
|
3000 El Camino Real
|
|
|
Palo Alto, CA94306
(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 | Name of each exchange | ||
|
| Nasdaq Stock Market LLC | ||
|
| The Nasdaq Stock Market LLC | ||
|
|
|
CheckIndicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,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 Exchange Act). Yes ☐ No⌧ No ◻ ☒
As of July 13, 2021,August 14, 2023, there were 27,600,000 shares of Class A common stock, $0.0001 par value, and 6,900,000 shares of Class BC common stock, $0.0001 par value, issued and outstanding.
CXAPP, INC.
KINS TECHNOLOGY GROUP INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021
TABLE OF CONTENTS
i
PART I -I. FINANCIAL INFORMATION
Item 1.1: Interim Financial Statements.Statements
KINS TECHNOLOGY GROUP
CXAPP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
| | (Unaudited) | | | ||
ASSETS | | | | | | |
Current assets | | | | | | |
Cash | | $ | 778,489 | | $ | 1,019,026 |
Prepaid expenses | |
| 431,766 | |
| 456,634 |
Total Current Assets | | | 1,210,255 | | | 1,475,660 |
| |
| | |
| |
Cash and marketable securities held in Trust Account | | | 278,813,897 | | | 278,767,785 |
TOTAL ASSETS | | $ | 280,024,152 | | $ | 280,243,445 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Current liabilities | | | | | | |
Accrued expenses | | $ | 326,475 | | $ | 194,699 |
Accrued offering costs | | | 17,579 | | | 17,579 |
Total Current Liabilities | | | 344,054 | | | 212,278 |
| | | | | | |
Warrant liability | |
| 15,652,000 | |
| 21,912,800 |
Deferred underwriting fee payable | |
| 9,660,000 | |
| 9,660,000 |
Total Liabilities | |
| 25,656,054 | |
| 31,785,078 |
| |
|
| |
|
|
Commitments and Contingencies | |
|
| |
|
|
| | | | | | |
Class A common stock subject to possible redemption 24,689,910 and 24,104,788 shares at $10.10 per share redemption value as of March 31, 2021 and December 31, 2020, respectively | | | 249,368,091 | | | 243,458,359 |
| |
| | |
| |
Stockholders’ Equity | |
| | |
| |
Preferred stock, $0.0001 par value; 2,000,000 shares authorized; none issued or outstanding | |
| — | |
| — |
Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 2,910,090 and 3,495,212 shares issued and outstanding (excluding 24,689,910 and 24,104,788 shares subject to possible redemption) at March 31, 2021 and December 31, 2020, respectively | |
| 291 | |
| 350 |
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 6,900,000 shares issued and outstanding at March 31, 2021 and December 31, 2020 | |
| 690 | |
| 690 |
Additional paid-in capital | |
| 3,173,795 | |
| 9,083,468 |
Retained Earnings (Accumulated deficit) | |
| 1,825,231 | |
| (4,084,500) |
Total Stockholders’ Equity | |
| 5,000,007 | |
| 5,000,008 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 280,024,152 | | $ | 280,243,445 |
(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, $ par value; shares authorized, shares issued and outstanding as of June 30, 2023 | 1 | - | ||||||
| Class C Common Stock, $ par value; shares authorized, 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
KINS TECHNOLOGY GROUP
CXAPP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND COMPREHENSIVE LOSS
(UNAUDITED)
| | | |
Operating and formation costs |
| $ | 397,205 |
Loss from operations | | | (397,205) |
| | | |
Other income: | | | |
Interest earned on marketable securities held in Trust Account | | | 46,112 |
Interest income - bank | | | 24 |
Change in fair value of warrant liability | | | 6,260,800 |
Other income, net | | | 6,306,936 |
| | | |
Net income | | $ | 5,909,731 |
| |
| |
Weighted average shares outstanding, Class A redeemable common stock | |
| 27,600,000 |
| | | |
Basic and diluted net income per share, Class A redeemable common stock | | $ | 0.00 |
| | | |
Weighted average shares outstanding, Class B non-redeemable common stock | |
| 6,900,000 |
| | | |
Basic and diluted net loss per share, Class B non-redeemable common stock | | $ | 0.86 |
(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 | ||||||||||||||||||||
| Basic and diluted net loss per share, Class A common stock | $ | ) | $ | ) | ||||||||||||||||
| Basic and diluted weighted average shares outstanding, Class C common stock | ||||||||||||||||||||
| Basic and diluted net loss per share, Class C common stock | $ | ) | $ | ) | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
KINS TECHNOLOGY GROUP
CXAPP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED March 31, 2021
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (Accumulated | | | | |
| | Class A | | Class B | | Additional | | Deficit) | | Total | |||||||||
| | Common Stock | | Common Stock | | Paid-in | | Retained | | Stockholders’ | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Equity | |||||
Balance — January 1, 2021 | | 3,495,212 | | $ | 350 | | 6,900,000 | | $ | 690 | | $ | 9,083,468 | | $ | (4,084,500) | | $ | 5,000,008 |
|
| | |
| | | | | | | |
| | |
| | |
| |
Change in value of Class A common stock subject to redemption | | (585,122) | | | (59) | | — | | | — | | | (5,909,673) | | | 0 | | | (5,909,732) |
| | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| — | | — | | | — | |
| 0 | |
| 5,909,731 | |
| 5,909,731 |
| | | | | | | | | | | | | | | | | | | |
Balance — March 31, 2021 |
| 2,910,090 | | $ | 291 | | 6,900,000 | | $ | 690 | | $ | 3,173,795 | | $ | 1,825,231 | | $ | 5,000,007 |
(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 | 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
KINS TECHNOLOGY GROUP
CXAPP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED March 31, 2021
(UNAUDITED)
| | | |
Cash Flows from Operating Activities: |
|
| |
Net income | | $ | 5,909,731 |
Adjustments to reconcile net income to net cash used in operating activities: | |
| |
Interest earned on marketable securities held in Trust Account | | | (46,112) |
Change in fair value of warrant liability | | | (6,260,800) |
Changes in operating assets and liabilities: | |
|
|
Prepaid expenses | | | 24,868 |
Accrued expenses | |
| 131,776 |
Net cash used in operating activities | |
| (240,537) |
| | | |
Net Change in Cash | |
| (240,537) |
Cash – Beginning of period | |
| 1,019,026 |
Cash – End of period | | $ | 778,489 |
| |
| |
Non-Cash Investing and Financing Activities: | |
| |
Change in value of Class A common stock subject to possible redemption | | $ | 5,909,732 |
(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
Table of Contents
KINS TECHNOLOGY GROUPCXAPP INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS1 – Organization, Nature of Business and Basis of Presentation
KINS Technology Group
CXApp Inc. (theand its subsidiaries (“CXApp” or the “Company”) was incorporatedis in Delawarethe business of delivering intelligent enterprise workplace experiences. The CXApp SaaS platform is anchored on July 20, 2020. The Company was formedthe intersection of customer experience (CX) and artificial intelligence (AI) providing digital transformation for the purposephysical workplace for enhanced experiences across people, places and things.
The CXApp SaaS platform offers a suite of effectingleading-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 merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with 1 orconnected 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 businesses (the “Business Combination”). holistic employee experience in a hybrid workplace.
The Company is not limited to a particular industry or sector for purposesaccompanying unaudited condensed consolidated financial statements of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associatedhave been prepared in accordance with early stage and emerging growth companies.
As of March 31, 2021, the Company had not commenced any operations. All activity for the period from July 20, 2020 (inception) through March 31, 2021 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering became effective on December 14, 2020. On December 17, 2020 the Company consummated the Initial Public Offering of 27,600,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriter of its over-allotment option in the amount of 3,600,000 Units, at $10.00 per Unit, generating gross proceeds of $276,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 10,280,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to KINS Capital LLC (the “Sponsor”) and certain funds and accounts managed by BlackRock, Inc. (the “Direct Anchor Investors” and which the Direct Anchor Investors, together with the Sponsor, are the “initial stockholders”), generating gross proceeds of $10,280,000,which is described in Note 4.
Transaction costs incurred amounted to $15,688,848, consisting of $5,520,000 in cash underwriting fees, $9,660,000 of deferred underwriting fees and $508,848 of other offering costs, of which $15,220,533 was charged to equity and $468,315 was allocated to the warrant liability and expensed through the Statement of Operations.
Following the closing of the Initial Public Offering on December 17, 2020, an amount of $278,760,000 ($10.10 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), locatedgenerally accepted accounting principles in the United States of America (“GAAP”), for interim financial information and invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16)rules and regulations of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial Business Combinations with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the Trust Account). The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act.
5
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The Company will provide the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $10.10 per Public Share, plus any pro rata interest then in the Trust Account, net of taxes payable). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will only proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 following any related redemptions and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, CXApp does not include all of the information and file tender offer documentsfootnotes 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 prior to completing a Business Combination. If, however, stockholder approvalon April 19, 2023, and the annual report of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation will provide that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 20% of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed (a) to waive its redemption rights with respect to the Founder Shares and Public Shares held by it in connection with the completion of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination or to redeem 100% of its Public Shares if the Company does not complete a Business Combination within the Combination PeriodLegacy CXApp (as defined below) or (ii) with respectfor the year ended December 31, 2022 and 2021 included as an exhibit to any other provision relating to stockholders’ rights or pre-business combination activity, unless the Company provides the Public StockholdersForm 8-K filed with the opportunitySEC 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 redeem their Public Shares in conjunction with any such amendment.
If the Company has not completed a Business Combination by June 17, 2022 or during any extended time that the Company has to consummate awhich KINS acquired Inpixon’s enterprise apps business combination beyond June 17, 2022 as a result of a stockholder vote to amend(including its certificate of incorporation (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than tenworkplace experience technologies, indoor mapping, events platform, augmented reality and related business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
6
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than $10.10 per Unit.
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.10 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.10 per Public Share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”solutions) (“Legacy CXApp”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Going Concern and Liquidity
As of March 31, 2021, the Company had approximately $780,000 in its operating bank accounts and working capital of approximately $870,000.
Prior to the completion of the Initial Public Offering, the Company’s liquidity needs had been satisfied through a contribution of $25,000 from Sponsor to cover for certain offering costs in exchange for the issuance of the Founder Shares, the loanshares of up to $300,000 from the Sponsor pursuant to the Note (see Note 5), and the proceeds from the consummation of the Private Placement not held in the Trust Account. The Note was repaid subsequent to the Initial Public Offering. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans (see Note 5)KINS capital stock (the “Business Combination”). As of March 31, 2021, there were no amounts outstanding under any Working Capital Loan.
If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, suspending the pursuit of a Business Combination. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
As a result of the above, in connectionBusiness 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 the Company’s assessment of going concern considerationsgoodwill and other identifiable intangible assets recorded in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”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.) 2014-15, “Disclosureshas been determined to be the accounting acquirer because KINS maintains control of Uncertainties about an Entity’s Abilitythe Board of Directors and management of the combined company.
The unaudited condensed consolidated financial statements of Successor and Predecessor are not comparable due to Continue as a Going Concern,” managementnew basis of accounting that was created from the business combination that occurred on the Closing Date (see Note 3). Therefore, the reporting period has determinedbeen 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 liquidity condition and date for mandatory liquidation and dissolution raise substantial doubt about the Company’s ability to continue as a going concern. These condensed“Predecessor” includes financial statements do not include any adjustments relatinginformation related to the recovery ofEnterprise Apps Business (as defined in Note 3), while the recorded assets or“Successor” includes financial information related to the classification ofnewly formed company after the liabilities that might be necessary should the Company be unable to continue as a going concern.
business combination.
5
7
KINS TECHNOLOGY GROUPCXAPP INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BasisNOTE 2 – Summary of PresentationSignificant 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 accordancethe 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 generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A for the period ended December 31, 2020, as filed with the SEC on June 22, 2021. The interim results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires the Company’s 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 period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actualperiods. Actual results could differ significantly 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
8
KINS TECHNOLOGY GROUPCXAPP INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Cash and Cash Equivalents
The Company considers all short-term
Cash and cash equivalents consist of cash, checking accounts, money market accounts, temporary investments and certificates of deposit with an original maturitymaturities of three months or less when purchasedpurchased. 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 be$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 haveincur any cash equivalents as ofimpairment charges for the three months ended June 30, 2023 (Successor), for the period from March 31, 2021 or December 31, 2020.15, 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).
Class A Common Stock Subject
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 Possible Redemptionrecover 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 Class A common stock subjectcomponents 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 possible redemptionthe 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 accordanceforeign 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 guidancesame 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”) Topic 480 “Distinguishing Liabilities from Equity.” Shares805 “Business Combinations” using the acquisition method of Class A common stock subject to mandatory redemption are classified as liability instrumentsaccounting, and are measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either withinaccordingly, the controlassets and liabilities of the holderacquired 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 subjectmore 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 redemption upondetermine 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 occurrenceCompany 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 uncertain events not solely withinemployee and non-employee services received in exchange for an award of equity instruments based on the Company’s control) is classified as temporary equity. At all other times, commongrant date fair value of the award. The Company has issued stock-based compensation awards in the form of options and restricted stock is classified as stockholders’ equity. The Company’s Class A commonunits. Fair value for options and restricted stock features certain redemption rights thatunits are considered to be outsidevalued using the closing price of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of March 31, 2021 and December 31, 2020, 24,689,910 and 24,104,788 shares of Class A common stock subjecton 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 possible redemption are presented as temporary equity, outsideprovide 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 stockholders’ equity sectionhigh 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 Company’s condensed balance sheets.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.
Offering Costs
Offering costs incurred amounted to $15,688,848, consistingThe Company estimates forfeitures at the time of $5,520,000grant and revises these estimates in cash underwriting fees, $9,660,000 of deferred underwriting fees and $508,848 of other offering costs, of which $15,220,533 was charged to equity and $468,315 was allocated to the warrant liability and expensed through the Statement of Operations.subsequent periods if actual forfeitures differ from those estimates.
Warrant Liability
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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC 480, Distinguishing“Distinguishing Liabilities from EquityEquity” (“ASC 480”) and ASC 815, Derivatives“Derivatives and HedgingHedging” (“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.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.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 Private Warrants and the Public Warrants for periods where no observable traded price was available are valued using a binomial lattice model. For periods subsequent to the detachment of the Public Warrants from the Units,Company utilized the Public Warrant quoted market price was used as the fair value of the Warrants as of each relevant date.
9
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Income Taxes
The Company follows the assetcomputes basic and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements 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 tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. As of March 31 ,2021 and December 31, 2020, the Company had a deferred tax asset of approximately $125,000 and $51,000, respectively, which had a full valuation allowance recorded against it.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and 0 amounts accrued for interest and penalties as of March 31, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Net Income (Loss)diluted earnings per Common Share
Net income (loss) per common share is computed by dividing net income (loss) 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. The Company has not consideredperiod from March 15, 2023 to June 30, 2023 (Successor) basic and dilutive net loss per common share were the effectsame since the inclusion of common shares issuable pursuant to the exercise of options, warrants, sold in the Initial Public Offering and private placement to purchase 24,080,000 sharesvesting of Class A common stockrestricted units in the calculation of diluted incomenet loss per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company’s statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar towould have been anti-dilutive.
The following table summarizes the two-class methodnumber of income (loss) per share. Net income percommon shares and common share basic andequivalents excluded from the calculation of diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of Class A redeemable common stock outstanding since original issuance. Netnet loss per common share basic and diluted, for Class B non-redeemable common stock is calculated by dividing the net loss, adjusted for income attributable to Class A redeemable common stock, net of applicable franchise and income taxes, by the weighted average number of Class B non-redeemable common stock outstanding for the period. Class B non-redeemable common stock includesthree months ended June 30, 2023 (Successor) and for the Founder Shares as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.period from March 15, 2023 to June 30, 2023 (Successor).
| Schedule of antidilutive shares | ||||||||
| 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
10
KINS TECHNOLOGY GROUPCXAPP INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts) for three months ended March 31, 2021:
Fair Value Measurements
| | | |
Redeemable Class A Common Stock |
| | |
Numerator: Earnings allocable to Redeemable Class A Common Stock | | | |
Interest Income and change in fair value of warrant liability | | $ | 46,112 |
Income and Franchise Tax | | | (46,112) |
Redeemable Net Earnings | | $ | — |
Denominator: Weighted Average Redeemable Class A Common Stock | | | |
Redeemable Class A Common Stock, Basic and Diluted | | | 27,600,000 |
Earnings/Basic and Diluted Redeemable Class A Common Stock | | $ | 0.00 |
| | | |
Non-Redeemable Class B Common Stock | | | |
Numerator: Net Income minus Redeemable Net Earnings | | | |
Net Income | | $ | 5,909,731 |
Redeemable Net Earnings | | | — |
Non-Redeemable Net Loss | | $ | 5,909,731 |
Denominator: Weighted Average Non-Redeemable Class B Common Stock | |
| |
Non-Redeemable Class B Common Stock, Basic and Diluted | | | 6,900,000 |
Loss/Basic and Diluted Non-Redeemable Class B Common Stock | | $ | 0.86 |
As
FASB ASC 820, “Fair Value Measurements” (“ASC 820”), provides guidance on the development and disclosure of March 31, 2021, basicfair 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 diluted sharesexpands 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 same as there are no non-redeemable securities that are dilutive tofair value of the Company’s stockholders.
Concentration of Credit Riskwarrant liability at each reporting period. See Note 10.
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such account.
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 the Company’s assets and liabilities, which qualify assuch financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates thepresented in these financial statements using available market information and appropriate methodologies. These financial instruments are stated at their respective historical carrying amounts, represented in the accompanying condensed balance sheets, primarilywhich approximate fair value due to their short-term nature.
Recent
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 August 2020,July 2023, the Financial Accounting Standards Board (“FASB”)FASB issued ASU 2020-06, Debt — Debt with Conversion2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Other Options (Subtopic 470-20)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 Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 andsimilar awards should be applied on a full or modified retrospective basis,accounted for in accordance with early adoption permittedTopic 718, Compensation—Stock Compensation. The effective date of this update is for fiscal years beginning on January 1, 2021.after December 15, 2023, including interim periods within those fiscal years. The Company adoptedis currently assessing potential impacts of ASU 2020-06 as of January 11, 2021 (inception)2023-03 and does not expect the adoption did notof this guidance will have ana material impact on its condensed consolidated financial position, resultsstatements and disclosures.
NOTE 3 – Business Combination
On March 14, 2023, the Company completed the Agreement and Plan of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would haveMerger (the “Merger Agreement”), by and among KINS, Inpixon, CXApp, and KINS Merger Sub Inc., a material effect onDelaware 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 condensed financial statements.
Class A Common Stock and 5,487,300
11
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 3. PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 27,600,000 Units which includes a full exercise by the underwriters of their over-allotment option in the amount of 3,600,000 Units,Company’s Class C Common Stock valued at a price of $10.00$ per Unit. Each Unitshare. The preliminary estimated goodwill of approximately $44,200 thousand arising from the Business Combination consists of 1 sharean 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 one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase 1 share ofNew 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 at a priceon the earlier to occur of $11.50 per share, subject to adjustment (see Note 8).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with(i) the 180th day following the closing of the Initial Public Offering,Merger and (ii) the Sponsor and the Direct Anchor Investors purchased an aggregate of 10,280,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, or $10,280,000. Each Private Placement Warrant is exercisable to purchase 1 share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 8). The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
NOTE 5. RELATED PARTIES
Founder Shares
On July 27, 2020, the Sponsor paid $25,000 to cover certain offering costs of the Company in consideration for 5,750,000 shares of Class B common stock (the “Founder Shares”). In October 2020, the Sponsor forfeited 625,000 Founder Shares and the Direct Anchor Investors purchased 625,000 Founder Shares for an aggregate purchase price of $2,717, or approximately $0.004 per share. In December 2020, the Company effected a 1:1.2 stock split of its Class B common stock, resulting in the Sponsor holding an aggregate of 6,150,000 Founder Shares, the Direct Anchor Investors holding an aggregate of 750,000 Founder Shares and there being an aggregate of 6,900,000 Founder Shares outstanding. The Founder Shares included an aggregate of up to 900,000 shares subject to forfeiture by the Sponsor to the extentday that the underwriters’ over-allotment was not exercised in full or in part, so that the number of Founder Shares would equal, on an as-converted basis, approximately 20% of the Company’s issued and outstanding common stock after the Initial Public Offering. As a result of the underwriters’ election to fully exercise their over-allotment option, 0 Founder Shares are currently subject to forfeiture.
The initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last reported sale price of theNew CXApp Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading30-trading day period commencing at least 150 days after afollowing the closing of the Merger.
The Business Combination or (y)is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the dateassets 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):
| Schedule of assets acquired | ||||||
| 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 Company completes a liquidation, merger, capital stock exchange or other similar transactioncombination 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 results in allexisted as of the Public Stockholders havingacquisition date that, if known, would have affected the right to exchange their sharesmeasurement of common stock for cash, securities or other property.
Administrative Services Agreement
the amounts recognized as of that date. The Company entered into an agreement, commencing on December 15, 2020 throughcontinues to refine its inputs and estimates inherent in (i) the earliervaluation of intangible assets, (ii) deferred income taxes, (iii) realization of tangible assets and (iv) the Company’s consummationaccuracy and completeness of a Business Combination and its liquidation, to pay the Sponsor a total of up to $20,000 per month for office space, utilities and secretarial and administrative support.liabilities. For the three months ended March 31, 2021,June 30, 2023 (Successor), the Company incurredrecognized a measurement period adjustment, which increased accrued liabilities, deferred tax liability and paid $60,000 in feesgoodwill 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 these services.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):
| Schedule of proforma financial information | ||||||||||||
| 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
12
KINS TECHNOLOGY GROUPCXAPP INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
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):
| Schedule of disaggregation of Revenue | ||||||||||||||||||||
| Successor | Predecessor | |||||||||||||||||||
Three Months Ended June 30, 2023 | Period from March 15, 2023 to June 30, 2023 | Period from 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
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliateCXAPP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – Property and Equipment, net
Property and equipment consisted of the Sponsor,following (in thousands):
| Schedule of property and equipment | ||||||||
| 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):
| Schedule of capitalized software development | ||||||||
| 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):
| Schedule of goodwill | ||||
| 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):
| Schedule of intangible assets | |||||||||||||||||||||||||||
| 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):
| Schedule of future amortization expense | ||||
| 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):
| Schedule of deferred revenue | 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):
| Schedule of accrued Liabilities | ||||||||
| 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 officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes may be repaid upon completion of a Business Combination, without interest, or, at the lender's discretion, up to $1,500,000 of the notes may be converted upon completion of a Business Combination into warrants at a price of $1.00 per warrant. Such warrants would be identical to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of March 31, 2021 and December 31, 2020, there were 0 amounts outstanding under the Working Capital Loans.
NOTE 6. COMMITMENTS
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration rights agreement entered into on December 14, 2020, the holders of the Founder Shares, Private Placement Warrants and securities that may be issued upon conversion of Working Capital Loans will be entitled to registration rights pursuant to a registration rights agreement. The holders of at least 30% in interest of these securities will be entitled to make up to 3 demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders will have certain “piggy-back” registration rights to include their securities in other registration statements filed subsequent to the completion of a Business Combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.35 per Unit, or up to $9,660,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 2,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At March 31, 2021 and December 31, 2020, there were 0 shares of preferred stock issued or outstanding.
Class A Common Stock— The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to 1 vote for each share. At March 31, 2021 and December 31, 2020, there were 2,910,090 and 3,495,212 shares of Class A common stock issued and outstanding, excluding 24,689,910 and 24,104,788 shares of Class A common stock subject to possible redemption, respectively.
Class B Common Stock— The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to 1 vote for each share. At March 31, 2021 and December 31, 2020, there were 6,900,000 shares of Class B common stock issued and outstanding.
13
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Only holders of the Class B common stock will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders except as otherwise required by law.
The shares of Class B common stock will automatically convert into Class A common stock at the timea price of a Business Combination, or earlier at the option of the holder (except for any Founder Shares held by the Direct Anchor Investors who have agreed not to effect a conversion with respect to such Founder Shares until the consummation of the initial Business Combination), on a 1-for-one basis,$11.50 per share, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts issuedadjustments described in the Initial Public Offering and related to the closing of a Business Combination (including pursuant to a specified future issuance), the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the then-outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance, including pursuant to a specified future issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate,Company’s registration statement on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of Initial Public Offering plus all shares of Class A common stock and equity-linked securities issued or deemed issuedForm S-1 (Registration No. 333-249177) filed in connection with a Business Combination (excluding any shares or equity-linked securities issued or issuable to any seller in a Business Combination).its initial public offering.
NOTE 8. WARRANT LIABILITY
As of March 31, 2021 and December 31, 2020 there were 13,800,000 Public Warrants outstanding. 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 five years after the completion of a Business Combinationon 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 agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, the Company will use its commercially reasonable efforts to file, and within 60 business days following a Business Combination to have declared effective,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.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:
| ● |
| ● |
14
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
| ● |
| ● |
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:
| ● |
| ● |
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.
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:
| ● | upon |
| ● | if, and only if, the last reported sale price of the Company’s Class A common stock equals or exceeds |
| ● | 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. |
15
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or its affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the completion of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the trading day after the day on which the Company completes a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price will be adjusted will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
As of March 31, 2021 and December 31, 2020June 30, 2023 (Successor), there were 10,280,00010,280 thousand Private Placement Warrants outstanding. The Private Placement Warrants are identical to the Public Warrants, underlying the Units sold in the Initial Public Offering, 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 9. FAIR VALUE MEASUREMENTS11 – 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 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 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 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 to 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 $ 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 $ 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:
| Schedule of stock options | ||||||||||||||||
| Number of Options | Weighted-average exercise price | Weighted average remaining contractual term (years) | Weighted-Average Fair Value at | |||||||||||||
| 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 | $ | 0.61 | |||||||||||
| Options exercisable at June 30, 2023 | - | $ | - | - | ||||||||||||
The Company incurred stock-based compensation expenses associated with options of approximately $ thousand, $ thousand, $ thousand, $ thousand, and $ 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 $ thousand. This amount will be recognized as expense over the weighted average remaining term of 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:
| Schedule of assumptions used | ||||
| Risk-free interest rate | - | |||
| Expected life of option grants | - years | |||
| Expected volatility of underlying stock | ||||
| Dividends assumption | $ |
Restricted Stock Units
During the period from March 15, 2023 to June 30, 2023 (Successor), a total of 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 $ 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 $ 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 $ 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 reflects management’s estimate of amountsare based on the framework established in ASC 820. The Company noted that the Company would have received in connection with the sale of the assetsonly financial asset or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuringfinancial liability that is subject to the fair value of its assets and liabilities,framework established in ASC 820 are the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities)Warrant Liabilities (Note 10). The following fair value hierarchyframework is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in ordervaluation 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 assetsASC 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 liabilities:
|
|
|
|
|
|
the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with ASC Topic 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities whichclassified the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities arepublic placement warrants recorded at amortized cost on the accompanying balance sheets and adjusted for the amortization or accretion of premiums or discounts.
At March 31, 2021, assets held in the Trust Account were comprised of $897 in cash and $278,813,000 in money market funds, respectively. At December 31, 2020, assets held in the Trust Account were comprised of $897 in cash and $278,766,888 in U.S. Treasury Securities. Through March 31, 2021, the Company did not withdraw any interest income from the Trust Account.
16
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 and indicatesof $7,452 thousand as a level 1 input, as the fair value hierarchywas determined using quoted prices of the valuation inputssecurity in active markets. The Company classified the Company utilized to determine such fair value. The gross holding gains andprivate placement warrants liabilities recorded at fair value of held-to-maturity securities at March 31, 2021 and December 31, 2020 are$5,551 thousand as follows:
| | | | | | | | | | | | | |
| | | | | | | | | Gross | | | | |
| | | | | | Amortized | | Holding | | | | ||
|
| Held-To-Maturity |
| Level |
| Cost |
| Gain |
| Fair Value | |||
March 31, 2021 |
| Money Market Funds | | 1 | | $ | N/A | | $ | N/A | | $ | 278,813,000 |
| | | | | | | | | | | | | |
December 31, 2020 |
| U.S. Treasury Securities (Matures on 03/18/21) | | 1 | | $ | 278,766,888 | | $ | 7,079 | | $ | 278,773,966 |
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 and indicateslevel 2 input, as the fair value hierarchywas 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 inputsallowance attributable to acquired intangible assets from the Company utilizedBusiness Combination. The effective tax rate differs from the U.S. Federal statutory rate primarily due to determine such fair value:
| | | | | | | | | | |
|
| |
| March 31, |
| | | December 31, | ||
Description | | Level |
| 2021 | | Level | | 2020 | ||
Liabilities: |
|
|
| | | |
| | |
|
Warrant Liability – Public Warrants | | 1 | | $ | 6,682,000 | | 3 | | $ | 12,558,000 |
Warrant Liability – Private Warrants |
| 2 | | $ | 8,970,000 | | 3 | | $ | 9,354,800 |
The Warrants were accounted for as liabilities in accordance with ASC 815-40reversal of a valuation allowance on deferred tax assets and are presented within warrant liabilities on our accompanying March 31, 2021 and December 31, 2020 condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented withindisallowance of losses relating to change in fair value of warrant liabilitiesliabilities. 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):
| Schedule of financial data by geographic area | ||||||||||||||||||||||||
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.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.
The Warrants
Operating lease liabilities are measuredbased 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 fair value on a recurring basis. The Public Warrants were initially valued using a lattice model, specifically a binomial lattice model incorporating the binomial lattice methodology.date of adoption of ASC 842 “Leases” (“ASC 842”). As of MarchJune 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, 2021,2022 (Predecessor), the Public Warrants were valued usingweighted average remaining lease term is 2.8 years and the instrument’s publicly listed trading priceweighted 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 balance sheet date the financial statements are issued which is consideredmay 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 Level 1 measurement duecontingency 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 $ 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 useAgreement, on July 14, 2023, the Company is issuing an aggregate of an observable market quote600 thousand shares of Common Stock to the Warrant Holder in an active market.
The Private Placement Warrants were initially valued using a lattice model, specifically a binomial lattice model incorporatingexchange for the binomial lattice methodology, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the expected volatility of our common stock. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The subsequent measurements of the Private Placement Warrants after the detachmentsurrender and cancellation of the Public Warrants from the Units is classified as Level 2 due to the use of an observable market quote for a similar asset in an active market.
The key inputs into the binomial lattice model were as follows:
| | | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | | ||
Risk-free interest rate |
| | 0.94 | % |
| 0.41 | % |
Dividend yield | | | 0.00 | % |
| 0.00 | % |
Implied volatility | | | 12.3 | % |
| 15.8 | % |
Exercise price | | $ | 11.50 | | $ | 11.50 | |
Unit Price | | $ | 9.81 | | $ | 9.83 | |
17
KINS TECHNOLOGY GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following table presents the changes in the fair value of Level 3 warrant liabilities:
| | | | | | | | | |
|
| Private Placement |
| Public |
| Warrant Liabilities | |||
Fair value as of December 31, 2020 | | $ | 9,354,800 | | $ | 12,558,000 | | $ | 21,912,800 |
Change in fair value | |
| (2,672,800) | |
| (3,588,000) | |
| (6,260,800) |
Transfer to Level 1 | | | — | | | (8,970,000) | | | (8,970,000) |
Transfer to Level 2 | | | (6,682,000) | | | — | | | (6,682,000) |
Fair value as of March 31, 2021 | | $ | — | | $ | — | | $ | — |
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the three months ended March 31, 2021 was approximately $9.0 million, when the Public Warrants were separately listed and traded. The estimated fair value of the Private Placement Warrants transferred from a Level 3 measurement to a Level 2 fair value measurement during the three months ended March 31, 2021 was $6.7 million, when the Private Warrants were separately traded and listed.
held by such holder.
NOTE 10. SUBSEQUENT EVENTSExercise of Warrants
The Company evaluated subsequent events and transactionsnotes that occurred after the balance sheet date upfrom July 1, 2023 to the date that the condensedof these financial statements were issued. Based upon this review,(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 did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
Company.
27
18
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,”“we”, “us” or the “Company” refer to KINS Technology GroupCXApp Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to KINS Capital LLC.directors. The following management’s discussion and analysis of the Company’s financial condition and results of operations should be readdescribes the principal factors affecting the results of our operations, financial condition, and changes in conjunction withfinancial condition for the financial statementsperiod ended, June 30, 2023, for the predecessor and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.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 completion of the Proposed Business Combination (as defined below), 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, including that the conditions of the Proposed Business Combination are not satisfied.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
We
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 blank checkmore 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 formed underwhich 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 lawsissuance 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 StateSeparation and Distribution Agreement, transferred the Enterprise Apps Business, including certain related subsidiaries of DelawareInpixon, 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 20, 202014, 2023, the Company is issuing an aggregate of 600 thousand shares of Common Stock to the Warrant Holder in exchange for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceedssurrender and cancellation of the Initial Public OfferingWarrants 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 salethree 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 Private Placement Warrants, our capital stock, debt or a combinationresults of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations (other than searching for a Business Combination after our Initial Public Offering) nor generated any revenues to date. Our only activities from July 20, 2020 (inception) through March 31, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below,period ended June 30, 2023 (Successor), period ended March 14, 2023 (Predecessor), and the searchsix 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 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 businessconcerted effort to cut costs post-business combination. We do not expectFor the six months ended June 30, 2022 (Predecessor) recorded approximately $2,827 thousand benefit related to generate any operating revenues until after the completionchange in fair value of our Business Combination. We expectan earnout.
31
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 generate non-operatingJune 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 formsix months ended June 30, 2022 (Predecessor).
Provision for Income Taxes
There was an income tax benefit of interest earned on investments held afterapproximately $2,541 thousand and zero for the Initial Public Offering. We incur expenses asperiod 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 beingthe 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 publicnon-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 2023 | Period from March 15, 2023 to June 30, 2023 | Period from January 1, 2023 | Three Months Ended June 30, 2022 | Six months ended 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 | ) | |||||
32
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.
33
Liquidity describes the ability of a company (for legal, financial reporting, accountingto generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and auditing compliance), as well as for due diligence expenses.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 31, 2021, we had a15, 2023 to June 30, 2023 (Successor) the Company incurred net incomeloss of $5,909,731, which consists of a change in fair value of warrant liabilities of $6,260,800approximately $14,730 thousand and interest income on marketable securities held in the Trust Account of $46,112 and interest income on bank account of $24 offset by operating costs of $ $397,205.
19
Liquidity and Capital Resources
On December 17, 2020, we consummated the Initial Public Offering of 27,600,000 Units at a price of $10.00 per Unit, which includes the full exercise by the underwriters of their over-allotment option in the amount of 3,600,000, generating gross proceeds of $276,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 10,280,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement to our initial stockholders, generating gross proceeds of $10,280,000.
Following the Initial Public Offering, the full exercise of the over-allotment option by the underwriters and the sale of the Private Placement Warrants, a total of $278,760,000 was placed in the Trust Account. We incurred $15,688,848 in transaction costs, including $5,520,000 of cash underwriting fees, 9,660,000 of deferred underwriting fees and $508,848 of other offering costs.
$11,972 thousand, respectively. For the three months endedperiod from March 31, 2021, cash15, 2023 to June 30, 2023 (Successor) the Company used in operating activities was $240,537. Net income of $5,909,731 was affected by change in fair value of warrant liabilities of $6,260,800, interest income on marketable securities held in the Trust Account of $46,112 and interest income on bank account of $24. Changes in operating assets and liabilities provided $156,644approximately $6,598 thousand of cash for operating activities.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.
As of March 31, 2021,
Financing Obligations and Requirements
The Company cannot assure you that we had cash and marketable securities held in the Trust Account of $278,813,897. We intendwill ever earn revenues sufficient to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account to completesupport our Business Combination. We may withdraw interest to pay taxes. Through March 31, 2021,operations, or that we did not withdraw any interest income from the Trust Account.will ever be profitable. To the extent that our capital stockresources 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 whole oroperating, investing and financing activities and certain balances are as follows (in thousands):
| Successor | Predecessor | |||||||||||
Period from | 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 | $ | (12,126 | ) | $ | 3,154 | |||
Operating Activities for the periods ended June 30, 2023 (Successor), March 14, 2023 (Predecessor), and the six months ended June 30, 2022 (Predecessor)
| Successor | Predecessor | |||||||||||
| Period from March 15, 2023 to June 30, 2023 | Period from January 1, 2023 | Six Months Ended June 30, 2022 | ||||||||||
| Net loss | $ | (11,972 | ) | $ | (4,380 | ) | $ | (12,705 | ) | |||
| Non-cash income and expenses | 8,851 | 1,200 | 6,111 | |||||||||
| Net change in operating assets and liabilities | (3,477 | ) | (1,964 | ) | (792 | ) | ||||||
| Net cash used in operating activities | $ | (6,598 | ) | $ | (5,144 | ) | $ | (7,386 | ) | |||
35
Cash Flows from Investing Activities for the periods ended June 30, 2023 (Successor), March 14, 2023 (Predecessor), and the six months ended June 30, 2022 (Predecessor)
Net cash flows provided by investing activities during the period from March 15, 2023 to June 30, 2023 (Successor) was approximately $9,977 thousand compared to net cash flows used in part, as considerationinvesting activities for the period from January 1, 2023 to complete our Business Combination,March 14, 2023 (Predecessor) and during the remaining proceeds held insix months ended June 30, 2022 (Predecessor) of approximately $54 thousand and $209 thousand, respectively. Cash flows related to investing activities during the Trust Account will be used as working capitalperiod from March 15, 2023 to financeJune 30, 2023 (Successor) include $26 thousand for the operationspurchase of the target business or businesses, make other acquisitionsproperty and pursue our growth strategies.
As of March 31, 2021, we had $778,489 ofequipment, and $10,003 thousand for cash held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costsacquired in connection with the Business Combination. Cash flows related to investing activities during the period from January 1, 2023 to March 14, 2023 (Predecessor) include $9 thousand for the purchase of property and equipment, and $45 thousand for the investment in capitalized software. Cash flows related to investing activities during the six months ended June 30, 2022 (Predecessor) include $50 thousand for the purchase of property and equipment, and $159 thousand for investment in capitalized software.
Cash Flows from Financing Activities for the periods ended June 30, 2023 (Successor), March 14, 2023 (Predecessor), and the six months ended June 30, 2022 (Predecessor)
Net cash flows used in financing activities during period from March 15, 2023 to June 30, 2023 (Successor) was $328 thousand compared to net cash flows provided by financing activities for the period from January 1, 2023 to March 14, 2023 (Predecessor) and during the six months ended June 30, 2022 (Predecessor) of approximately $8,892 thousand and $8,551 thousand, respectively. During the period from March 15, 2023 to June 30, 2023 (Successor), the Company paid $328 thousand in cash outflows from a Business Combination, the Sponsors, or an affiliate of the Sponsor, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay the Working Capital Loans out of the proceeds of the Trust Account released to us. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, we may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummationrepayment of a Business Combination, without interest, or, atrelated party promissory note. During the lender’s discretion, upperiod from January 1, 2023 to $1,500,000March 14, 2023 (Predecessor), the Company received $9,089 thousand in incoming cash flows from parent, and paid $197 thousand in cash outflows from a payment of such Working Capital Loans may be convertible into warrantsan acquisition liability. During the six months ended June 30, 2022 (Predecessor), the Company received $10,501 thousand in incoming cash flows from parent, and paid $104 thousand and $1,846 thousand in cash outflows from taxes paid related to share based compensation and from a payment of the post Business Combination entity. The warrants would be identical to the Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans.an acquisition liability, respectively.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
20
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital leaseoff-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Contractual Obligations and Commitments
Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consists of operating lease obligations or long-term liabilities other than an agreementand acquisition liabilities that are included in our balance sheet. As of June 30, 2023 (Successor), the total obligation for operating leases is approximately $706 thousand, of which approximately $376 thousand is expected to pay an affiliate of the Sponsor a monthly fee of $20,000 for office space, administrative and support services to us. We began incurring these fees on December 14, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and its liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or up to $9,660,000be paid in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.next twelve months.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Critical Accounting Policies and Estimates
The
Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of condensedour financial statements, and related disclosures in conformity with accounting principles generally accepted in the United States of America requires managementwe are required to make assumptions and estimates about future events, and assumptionsapply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and liabilities, disclosurethe related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 of contingentthe condensed consolidated financial statements which are included elsewhere in this filing. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. There have been no changes to estimates during the periods presented in the filing. Historically changes in management estimates have not been material.
36
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 software as a service and professional services for its enterprise apps software.
Our contracts with customers often include promises to transfer multiple distinct products and services.
Our licenses are sold as perpetual or term licenses and the arrangements typically contain various combinations of maintenance and professional services, which are accounted for as separate performance obligations. In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process. The most critical judgements required in applying ASC 606 Revenue Recognition from Customers, and our revenue recognition policy relate to the determination of distinct performance obligations.
| ● | Revenue related to subscription software as a service contract is recognized over time using the output method (days of software provided) because we are providing continuous access to its service. |
| ● | Professional services revenue is 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. Accounting for these contracts involves the use of estimates to determine total contract costs to be incurred. |
| ● | Professional services revenue under fixed fee contracts is recognized over time using the input method (direct labor hours) to recognize revenue over the term of the contract. We have elected the practical expedient to recognize revenue for the right to invoice because our right to consideration corresponds directly with the value to the customer of the performance completed to date. |
We also consider whether an arrangement has any discounts, material rights, or specified future upgrades that may represent additional performance obligations. We offer discounts in the form of prompt payment discounts and rebates for a decrease in service level percentages. We have determined that the most likely amount method is most useful for contracts that provides these discounts and rebates as the contracts have two potential outcomes and a significant reversal in the amount of cumulative revenue recognized is not expected to occur. Discounts have not historically been significant, but we continue to monitor and evaluate these estimates based on historical experience, anticipated performance, and our best judgment. Renewals or extensions of licenses are evaluated as distinct licenses (i.e., a distinct good or service), and revenue attributed to the distinct good or service cannot be 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. If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period.
Goodwill, Acquired Intangible Assets and Other Long-Lived Assets - Impairment Assessments
Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. The impairment test for long-lived assets requires us to assess the recoverability of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventual disposition of the assets. If the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows, we would be required to record an impairment charge equal to the excess, if any, of net carrying value over fair value.
When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, we make assumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of judgment and bear a significant impact on the assessment conclusions. Included among these assumptions are estimating undiscounted future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property and equipment and residual value of asset groups. We formulate estimates from historical experience and assumptions of future performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions. In the event that our estimates or related assumptions change in the future, we may be required to record an impairment charge. Based on our evaluation we did not record a charge for impairment related to long-lived assets for the three months ended June 30, 2023 (Successor) or the year ended December 31, 2022 (Predecessor).
37
We evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted. Such events or circumstances may include (but are not limited to): the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry in which we operate, known technological advances, legislative actions, or changes in the regulatory environment. If the estimated remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be amortized prospectively over that revised remaining useful life. We have determined that there were no events or circumstances during the period ended March 14, 2023 (Predecessor), three months ended June 30, 2023 (Successor), and the six months ended June 30, 2022 (Predecessor), which would indicate a revision to the remaining amortization period related to any of our long-lived assets. Accordingly, we believe that the current estimated useful lives of long-lived assets reflect the period over which they are expected to contribute to future cash flows and are therefore deemed appropriate.
We have recorded goodwill and other indefinite-lived assets in connection with the Business Combination. Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of the acquired company, is not amortized. Indefinite-lived intangible assets are stated at fair value as of the date acquired in a business combination. The recoverability of goodwill is evaluated at least annually and when events or changes in circumstances indicate that the carrying amount may not be recoverable. For the three months ended June 30, 2023 (Successor) and the period from March 15, 2023 to June 30, 2023 (Successor), the Company noted that there were no qualitative or quantitative indicators of impairment present at the reporting date as of June 30, 2023.
We analyzed goodwill first to assess qualitative factors, such as macroeconomic conditions, changes in the business environment and reporting unit specific events, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a detailed goodwill impairment test as required. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. If we bypass the qualitative assessment or conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. We calculate the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, we use internally developed discounted cash flow models that include the following assumptions, among others made by management: 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, we use internal analyses based primarily on market comparables. We base these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations. Due to the variables inherent in our estimates of fair value, differences in assumptions may have a material effect on the result of our impairment analysis.
Deferred Income Taxes
In accordance with ASC 740 “Income Taxes” (“ASC 740”), management routinely evaluates the likelihood of the realization of its income tax benefits and the recognition of its deferred tax assets. In evaluating the need for any valuation allowance, management will assess whether it is more likely than not that some portion, or all, of the deferred tax asset may not be realized on a jurisdictional basis. Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized. In performing its analyses, management considers both positive and negative evidence including historical financial performance, previous earnings patterns, future earnings forecasts, tax planning strategies, economic and business trends and the potential realization of net operating loss carry-forwards within a reasonable timeframe. To this end, management considered (i) that we have had historical losses in the prior years and cannot anticipate generating a sufficient level of future profits in order to realize the benefits of our deferred tax asset; (ii) tax planning strategies and (iii) the adequacy of future income as of and for the three months ended June 30, 2023 (Successor), based upon certain economic conditions and historical losses through June 30, 2023. After consideration of these factors, management deemed it appropriate to establish a full valuation allowance with respect to the deferred tax assets for the Company as of June 30, 2023 (Successor) and December 31, 2022 (Predecessor), and no liability for unrecognized tax benefits was required to be reported.
The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the three months ended June 30, 2023 (Successor), the period from March 15, 2023 to June 30, 2023 (Successor), the period ended March 14, 2023 (Predecessor), the three months ended June 30, 2022 (Predecessor) or the six months ended June 30, 2022 (Predecessor).
38
Business Combinations
We account for 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. Any changes in the estimated fair values of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase price allocable to goodwill. Any subsequent changes to any purchase price allocations that are material to our financial results will be adjusted. All acquisition costs are expensed as incurred. Separately recognized transactions associated with business combinations are generally expensed subsequent to the acquisition date. The application of business combination and impairment accounting requires the use of significant estimates and assumptions.
Upon acquisition, the accounts and results of operations are combined as of and subsequent to the acquisition date and are included in our financial statements and income and expenses duringfrom the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:acquisition date.
Derivative Warrant LiabilityLiabilities
We account for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheetsheets date until exercised, and any change in fair value is recognized in our statementCondensed Consolidated Statements of operations. The Private Warrants and the Public Warrants for periods where no observable traded price was available are valued using a binomial lattice model. For periods subsequent to the detachment of the Public Warrants from the Units,Operations. We utilized the Public Warrant quoted market price was used as the fair value of the Warrants as of each relevant date.
Class A Common Stock Subject
JOBS Act Accounting Election
Following the transaction, CXApp will be an “emerging growth company” as defined in the JOBS Act. As such, the Company will be eligible to Possible Redemption
We account for our Class Atake advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved. The Company has not made a decision whether to take advantage of any or all of these exemptions. If the Company does take advantage of some or all of these exemptions, some investors may find the Company’s common stock subject to possible redemption in accordance withless attractive. The result may be a less active trading market for the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class ACompany’s common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable commonits stock (including common stock that feature redemption rights that is either within the controlprice may be more volatile.
In addition, Section 107 of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rightsJOBS Act provides that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outsidean emerging growth company may take advantage of the stockholders’ equity sectionextended transition period provided in Section 13(a) of our balance sheets.
21
Net Income (Loss) Per Common Share
We apply the two-class method in calculating earnings per share. Net income per common share, basic and diluted1934, as amended (the “Exchange Act”), for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net loss per common share, basic and diluted for Class B non-redeemable common stock is calculated by dividing the net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period presented.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,complying with new or revised accounting standards, if currently adopted,meaning that CXApp, as an emerging growth company, can delay the adoption of certain accounting standards until those standards would have a material effect onotherwise apply to private companies. The Company has elected to take advantage of this extended transition period, and therefore our condensed financial statements.
statements may not be comparable to those of companies that comply with such new or revised accounting standards. Section 107 of the JOBS Act provides that our decision not to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Not applicable.
39
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure
We have established disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of June 30, 2023 (Successor) and designed to ensure that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act reports is recorded, processed, summarized and reported within the requisite time periods specified in the SEC’sapplicable rules and forms, and that such informationit is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief
Changes in Internal Control over Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were ineffective as of March 31, 2021, due solely to the material weaknessReporting
There have been no changes in our internal control over financial reporting with respect to(as defined in Rule 13a-15(f) under the classification of the Company’s Warrants as components of equity instead of as derivative liabilities. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
DuringExchange Act) during the three months ended March 31, 2021, there has been no change in our internal control over financial reportingJune 30, 2023 (Successor) that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting, as the circumstances that led to the restatement of our financial statements described in our Annual Report on Form 10-K/A had not yet been identified. Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
40
22
PART II -II. OTHER INFORMATION
Item 1. Legal Proceedings
None
There is no material litigation, arbitration or governmental proceeding currently pending against CXApp or any members of its management team in their capacity as such.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this reportQuarterly Report include the risk factors described in ourthe Annual Report on Form 10-K/A filed with the SEC. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K/A filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
On December 17, 2020, we consummated its Initial Public Offering of 27,600,000 Units, including 3,600,000 Over-Allotment Units, at $10.00 per Unit, generating gross proceeds of $276.0 million. UBS Securities LLC, Stifel, Nicolaus & Company, Incorporated and BTIG, LLC acted as joint book-running managers for the Initial Public Offering. The securities sold in the Initial Public Offering were registered under the Securities Act on registration statements on Form S-1 (Registration NoS. 333-249177 and 333-251340). The registration statements became effective on December 14, 2020.
Simultaneous with the consummation of the Initial Public Offering, the Company consummated the Private Placement of 10,280,000 Private Placement Warrants, at a price of $1.00 per Private Placement Warrant to the Sponsor, generating gross proceeds of Approximately $10.3 million. Each whole Private Placement Warrants is exercisable to purchase one share of The Company’s common stock at an exercise price of $11.50 per share. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until 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.
Of the gross proceeds received from the Initial Public Offering, the exercise of the over-allotment option and the Sale of the Private Placement Warrants, an aggregate of $278,760,000 was placed in the Trust Account.
We paid a total of $5,520,000 in underwriting discounts and commissions and $508,848 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $9,660,000 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
None.
Item 3. Defaults Upon Senior Securities
None
None.
Item 4. Mine Safety Disclosures
None
Not applicable.
Item 5. Other Information
None
None.
41
23
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
42
| 99.1** | Press Release, dated August 14, 2023, reporting CXApp’s financial results for the three months ended June 30, 2023* | |
| 101.INS* | Inline XBRL Instance Document | |
|
| |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |
|
| |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
|
| |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
|
| |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase | |
|
| |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed herewith. |
|
|
| + | The annexes, schedules, and certain exhibits to this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to |
| # | Indicates a management contract or compensatory plan. |
43
SIGNATURES
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
| |
|
| ||
| By: | /s/ Khurram Sheikh | |
| Name: |
| ||
|
|
| |
|
|
| |
|
| Chairman, Chief Executive Officer, | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
44
25