Filed pursuant to Rule 424(b)(3)
Registration
No. 333-271340
Prospectus
PROSPECTUS
FOR
6,977,776
SHARES OF COMMON STOCK
10,280,000
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
24,080,000
SHARES OF COMMON STOCK UNDERLYING WARRANTS
OF
CXAPP
INC.
This prospectus relates
to (i) the resale of up to 6,977,776 shares of common stock, par value $0.0001 per share (the “common stock”) previously
issued to certain of the selling securityholders named in this prospectus (each a “Selling Securityholder” and, collectively,
the “Selling Securityholders”) at a price of approximately $0.004 per share, (ii) the resale of up to 10,280,000 private
placement warrants to purchase common stock at an exercise price of $11.50 per share, which were originally issued to our Sponsor (as
defined below) and the Direct Anchor Investors (as defined below) in a private placement at a price of $1.00 per private placement warrant,
(iii) 24,080,000 shares of common stock reserved for issuance upon the exercise of warrants to purchase common stock, which are comprised
of 13,800,000 shares of common stock issuable upon exercise of the public warrants and 10,280,000 shares of common stock issuable upon
exercise of the private placement warrants, and (iv) the resale of up to 10,280,000 shares of common stock issuable upon exercise of
the private warrants held by KINS Capital LLC (“Sponsor”), its affiliates and certain funds and accounts managed by BlackRock,
Inc. (the “Direct Anchor Investors”). The public warrants were initially included in the units issued in connection with
the initial public offering of KINS (as defined below), which comprised one share of Class A common stock and one-half of a redeemable
warrant.
On
March 14, 2023, we consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of September 25,
2022 (the “Merger Agreement”), by and among KINS Technology Group Inc., a Delaware corporation (“KINS”), KINS
Merger Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of KINS (“Merger Sub”), CXApp Holding Corp.,
a Delaware corporation (“Legacy CXApp”) and Inpixon, a Nevada corporation and parent company of Legacy CXApp (“Inpixon”).
As contemplated by the Merger Agreement, Merger Sub merged with and into Legacy CXApp, the separate corporate existence of Merger Sub
ceased and Legacy CXApp survived as a wholly-owned subsidiary of KINS (the “Merger” and, together with the other transactions
contemplated by the Merger Agreement, the “Business Combination”). Following the closing of the Merger, KINS changed its
name to CXApp Inc. (“CXApp”).
We are registering the resale
of shares of common stock and warrants as required by (i) the registration rights agreement, dated as of December 14, 2020 (the
“Registration Rights Agreement”), entered into by and among KINS, Sponsor and certain funds and accounts managed by BlackRock,
Inc. (the “Direct Anchor Investors”) and (ii) the subscription agreements entered into by and among KINS, Sponsor and Direct
Anchor Investors relating to the purchase of shares of common stock in private placements consummated in connection with the Business
Combination.
We are also registering
the resale of 100,000 shares of common stock held in private placements by BTIG, LLC (“BTIG”). BTIG entered into a letter
agreement with KINS on March 14, 2023, to provide strategic and capital markets advisory services to KINS (and following the Business
Combination, CXApp) (the “Advisory Agreement”). The services to be provided by BTIG pursuant to the Advisory Agreement include
providing market and trading color and feedback, capital markets analysis and strategic advice, institutional shareholder targeting,
introduction and feedback and such other advisory services as the parties may from time to time agree upon. The services are to be provided
by BTIG over the one-year term of the Advisory Agreement. BTIG agreed to accept 100,000 shares of KINS’ stock as the fee for its
services pursuant to the Advisory Agreement. The approximate cash equivalent of BTIG’s fee, and thus the approximate value of BTIG’s
services pursuant to the Advisory Agreement, may be implied by reference to the market price of KINS’ stock at the time the Advisory
Agreement was entered into. The closing price of KINS’ stock on Nasdaq on the day the Advisory Agreement was entered into was $9.94.
Therefore, the implied value of BTIG’s services pursuant to the Advisory Agreement is approximately $994,000. The Advisory Agreement
was entered into on the date of the consummation of the Business Combination and on the following day, the first day of trading after
the Business Combination, the closing price of the Company’s Common Stock was $4.10.
Due
to the significant number of redemptions of our Class A common stock in connection with our Business Combination, the shares of common
stock being registered for issuance or resale are anticipated to constitute a considerable percentage of our public float. Additionally,
all the shares of common stock being registered for resale were purchased by the Selling Securityholders for prices considerably below
the current market price of our Class A common stock. This discrepancy in purchase prices may have an impact on the market perception
of the stock’s value and could contribute to potential downward pressure on the public trading price of our Class A common stock.
The registration of these shares for issuance or resale creates the possibility of a significant increase in the supply of our Class
A common stock in the market. The increased supply, coupled with the potential disparity in purchase prices, may lead to heightened selling
pressure, which could negatively affect the public trading price of our Class A common stock. We will not receive the proceeds from the
resale of the shares of common stock by the Selling Securityholders.
The
exercise price of the warrants, in certain circumstances, may be higher than the prevailing market price of the underlying securities.
The exercise price of the warrants is subject to market conditions and may not be advantageous if the prevailing market price of the
underlying securities is lower than the exercise price. The cash proceeds associated with the exercise of warrants to purchase our common
stock are contingent upon our stock price. The value of our common stock may fluctuate and may not align with the exercise price of the
warrants at any given time. If the warrants are “out of the money,” meaning the exercise price is higher than the market
price of our common stock, there is a high likelihood that warrant holders may choose not to exercise their warrants. As a result, we
may not receive any proceeds from the exercise of such warrants.
Furthermore,
with regard to the Private Placement Warrants, it is possible that we may not receive cash upon their exercise since these warrants may
be exercised on a cashless basis. A cashless exercise allows warrant holders to convert the warrants into shares of our common stock
without the need for a cash payment. Instead of receiving cash upon exercise, the warrant holder would receive a reduced number of shares
based on a predetermined formula or method as further described in “Description of Capital Stock” further below. As
a result, the number of shares received through a cashless exercise may be lower than if the warrants were exercised on a cash basis,
which could impact the value and dilution of our common stock.
We
will bear all costs, expenses and fees in connection with the registration of the shares of common stock and warrants. The Selling Securityholders
will bear all commissions and discounts, if any, attributable to their respective sales of the shares of common stock and warrants.
Trading of our common stock
and warrants began on The Nasdaq Capital Market (the “Nasdaq”) on March 15, 2023, under the new ticker symbol “CXAI”
for the common stock and “CXAIW” for the warrants. Prior to the Merger, KINS’ units, Class A common stock and public
warrants are publicly traded on the Nasdaq under the symbols “KINZU”, “KINZ” and “KINZW”, respectively.
On July 6, 2023, the closing sale price of our common stock as reported by Nasdaq was $10.51 per share and the closing price of our warrants
was $0.49 per warrant.
Investing
in shares of our common stock or warrants involves risks that are described in the “Risk Factors” section beginning on page
13 of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued
under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is July 7, 2023.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus or in any applicable prospectus supplement prepared by us or on our
behalf. Neither we nor the Selling Securityholders have authorized anyone to provide any information or to make any representations other
than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared. We and
the Selling Securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information
that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in
jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent
anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus
is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as
of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus
supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since
those dates.
This
prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”)
using the “shelf” registration process. Under this shelf registration process, the Selling Securityholders hereunder may,
from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by
such Selling Securityholders of the Common Stock or Warrants offered by them described in this prospectus.
A
prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus
will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus
supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only
as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the
information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where
You Can Find More Information.”
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some
of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain copies of those documents as described in the section entitled under
“Where
You Can Find More Information.”
As
used in this prospectus, unless otherwise indicated or the context otherwise requires, references to “we,” “us,”
“our,” the “Company,” “Registrant,” and “CXApp” refer to the consolidated operations
of CXApp Inc. and its subsidiaries. References to “KINS” refer to the Company prior to the consummation of the Business Combination
and references to “Legacy CXApp” refer to CXApp Holding Corp. prior to the consummation of the Business Combination.
TRADEMARKS,
TRADE NAMES AND SERVICE MARKS
This
prospectus contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade
names referred to in this prospectus may appear without the® or™ symbols, but such references are not intended
to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these
trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to
imply a relationship with, or endorsement or sponsorship of them by, any other companies.
MARKET
AND INDUSTRY DATA
This
prospectus includes industry position and industry data, forecasts, market size and growth and other data that we obtained or derived
from internal company reports, independent third-party publications, surveys and studies by third parties and other industry data, such
as reports by research companies. Some data are also based on good faith estimates, which are derived from internal company research
or analyses or review of internal company reports as well as the independent sources referred to above. Although we believe that the
information on which the companies have based these estimates of industry position and industry data are generally reliable, the accuracy
and completeness of this information is not guaranteed and they have not independently verified any of the data from third-party sources
nor have they ascertained the underlying economic assumptions relied upon therein. Information cannot always be verified with complete
certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other
limitations and uncertainties. Each publication, study and report speaks as of its original publication date (and not as of the date
of this prospectus). Certain of these publications, studies and reports were published before the COVID-19 pandemic and therefore do
not reflect any impact of COVID-19 on any specific market or globally. In addition, we do not know all of the assumptions regarding general
economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein. Among other items,
certain of the market research included in this prospectus was published prior to the COVID-19 pandemic and did not anticipate the virus
or the impact it has caused on our industry. We have utilized this pre-pandemic market research in the absence of updated sources.
In
addition, certain information contained in this document represents our management’s estimates. While we believe our internal estimates
to be reasonable, and we are not aware of any misstatements regarding the industry data presented herein, they have not been verified
by any independent sources. Such data involve risks and uncertainties and are subject to change based on various factors, including those
discussed under the captions “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
SELECTED
DEFINITIONS
When
used in this prospectus, unless the context otherwise requires:
| ● | “Board”
refers to the board of directors of CXApp; |
| ● | “Bylaws”
refers to the existing bylaws of CXApp currently in effect; |
| ● | “Charter”
refers to the existing amended and restated certificate of incorporation of CXApp currently
in effect; |
| ● | “Class
A Common Stock” refers to shares of Class A common stock of CXApp, par value $0.0001
per share; |
| ● | “Class
C Common Stock” refers to shares of Class C common stock of CXApp, par value $0.0001
per share; |
| ● | “Closing”
refers to the closing of the Merger; |
| ● | “Common
Stock” refers to the Class A Common Stock and the Class C Common Stock; |
| ● | “CXApp”
refers to CXApp Inc., a Delaware corporation; |
| ● | “Design
Reactor” refers to Design Reactor Inc., a California corporation, which was formerly
doing business under the name “The CXApp”; |
| ● | “DGCL”
refers to the General Corporation Law of the State of Delaware; |
| ● | “Distribution”
refers to distribution of the Enterprise Apps Business to the holders of Inpixon stock and
other Inpixon securities on a certain record date through the distribution of all of the
outstanding shares of Legacy CXApp capital stock to holders of Inpixon stock and other Inpixon
securities on a certain record date on a pro rata, one for one basis, as described in the
Separation and Distribution Agreement; |
| ● | “Distribution
Time” refers to the time at which Distribution occurs, which is deemed to be 12:01
a.m., New York time on March 14, 2023; |
| ● | “Enterprise
Apps Business” refers to the business conducted by CXApp and its direct and indirect
subsidiaries, including the business related to the (i) software-as-a-service app and mapping
platforms which enable corporate enterprise organizations to provide a custom-branded, location-aware
employee app focused on enhancing the workplace experience and hosting virtual and hybrid
events, (ii) augmented reality (or AR), computer vision, localization, navigation, mapping,
and 3D reconstruction technologies, and (iii) on-device “blue dot” indoor location
and motion technologies; |
| ● | “Exchange
Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “GAAP”
refers to accounting principles generally accepted in the United States of America; |
| ● | “Inpixon”
refers to Inpixon, a Nevada corporation; |
| ● | “JOBS
Act” refers to the Jumpstart Our Business Startups Act of 2012; |
| ● | “KINS”
refers to KINS Technology Group Inc., a Delaware corporation; |
| ● | “KINS
Initial Public Offering” refers to KINS’ initial public offering that was consummated
on December 17, 2020; |
| ● | “Legacy
CXApp” refers to CXApp Holding Corp., a Delaware corporation, prior to the Merger; |
| ● | “Merger”
refers to the merger of Merger Sub with and into Legacy CXApp, with Legacy CXApp surviving
the merger as a wholly-owned subsidiary of CXApp and the other transactions contemplated
by the Merger Agreement; |
| ● | “Merger
Agreement” refers to the Agreement and Plan of Merger, dated as of September 25,
2022, by and among KINS, Merger Sub, Inpixon and Legacy CXApp, as amended and modified from
time to time; |
| ● | “Merger
Sub” refers to KINS Merger Sub Inc.; |
| ● | “Nasdaq”
refers to the Nasdaq Capital Market; |
| ● | “Preferred
Stock” refers to shares of “blank check” preferred stock, each having a
par value of $0.0001; |
| ● | “Stockholders”
refers to the stockholders of CXApp; |
| ● | “pro
forma” refers to giving pro forma effect to the Merger; |
| ● | “Registration
Rights Agreement” refers to that certain registration rights agreement, dated as of
December 14, 2020, by and among KINS, the Sponsor and certain other securityholders
party thereto; |
| ● | “Sarbanes-Oxley
Act” refers to the Sarbanes-Oxley Act of 2002; |
| ● | “SEC”
refers to the United States Securities and Exchange Commission; |
| ● | “Securities
Act” refers to the Securities Act of 1933, as amended; |
| ● | “Separation”
refers to a series of transactions by Inpixon and certain of Inpixon’s subsidiaries
as result of which Inpixon’s Enterprise Apps Business is held by Legacy CXApp and its
subsidiaries and is separated from the remainder of Inpixon’s businesses, on the terms
and subject to the conditions of the Separation and Distribution Agreement; |
| ● | “Separation
and Distribution Agreement” refers to the Separation and Distribution Agreement, dated
as of September 25, 2022, by and among Inpixon, Design Reactor, CXApp and KINS, as amended
and modified from time to time; |
| ● | “Sponsor”
refers to KINS Capital, LLC, a Delaware limited liability company; and |
| ● | “Subsidiary”
refers to, with respect to a Person, a corporation or other entity of which more than 50%
of the voting power of the equity securities or equity interests is owned, directly or indirectly,
by such Person; |
| ● | “Warrants”
refers to warrants to purchase one share of Common Stock at an exercise price of $11.50; |
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “forecast,” “future,” “goal,” “intend,”
“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,”
“propose,” “schedule,” “seek,” “should,” “target,” “will,” “would”
and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not
forward-looking. All statements other than statements of historical facts contained in this prospectus, including statements regarding
CXApp’s future results of operations and financial position, business strategy and its expectations regarding the application of,
and the rate and degree of market acceptance of the CXApp technology platform and other technologies, CXApp’s expectations regarding
the addressable markets for our technologies, including the growth rate of the markets in which it operates, and the potential for and
timing of receipt of payments under CXApp’s agreements, are forward- looking statements. These forward-looking statements are not
guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions
and other important factors, many of which are outside the control of CXApp, that could cause actual results or outcomes to differ materially
from those discussed in the forward-looking statements.
The
forward-looking statements contained in this prospectus and in any document incorporated by reference in this prospectus are based on
current expectations and beliefs concerning future developments and their potential effects on CXApp. There can be no assurance that
future developments affecting CXApp will be those that CXApp has anticipated. These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond the control of CXApp) or other assumptions that may cause actual results or performance to be
materially different from those expressed or implied by these forward- looking statements.
Forward-looking
statements contained in this prospectus include, but are not limited to, statements such as the following:
| ● | realize
the benefits expected from the Merger; |
| ● | successfully
defend litigation; |
| ● | successfully
deploy the proceeds from the Merger; |
| ● | the
sufficiency of sources of funding; |
| ● | factors
relating to the business, operations and financial performance of the Enterprise Apps Business,
and CXApp and its subsidiaries, including: |
| ● | changes
in general economic conditions, geopolitical risk, including as a result of the COVID-19
pandemic or the conflict between Russia and Ukraine; |
| ● | the
ability to continue to meet Nasdaq’s listing standards following the consummation of
the Business Combination; |
| ● | the
volatility of CXApp’s securities due to a variety of factors, including the inability
to implement business plans or meet or exceed financial projections and changes in the capital
structure; and |
| ● | the
anticipated benefits of the Separation may not be achieved; |
| ● | CXApp’s
historical combined financial data and pro forma financial statements are not necessarily
representative of the results CXApp would have achieved as a standalone company and may not
be a reliable indicator of its future results; |
| ● | CXApp’s
operating results and financial performance; |
| ● | acceptance
by new and existing partners in CXApp’s market; |
| ● | CXApp’s
ability to manage and grow its business and execution of its business and growth strategies; |
| ● | risks
arising from changes in technology; |
| ● | the
competitive environment in the enterprise apps market; |
| ● | failure
to maintain, protect and defend our intellectual property rights; |
| ● | changes
in government laws and regulations, including laws governing intellectual property, and the
enforcement thereof affecting our business; |
| ● | difficulties
with performance of third parties we will rely on for our business growth; |
| ● | difficulties
developing and sustaining relationships with commercial counterparties; |
| ● | CXApp
may not be able to engage in certain transactions and equity issuances following the Distribution;
|
| ● | CXApp
may have certain indemnification obligations to Inpixon under a tax matters agreement; and |
| ● | other
factors detailed under the section titled “Risk Factors.” |
CXApp
has based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future
events and trends that we believe may affect CXApp’s business, financial condition, results of operations, prospects, business
strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties,
assumptions and other factors described in the section captioned “Risk Factors” and elsewhere in this prospectus.
These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business
and financial performance. Moreover, CXApp operates in very competitive and rapidly changing environments. New risks and uncertainties
emerge from time to time and it is not possible for CXApp to predict all risks and uncertainties that could have an impact on the forward-looking
statements contained in this prospectus. CXApp cannot assure you that the results, events and circumstances reflected in the forward-looking
statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the
forward-looking statements.
Should
one or more of these risks or uncertainties materialize, or should any of CXApp’s assumptions prove incorrect, actual results may
vary in material respects from those projected in these forward-looking statements. CXApp does not undertake any obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
under applicable securities laws.
In
addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based upon information available to CXApp as of the date of this prospectus, and while CXApp believes such information
forms a reasonable basis for such statements, such information may be limited or incomplete, and its statements should not be read to
indicate that CXApp has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements
are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You
should read this prospectus completely and with the understanding that our actual future results may be materially different from what
we expect. We qualify all of our forward-looking statements by these cautionary statements.
PROSPECTUS
SUMMARY
This
summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere in
this prospectus. This summary does not contain all of the information that may be important to you in making your investment decision.
You should read this entire prospectus carefully, especially the “Risk Factors” section beginning on page 13 and our consolidated
financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Common Stock.
Overview
CXApp’s
platform is a workplace experience platform for enterprise customers. Our technologies and solutions help enterprise customers deliver
a comprehensive business journey in a work ‘from-anywhere’ world for employees, partners, customers and visitors. CXApp offers
native mapping, analytics, on-device positioning (or ODP) and applications technologies that aim to bring people together.
Our
customers use our enterprise solutions in a variety of ways, including, but not limited to, workplace experience, employee engagement,
desk and meeting room reservations, workplace analytics, occupancy management, content delivery, corporate communications and notifications,
event management, live indoor mapping, wayfinding and navigation.
Our
enterprise app platform is the intersection of technology, intelligence, automation and experience for today’s hybrid workplace
and the workplace of the future.
Our
workplace experience solution is a software-as-a-service (or SaaS) platform for the enterprise. Our technology platform delivers the
following core components that work in combination to deliver an incredible experience for companies around the world.
| ● | Workplace
Experience — Our workplace experience solution
enhances employee experience by providing organizations with a holistic, location-aware,
customer-branded employee app for a more connected workplace. This solution helps organizations
provide a frictionless work environment to employees with features such as: hot desk and
room booking, indoor navigation with turn-by-turn directions on a digital map, company-wide
news feeds, an in-app company directory of colleagues and workplace amenities, as well as
bookable opportunities and experiences. Our clients include facilities teams solving space
utilization challenges, workplace operations teams building incredible experiences for employees
and IT teams focused on streamlining their tech stacks to boost productivity and efficiency. |
| ● | Hybrid
Meeting — Our executive briefing solution helps
enterprise organization create high-touch, high-value, and personalize customer journeys
for in-office, remote and hybrid meetings. Our hybrid solution offering streamlines multi-point
customer experiences through one environment with support for multiple meetings and diversified
locations, agendas for single or multi-day uses, and customizable components for every customer
briefing program. |
| ● | Hybrid
Events — Our hybrid event solution provides both
mobile app and virtual event capabilities to connect tens of thousands of remote and in-person
audiences through a fully branded, end-to- end event journey. Our hybrid event platform can
host multiple events for enterprise organizations and support ongoing event engagement touchpoints
to attendees before, during, and after the event through features such as customizable agendas,
real-time activity feeds, instant notifications and more. |
| ● | Mapping
Solutions — Our indoor mapping solution helps
enterprise organizations add intelligence to complex indoor spaces by integrating business
data with geospatially accurate indoor maps to create relevant views of indoor environments.
Indoor mapping is integral to supporting location-aware, “internet of things”
(or IoT) enabled smart office touchpoints or devices within the customer’s premises.
Developers use our mapping solution to bring indoor maps to apps, enabling multiple uses
with a single set of maps. This product is intended to serve as a digital twin of a physical
space facilitates and can be used for facility management, security, customer or worker experiences,
asset tracking and more. |
| ● | Analytics
Dashboard — Our robust cloud-based analytics dashboards
give enterprise organizations insights into how real estate, technology and people interact
across the workplace, so they can make business decisions to unlock savings, improve employee
experience or optimize services. With our analytics platform, we allow data from multiple
sensors and data sources (third-party sensors, native mapping solutions and data) to be visualized
for action by workplace operations teams. |
| ● | On-Device
Positioning (or ODP) — Our on-device positioning
technology, commonly known as “blue dot,” enables powerful location-based uses
and builds upon our mapping offering to give enterprises clients a seamless way to provide
navigation assistance within a venue (workplace, event show floor etc.). Our solution displays
a user’s precise location and runs on a smartphone, smartwatch or other IoT wearable
device and can operate without the internet. |
The
Business Combination and Related Transactions
On
September 25, 2002, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among
the Company, Inpixon, (“Inpixon”), Legacy CXApp and KINS Merger Sub Inc. (“Merger Sub”). The Merger Agreement
provided for, among other things, the merger of Merger Sub with and into Legacy CXApp (the “Merger” and, together with the
other transactions contemplated by the Merger Agreement, the “Business Combination”), with Legacy CXApp surviving the Merger
as a wholly-owned subsidiary of CXApp, in accordance with the terms and subject to the conditions of the Merger Agreement.
On
March 14, 2023 (the “Closing Date”), pursuant to the Merger Agreement, Merger Sub merged with and into Legacy CXApp,
with Legacy CXApp surviving the merger as a wholly-owned subsidiary of the Company (the “Closing”).
In
connection with Closing, we changed our name from KINS to CXApp Inc. The Business Combination will be accounted for using the acquisition
method (as a forward merger), with goodwill and other identifiable intangible assets recorded in accordance with GAAP, as applicable.
Under this method of accounting, CXApp is treated as the “acquired” company for financial reporting purposes. KINS has been
determined to be the accounting acquirer because KINS maintains control of the Board of Directors and management of the combined company.
For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination.
The
rights of holders of our Common Stock and Warrants are governed by our amended and restated certificate of incorporation (our “certificate
of incorporation” or “Charter”), our amended and restated bylaws (the “Bylaws”), and the Delaware General
Corporation Law (the “DGCL”), and, in the case of the Warrants, the Warrant Agreement, dated as of December 14, 2020,
by and between KINS and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agreement”). See the
section titled “Description
of Capital Stock.”
Resale of Shares in this Registration
Statement
Due to the significant number
of redemptions of our Class A common stock in connection with our Business Combination, the shares of common stock being registered for
issuance or resale are anticipated to constitute a considerable percentage of our public float. Additionally, all the shares of common
stock being registered for resale were purchased by the Selling Securityholders for prices considerably below the current market price
of our Class A common stock. This discrepancy in purchase prices may have an impact on the market perception of the stock’s value
and could contribute to potential downward pressure on the public trading price of our Class A common stock. The registration of these
shares for issuance or resale creates the possibility of a significant increase in the supply of our Class A common stock in the market.
The increased supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively
affect the public trading price of our Class A common stock. We will not receive the proceeds from the resale of the shares of common
stock by the Selling Securityholders.
The exercise price of the
warrants, in certain circumstances, may be higher than the prevailing market price of the underlying securities. The exercise price of
the warrants is subject to market conditions and may not be advantageous if the prevailing market price of the underlying securities
is lower than the exercise price. The cash proceeds associated with the exercise of warrants to purchase our common stock are contingent
upon our stock price. The value of our common stock may fluctuate and may not align with the exercise price of the warrants at any given
time. If the warrants are “out of the money,” meaning the exercise price is higher than the market price of our common stock,
there is a high likelihood that warrant holders may choose not to exercise their warrants. As a result, we may not receive any proceeds
from the exercise of such warrants. On July 6, 2023, the closing sale price of our common stock as reported by Nasdaq was $10.51 per
share and the closing price of our warrants was $0.49 per warrant.
Furthermore, with regard
to the Private Placement Warrants, it is possible that we may not receive cash upon their exercise since these warrants may be exercised
on a cashless basis. A cashless exercise allows warrant holders to convert the warrants into shares of our common stock without the need
for a cash payment. Instead of receiving cash upon exercise, the warrant holder would receive a reduced number of shares based on a predetermined
formula or method as further described in “Description of Capital Stock” further below. As a result, the number of
shares received through a cashless exercise may be lower than if the warrants were exercised on a cash basis, which could impact the
value and dilution of our common stock.
Summary
of Risk Factors
In
addition to the other information contained in this prospectus, the following risks have the potential to impact the business and operations
of CXApp. An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described in
this prospectus, together with the other information contained in this prospectus. These risk factors are not exhaustive and all investors
are encouraged to perform their own investigation with respect to the business, financial condition and prospects of CXApp. The occurrence
of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe are immaterial
could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In that
event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but
are not limited to, the following (See “Risk
Factors”). Unless the context otherwise requires, all references in this subsection to the
“Company,” “we,” “us,” or “our” refer to the business of CXApp.
| ● | We
have a history of operating losses and there is no assurance that we will ever be able to
earn sufficient revenue to achieve profitability or raise additional financing to successfully
operate our business plan. |
| ● | We
rely on a limited number of key customers, the importance of which may vary dramatically
from year to year, and a loss of one or more of these key customers may adversely affect
our operating results. |
| ● | We
may need additional cash financing and any failure to obtain cash financing, could limit
our ability to grow our business and develop or enhance our service offerings to respond
to market demand or competitive challenges. |
| ● | Our
competitiveness depends significantly on our ability to keep pace with the rapid changes
in our industry. Failure by us to anticipate and meet our customers’ technological
needs could adversely affect our competitiveness and growth prospects. |
| ● | Our
historical financial results and unaudited pro forma combined financial information included
in this prospectus is preliminary and the actual financial condition and results of operations
after the Merger may differ materially. |
| ● | Because
we have not conducted an underwritten offering of our securities, no underwriter has conducted
a due diligence review of our business, operations or financial condition or reviewed the
disclosure in this prospectus. |
| ● | The
market price of our Common Stock may be volatile and fluctuate substantially, which could
cause the value of your investment to decline. |
| ● | The
requirements of being a public company, including compliance with the reporting requirements
of the Exchange Act and Nasdaq, require significant resources, increase our costs and distract
our management, and we may be unable to comply with these requirements in a timely or cost-
effective manner. We will incur increased costs as a result of operating as a public company,
and our management will devote substantial time to new compliance initiatives. |
| ● | Our
historical combined financial data and pro forma financial statements are not necessarily
representative of the results we would have achieved as a standalone company and may not
be a reliable indicator of our future results. |
Emerging
Growth Company
CXApp
is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such,
CXApp is eligible to 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 auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive
as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In
other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. CXApp intends to take advantage of the benefits of this extended transition period.
CXApp
will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary
of the completion of the initial public offering of our securities, (b) in which we have total annual gross revenue of at least $1.07
billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held
by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which
we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging
growth company” have the meaning associated with it in the JOBS Act.
Smaller
Reporting Company
CXApp
is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take
advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
CXApp will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of its common equity
held by non-affiliates exceeds $700 million as of the prior September 30th or (2) the market value of its common equity
exceeds $250 million and its annual revenues exceeds $100 million during such fiscal year.
THE
OFFERING
Shares
of Common Stock Offered by the Selling Securityholders |
|
6,977,776
shares of Common Stock and 10,280,000 shares of Common Stock issuable upon exercise of Warrants |
|
|
|
Shares
of Common Stock offered by the Company |
|
24,080,000
shares of Common Stock issuable upon exercise of Warrants |
|
|
|
Warrants
offered by the Selling Securityholders |
|
10,280,000
Warrants |
|
|
|
Shares
of Common Stock outstanding prior to this offering |
|
14,069,999
shares of Common Stock (as of July 6, 2023) |
|
|
|
Warrants
outstanding prior to this offering |
|
24,080,000
Warrants (as of July 6, 2023) |
|
|
|
Exercise
price per warrant |
|
$11.50 |
|
|
|
Use
of proceeds |
|
We
will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this
prospectus. |
|
|
|
Risk
factors |
|
You
should carefully read the section titled “Risk Factors” beginning on page 13 and the other information included
in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Common Stock or Warrants |
|
|
|
Nasdaq
symbol for our Common Stock |
|
“CXAI” |
|
|
|
Nasdaq
symbol for our Warrants |
|
“CXAIW” |
RISK
FACTORS
You
should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment
in our Common Stock or Warrants. Our business, financial condition, results of operations, or prospects could be materially and adversely
affected if any of these risks occurs, and as a result, the market price of our Common Stock and Warrants could decline and you could
lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See
“Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from
those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
Risks
Related to this Offering by the Selling Securityholders
Sales
of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing securityholders
could cause the price of our shares of Common Stock and Warrants to fall.
The Selling Securityholders
can sell, under this prospectus, up to (i) 31,057,776 shares of Common Stock constituting approximately 220% of our issued and outstanding
shares of Common Stock as of July 6, 2023, consisting of (a) up to 6,877,776 shares of Common Stock that were originally issued to the
Sponsor in the form of sponsor shares prior to the KINS Initial Public Offering at a price of approximately $0.004 per share, (b) up
to 10,280,000 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants at an exercise price of $11.50
per share, which were originally issued to Sponsor and the Direct Anchor Investors in a private placement at a price of $1.00 per Private
Placement Warrant in connection with the KINS Initial Public Offering by certain of the Selling Securityholders named in this prospectus,
(c) up to 13,800,000 shares of Common Stock that are issuable upon the exercise of the Public Warrants, (d) the resale of up to 10,280,000
shares of common stock issuable upon exercise of the private warrants held by the Sponsor, its affiliates and the Direct Anchor Investors
and (e) up to 100,000 shares of Common Stock issued in a private placement to BTIG, LLC, which were initially issued without cash consideration
(holding an implied value of $9.94 per share based on the closing price of KINS’ stock at the time the Advisory Agreement was entered
into) in exchange for their engagement to provide strategic and capital markets advisory services and (ii) 10,280,000 Warrants constituting
approximately 42.7% of our issued and outstanding Warrants as of July 6, 2023, which were originally issued at a price of $1.00 per Warrant.
The sale of all or a portion of the securities being offered in this prospectus could result in a significant decline in the public trading
price of our securities. Despite such a decline in the public trading price, some of the Selling Securityholders may still experience
a positive rate of return on the securities they purchased due to the price at which such Selling Securityholder initially purchased
the securities. See “Certain existing stockholders purchased, or may purchase, securities in the Company at a price below the
current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors
in the Company may not experience a similar rate of return.” below.
Sales
of a substantial number of our shares of Common Stock and/or Warrants in the public market by the Selling Securityholders and/or by our
other existing securityholders, or the perception that those sales might occur, could depress the market price of our shares of Common
Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities.
Certain
existing stockholders purchased, or may purchase, securities in the Company at a price below the current trading price of such securities,
and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a
similar rate of return.
Certain
stockholders in the Company, including certain of the Selling Securityholders, as well as Inpixon, Inpixon’s management (through
their interests in the Sponsor), and the Direct Anchor Investors, acquired, or may acquire, shares of our Common Stock or Warrants at
prices below the current trading price of our Common Stock, and may experience a positive rate of return based on the current trading
price.
This prospectus relates
to the offer and resale from time to time by the Selling Securityholders of (i) up to 31,057,776 shares of Common Stock constituting
approximately 220% of our issued and outstanding shares of Common Stock as of July 6, 2023, consisting of (a) up to 6,877,776 shares
of Common Stock that were originally issued to the Sponsor in the form of sponsor shares prior to the KINS Initial Public Offering at
a price of approximately $0.004 per share, (b) up to 10,280,000 shares of Common Stock that are issuable upon the exercise of the Private
Placement Warrants at an exercise price of $11.50 per share, which were originally issued to the Sponsor and the Direct Anchor Investors
in a private placement at a price of $1.00 per Private Placement Warrant in connection with the KINS Initial Public Offering certain
of the Selling Securityholders named in this prospectus, (c) up to 13,800,000 shares of Common Stock that are issuable upon the exercise
of the Public Warrants, (d) the resale of up to 10,280,000 shares of common stock issuable upon exercise of the private warrants held
by the Sponsor, its affiliates and the Direct Anchor Investors and (e) up to 100,000 shares of Common Stock issued in a private placement
to BTIG, LLC and (ii) 10,280,000 Warrants constituting approximately 42.7% of our issued and outstanding Warrants as of July 6, 2023,
which were originally issued at a price of $1.00 per Warrant.
Based on the closing price
of our Common Stock of $10.51 on July 6, 2023, (i) the Sponsor may experience potential profit of up to $10.51 per share of Common Stock
based on the Sponsor’s initial purchase price of shares of Common Stock in the form of sponsor shares prior to the KINS Initial
Public Offering at a price of approximately $0.004 per share, (ii) Inpixon and Inpixon’s management may experience potential profit
of up to $10.51 per share of Common Stock based on approximately 598,000 shares of Common Stock attributable to them through their interests
in the Sponsor, (iii) the Direct Anchor Investors may experience potential profit of up to $10.51 per share of Common Stock based on
the Direct Anchor Investors’ initial purchase of Private Placement Warrant in connection with the KINS Initial Public Offering
at a price of approximately $1.00 per Private Placement Warrant, and (iv) BTIG may experience potential profit of up to $0.57 per share
of Common Stock based on the Company issuing 100,000 shares of Common Stock to BTIG in a private placement (as a fee for its services
pursuant to the Advisory Agreement) and assuming that the “purchase price” of the Common Stock was the market price of KINS’
stock on the date the Advisory Agreement was entered into (which was $9.94 on March 14, 2023).
Public securityholders may
not be able to experience the same positive rates of return on securities they purchase due to the low price at which the Selling Securityholders
purchased shares of our Common Stock or our warrants.
Our
Warrants are exercisable for shares of our Common Stock, which exercises will increase the number of shares of Common Stock eligible
for future resale in the public market and result in dilution to our existing stockholders.
The
outstanding Warrants to purchase an aggregate of 24,080,000 shares of our Common Stock will become exercisable on April 13, 2023,
subject to other conditions set forth in “Description of Capital Stock” further below. Each Warrant entitles the holder
thereof to purchase one share of our Common Stock at a price of $11.50 per whole share. Warrants may be exercised only for a whole number
of shares of Common Stock. To the extent such warrants are exercised, additional shares of our Common Stock will be issued, which will
result in dilution to the then existing holders of our Common Stock and increase the number of shares eligible for resale in the public
market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock.
Our warrants may not
be exercised at all or may be exercised on a cashless basis and we may not receive any cash proceeds from the exercise of the warrants.
Due to the significant number
of redemptions of our Class A common stock in connection with our Business Combination, the shares of common stock being registered for
issuance or resale are anticipated to constitute a considerable percentage of our public float. Additionally, all the shares of common
stock being registered for resale were purchased by the Selling Securityholders for prices considerably below the current market price
of our Class A common stock. This discrepancy in purchase prices may have an impact on the market perception of the stock’s value
and could contribute to potential downward pressure on the public trading price of our Class A common stock. The registration of these
shares for issuance or resale creates the possibility of a significant increase in the supply of our Class A common stock in the market.
The increased supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively
affect the public trading price of our Class A common stock. We will not receive the proceeds from the resale of the shares of common
stock by the Selling Securityholders.
The exercise price of the
warrants, in certain circumstances, may be higher than the prevailing market price of the underlying securities. The exercise price of
the warrants is subject to market conditions and may not be advantageous if the prevailing market price of the underlying securities
is lower than the exercise price. The cash proceeds associated with the exercise of warrants to purchase our common stock are contingent
upon our stock price. The value of our common stock may fluctuate and may not align with the exercise price of the warrants at any given
time. If the warrants are “out of the money,” meaning the exercise price is higher than the market price of our common stock,
there is a high likelihood that warrant holders may choose not to exercise their warrants. As a result, we may not receive any proceeds
from the exercise of such warrants.
Furthermore, with regard
to the Private Placement Warrants, it is possible that we may not receive cash upon their exercise since these warrants may be exercised
on a cashless basis. A cashless exercise allows warrant holders to convert the warrants into shares of our common stock without the need
for a cash payment. Instead of receiving cash upon exercise, the warrant holder would receive a reduced number of shares based on a predetermined
formula or method as further described in “Description of Capital Stock” further below. As a result, the number of
shares received through a cashless exercise may be lower than if the warrants were exercised on a cash basis, which could impact the
value and dilution of our common stock.
Risks
Relating to our Business
You
should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this prospectus.
The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties
facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions,
economic conditions, geopolitical events, changes in laws, regulations or accounting rules, fluctuations in interest rates, terrorism,
wars or conflicts, major health concerns, natural disasters or other disruptions of expected business conditions. Additional risks and
uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results
of operations, liquidity and financial condition.
Unless
the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or
“our” refer to CXApp Inc.
We have a history of
operating losses and there is no assurance that we will ever be able to achieve sufficient bookings growth, maintain license renewals
and earn revenue to achieve profitability or raise additional financing to successfully operate our business plan.
We have a history of operating
losses and may not have sufficient bookings, license renewals and earn revenue to support our operations. We have incurred recurring
net losses of approximately $29.2 million and $42.0 million for the fiscal years ended 2022 and 2021, respectively. Our continuation
is dependent upon attaining and maintaining profitable operations and raising additional capital as needed, but there can be no assurance
that we will be able to raise any further financing.
Our ability to generate
positive cash flow from operations is dependent upon sustaining certain cost reductions and generating sufficient growth in bookings
from new and existing customers, maintaining the level of renewals from existing customers and to achieve growth in revenues. Our operations
have primarily been funded by our previous parent company with proceeds from public and private offerings of capital stock and secured
and unsecured debt instruments. Based on our current business plan, we may need additional capital to support our operations, which may
be satisfied with additional debt or equity financings. Future financings through equity offerings will be dilutive to existing stockholders.
In addition, the terms of securities we may issue in future capital transactions may be more favorable to new investors than our current
investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative
securities. We may also issue incentive awards under our equity incentive plans, which may have additional dilutive effects. We may also
be required to recognize non-cash expenses in connection with certain securities we may issue in the future such as convertible notes
and warrants, which would adversely impact our financial condition and results of operations. Our ability to obtain needed financing
may be impaired by factors, including the condition of the economy and capital markets, both generally and specifically in our industry,
and the fact that we are not profitable, which could affect the availability or cost of future financing. If the amount of capital we
are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs,
we may need to reduce our operations by, for example, selling certain assets or business segments.
Our ability to maintain sufficient cash
flow to support operations over the next year is dependent upon achieving substantial growth in bookings and maintaining the level of
customer renewals.
Our ability to maintain
sufficient cash flow to support operations over the next year depends on achieving significant growth in new bookings from both new and
existing customers, and ensuring a consistent level of customer renewals. Our business operates under a SaaS subscription model, where
the majority of our bookings come from new customer licenses, expansions, or feature upgrades from existing customers.
Under this model, our licensing
agreements are typically invoiced upfront for the initial term of the license, usually 12 months, shortly after the contract begins.
The cash collected for each invoice is specific to the terms of the agreement. However, according to GAAP, revenue recognition for the
subscription licenses occurs gradually over a 12-month period following the commencement of the contract. In the event of early customer
termination, certain agreements may allow for a refund based on the elapsed time, approximating the unearned deferred revenue on our
balance sheet at that time.
Consequently, our cash flow
relies on achieving growth in new bookings while maintaining the level of renewals from existing customers. Any difficulties in sustaining
growth in bookings, delays in securing new bookings, or reductions/delays in customer renewals could have a negative impact on our ability
to maintain sufficient cash flow and sustain our operations.
We have identified a material weakness
in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our
results of operations and financial condition accurately and in a timely manner.
Our management and our audit
committee concluded that it was appropriate to restate previously issued and audited financial statements as of and for the period ended
December 31, 2022.
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our
management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes
and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis.
As described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2022, as amended, we identified a material weakness in our internal control
around the interpretation and accounting for extinguishment of a significant contingent obligation in June 2022. As a result of this
material weakness, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022.
This material weakness resulted in a material misstatement of our reported accretion of Class A common stock subject to possible redemption,
reported net income and earnings per share and related financial disclosures for the three and six months ended June 30, 2022, the three
and nine months ended September 30, 2022 and for the fiscal year ended December 31, 2022 (the “Affected Periods”).
To respond to this material
weakness, we have devoted significant effort and resources to the remediation and improvement of our internal control over financial
reporting. We intend to take steps to remediate this material weakness, including plans to enhance processes to better evaluate our research
and understanding of the nuances of the complex accounting standards that apply to our consolidated financial statements, enhance access
to accounting literature, research materials and documents and increase communication among our personnel and third-party professionals
with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time,
and we can offer no assurance that these initiatives will ultimately have the intended effects. For a discussion of management’s
consideration of the material weakness identified related to its accounting for the extinguishment of contingent obligations see “Note
2” to the accompanying financial statements, as well as Part II, Item 9A: Controls and Procedures included in our Form 10-K, as
amended.
Efforts to remediate this
material weakness may not be effective or prevent any future material weakness or significant deficiency in our internal control over
financial reporting. If our efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may
be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to be materially
misstated and result in the loss of investor confidence and cause the market price of our common stock to decline. Ineffective internal
controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the
trading price of our stock.
We can give no assurance
that the measures we have taken or that we plan to take in the future will remediate the material weakness identified or that any additional
material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate
internal control over financial reporting or circumvention of these controls. We will be required, pursuant to Section 404 of the Sarbanes-Oxley
Act, to annually furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over
financial reporting. Our independent registered public accounting firm may be required to attest to the effectiveness of its internal
control over financial reporting depending on our reporting status. We will be required to disclose changes made in its internal control
and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions,
such as implementing new internal controls and procedures and hiring accounting or internal audit staff.
Failure
to manage or protect growth may be detrimental to our business because our infrastructure may not be adequate for expansion.
Our
corporate strategy contemplates potential future acquisitions and to the extent we acquire other businesses, we will also need to integrate
and assimilate new operations, technologies and personnel. The integration of new personnel will continue to result in some disruption
to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management
processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and
will need to continue to expand, train and manage our work force. There can be no assurance that we would be able to accomplish such
an expansion on a timely basis. If we are unable to effect any required expansion and are unable to perform our contracts on a timely
and satisfactory basis, our reputation and eligibility to secure additional contracts in the future could be damaged. The failure to
perform could also result in contract terminations and significant liability. Any such result would adversely affect our business and
financial condition.
We
will need to increase the size of our organization, and we may experience difficulties in managing growth, which could hurt our financial
performance.
In
order to manage our future growth, we will need to continue to improve our management, operational and financial controls and our reporting
systems and procedures. All of these measures will require significant expenditures and will demand the attention of management. If we
do not continue to enhance our management personnel and our operational and financial systems and controls in response to growth in our
business, we could experience operating inefficiencies that could impair our competitive position and could increase our costs more than
we had planned. If we are unable to manage growth effectively, our business, financial condition and operating results could be adversely
affected.
Our
business depends on experienced and skilled personnel, and if we are unable to attract and integrate skilled personnel, it will be more
difficult for us to manage our business and complete contracts.
The
success of our business depends on the skill of our personnel. Accordingly, it is critical that we maintain, and continue to build, a
highly experienced management team and specialized workforce, including those who create software programs and sales professionals. Competition
for personnel with skill sets specific to our industry is high, and identifying candidates with the appropriate qualifications can be
costly and difficult. We may not be able to hire the necessary personnel to implement our business strategy given our anticipated hiring
needs, or we may need to provide higher compensation or more training to our personnel than we currently anticipate.
Our
business is labor intensive and our success depends on our ability to attract, retain, train and motivate highly skilled employees, including
employees who may become part of our organization in connection with our acquisitions. The increase in demand for consulting, technology
integration and managed services has further increased the need for employees with specialized skills or significant experience in these
areas. Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilled
employees and to retain our employees and the employees of companies that we have acquired. We may not be successful in attracting and
retaining enough employees to achieve our desired expansion or staffing plans. Furthermore, the industry turnover rates for these types
of employees are high and we may not be successful in retaining, training or motivating our employees. Any inability to attract, retain,
train and motivate employees could impair our ability to adequately manage and complete existing projects and to accept new customer
engagements. Such inability may also force us to increase our hiring of independent contractors, which may increase our costs and reduce
our profitability on customer engagements. We must also devote substantial managerial and financial resources to monitoring and managing
our workforce. Our future success will depend on our ability to manage the levels and related costs of our workforce.
In
the event we are unable to attract, hire and retain the requisite personnel and subcontractors, we may experience delays in completing
contracts in accordance with project schedules and budgets, which may have an adverse effect on our financial results, harm our reputation
and cause us to curtail our pursuit of new contracts. Further, any increase in demand for personnel may result in higher costs, causing
us to exceed the budget on a contract, which in turn may have an adverse effect on our business, financial condition and operating results
and harm our relationships with our customers.
Any
future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial
condition or operating results.
If
we are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including, but not limited
to:
| ● | the
purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves
or result in dilution to our existing stockholders; |
| ● | we
may find that the acquired company or technologies do not improve our market position as
planned; |
| ● | we
may have difficulty integrating the operations and personnel of the acquired company, as
the combined operations will place significant demands on our management, technical, financial
and other resources; |
| ● | key
personnel and customers of the acquired company may terminate their relationships with the
acquired company as a result of the acquisition; |
| ● | we
may experience additional financial and accounting challenges and complexities in areas such
as tax planning and financial reporting; |
| ● | we
may assume or be held liable for risks and liabilities (including environmental-related costs)
as a result of our acquisitions, some of which we may not be able to discover during our
due diligence investigation or adequately adjust for in our acquisition arrangements; |
| ● | our
ongoing business and management’s attention may be disrupted or diverted by transition
or integration issues and the complexity of managing geographically or culturally diverse
enterprises; |
| ● | we
may incur one-time write-offs or restructuring charges in connection with the acquisition; |
| ● | we
may acquire goodwill and other intangible assets that are subject to amortization or impairment
tests, which could result in future charges to earnings; and |
| ● | we
may not be able to realize the cost savings or other financial benefits we anticipated. |
We
cannot assure you that, following any acquisition, our continued business will achieve sales levels, profitability, efficiencies or synergies
that justify the acquisition or that the acquisition will result in increased earnings for us in any future period. These factors could
have a material adverse effect on our business, financial condition and operating results.
Insurance
and contractual protections may not always cover lost revenue, increased expenses or liquidated damages payments, which could adversely
affect our financial results.
Although
we maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels and
attempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance or the warranties, performance
guarantees or risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments
that may be required in the future.
We
may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their
former employers.
We
may be subject to claims that we and our employees may have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of former employers or competitors. Litigation may be necessary to defend against these claims. We may be subject to unexpected
claims of infringement of third party intellectual property rights, either for intellectual property rights of which we are not aware,
or for which we believe are invalid or narrower in scope than the accusing party. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition
to paying money claims, we may lose valuable intellectual property rights or personnel or be enjoined from selling certain products or
providing certain services. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize
certain products, which could severely harm our business.
Adverse
judgments or settlements in legal proceedings could materially harm our business, financial condition, operating results and cash flows.
We
may be a party to claims that arise from time to time in the ordinary course of our business, which may include those related to, for
example, contracts, sub-contracts, protection of confidential information or trade secrets, adversary proceedings arising from customer
bankruptcies, employment of our workforce and immigration requirements or compliance with any of a wide array of state and federal statutes,
rules and regulations that pertain to different aspects of our business. We may also be required to initiate expensive litigation or
other proceedings to protect our business interests. There is a risk that we will not be successful or otherwise be able to satisfactorily
resolve any such claims or litigation. In addition, litigation and other legal claims are subject to inherent uncertainties. Those uncertainties
include, but are not limited to, litigation costs and attorneys’ fees, unpredictable judicial or jury decisions and the differing
laws and judicial proclivities regarding damage awards among the states in which we operate. Unexpected outcomes in such legal proceedings,
or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes
in established reserves), could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Due to recurring losses and net capital deficiency, our current financial status may increase our default and litigation risks and may
make us more financially vulnerable in the face of threatened litigation.
The
loss of key personnel may adversely affect our operations.
Our
success depends to a significant extent upon the operation, experience, and continued services of certain of our officers, and other
key personnel. While our key personnel are employed under employment contracts, there is no assurance we will be able to retain their
services. The loss of our key personnel could have an adverse effect on us. If certain of our executive officers were to leave we would
face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any successor obtains the
necessary training and experience. Furthermore, we do not maintain “key person” life insurance on the lives of any executive
officer and their death or incapacity would have a material adverse effect on us. The competition for qualified personnel is intense,
and the loss of services of certain key personnel could adversely affect our business.
Internal
system or service failures could disrupt our business and impair our ability to effectively provide our services and products to our
customers, which could damage our reputation and adversely affect our revenues and profitability.
Any
system or service disruptions, on our hosted cloud infrastructure or those caused by ongoing projects to improve our information technology
systems and the delivery of services, if not anticipated and appropriately mitigated, could have a material adverse effect on our business
including, among other things, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the
amounts that have been billed and produce accurate financial statements in a timely manner. We are also subject to systems failures,
including network, software or hardware failures, whether caused by us, third-party service providers, cyber security threats, natural
disasters, power shortages, terrorist attacks or other events, which could cause loss of data and interruptions or delays in our business,
cause us to incur remediation costs, subject us to claims and damage our reputation. In addition, the failure or disruption of our communications
or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Our property and business
interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure
or disruption and, as a result, our future results could be adversely affected.
Systems
failures could damage our reputation and adversely affect our revenues and profitability.
Many
of the systems and networks that we develop, install and maintain for our customers on premise or host on our infrastructure involve
managing and protecting confidential information and other sensitive corporate and government information. While we have programs designed
to comply with relevant privacy and security laws and restrictions, if a system or network that we develop, install or maintain were
to fail or experience a security breach or service interruption, whether caused by us, third-party service providers, cyber security
threats or other events, we may experience loss of revenue, remediation costs or face claims for damages or contract termination. Any
such event could cause serious harm to our reputation and prevent us from having access to or being eligible for further work on such
systems and networks. Our errors and omissions liability insurance may be inadequate to compensate us for all of the damages that we
may incur and, as a result, our future results could be adversely affected.
We
may enter into joint venture, teaming and other arrangements, and these activities involve risks and uncertainties. A failure of any
such relationship could have material adverse results on our business and results of operations.
We
may enter into joint venture, teaming and other arrangements. These activities involve risks and uncertainties, including the risk of
the joint venture or applicable entity failing to satisfy its obligations, which may result in certain liabilities to us for guarantees
and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement, the risk of
conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts, and the difficulty of managing
or otherwise monitoring such business arrangements. A failure of our business relationships could have a material adverse effect on our
business and results of operations.
Our
business and operations expose us to numerous legal and regulatory requirements and any violation of these requirements could harm our
business.
We
are subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection, employment
and labor relations, immigration, taxation, anticorruption, import/export controls, trade restrictions, internal control and disclosure
control obligations, securities regulation and anti-competition. Compliance with diverse and changing legal requirements is costly, time-consuming
and requires significant resources. We are also focused on expanding our business in certain identified growth areas, such as health
information technology, energy and environment, which are highly regulated and may expose us to increased compliance risk. Violations
of one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages,
criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations
or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result
in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage,
restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.
If
we do not adequately protect our intellectual property rights, we may experience a loss of revenue and our operations and growth prospects
may be materially harmed.
We
have not registered copyrights on any of the software we have developed, and while we may register copyrights in the software if needed
before bringing suit for copyright infringement, such registration can introduce delays before suit of over three years and can constrain
damages for infringement. We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our
intellectual property. We cannot assure you that we can adequately protect our intellectual property or successfully prosecute actual
or potential infringement of our intellectual property rights. In addition, we cannot assure you that others will not assert rights in,
or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts
to our satisfaction. Our failure to protect our intellectual property rights may result in a loss of revenue and could materially adversely
affect our operations and financial condition.
In
addition, any patents issued in the future may not provide us with any competitive advantages, and our patent applications may never
be granted. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary
or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents
will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection
of patent and other intellectual property rights are complex and often uncertain and are subject to change that can affect validity of
patents issued under previous legal standards, particularly with respect to the law of subject matter eligibility. Our inability to protect
our property rights could adversely affect our financial condition, operating results and growth prospects.
Our
proprietary software is protected by common law copyright laws, as opposed to registration under copyright statutes. We have not registered
copyrights on any of the proprietary software we have developed. Our performance and ability to compete are dependent to a significant
degree on our proprietary technology. Common law protection may be narrower than that which we could obtain under registered copyrights.
As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. As part of our confidentiality-protection
procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software,
documentation and other proprietary information. There can be no assurance that the steps we have taken will prevent misappropriation
of our technology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford us little
or no protection of our intellectual property. We also rely on a variety of technology that we license from third parties. There can
be no assurance that these third party technology licenses will continue to be available to us on commercially reasonable terms, if at
all. The loss of or inability to maintain or obtain upgrades to any of these technology licenses could result in delays in completing
software enhancements and new development until equivalent technology could be identified, licensed or developed and integrated. Any
such delays would materially and adversely affect our business.
The
growth of our business is dependent on increasing sales to our existing customers and obtaining new customers, which, if unsuccessful,
could limit our financial performance.
Our
ability to increase revenues from existing customers by identifying additional opportunities to sell more of our products and services
and our ability to obtain new customers depends on a number of factors, including our ability to offer high quality products and services
at competitive prices, the strength of our competitors and the capabilities of our sales and marketing departments. If we are not able
to continue to increase sales of our products and services to existing customers or to obtain new customers in the future, we may not
be able to increase our revenues and could suffer a decrease in revenues as well.
Our
competitiveness depends significantly on our ability to keep pace with the rapid changes in our industry. Failure to anticipate and meet
our customers’ technological needs could adversely affect our competitiveness and growth prospects.
We
operate and compete in an industry characterized by rapid technological innovation, changing customer needs, evolving industry standards
and frequent introductions of new products, product enhancements, services and distribution methods. Our success depends on our ability
to develop expertise with these new products, product enhancements, services and distribution methods and to implement solutions that
anticipate and respond to rapid changes in technology, the industry, and customer needs. The introduction of new products, product enhancements
and distribution methods could decrease demand for current products or render them obsolete. Sales of products and services can be dependent
on demand for specific product categories, and any change in demand for or supply of such products could have a material adverse effect
on our net sales if we fail to adapt to such changes in a timely manner.
There
can be no assurances that consumer or commercial demand for our future products will meet, or even approach, our expectations. In addition,
our pricing and marketing strategies may not be successful. Lack of customer demand, a change in marketing strategy and changes to our
pricing models could dramatically alter our financial results. Unless we are able to release location based products that meet a significant
market demand, we will not be able to improve our financial condition or the results of our future operations.
If
we are unable to sell additional products and services to our customers and increase our overall customer base, our future revenue and
operating results may suffer.
Our
future success depends, in part, on our ability to expand the deployment of technologies with existing customers and finding new customers
to sell our products and services to. This may require increasingly sophisticated and costly sales efforts and may not result in additional
sales. In addition, the rate at which our customers purchase additional products and services, and our ability to attract new customers,
depends on a number of factors, including the perceived need for indoor mapping products and services, as well as general economic conditions.
If our efforts to sell additional products and services are not successful, our business may suffer.
We
operate in a highly competitive market and we may be required to reduce the prices for some of our products and services to remain competitive,
which could adversely affect our results of operations.
Our
industry is developing rapidly and related technology trends are constantly evolving. In this environment, we face, among other things,
significant price competition from our competitors. As a result, we may be forced to reduce the prices of the products and services we
sell in response to offerings made by our competitors and may not be able to maintain the level of bargaining power that we have enjoyed
in the past when negotiating the prices of our products and services.
Our
profitability is dependent on the prices we are able to charge for our products and services. The prices we are able to charge for our
products and services are affected by a number of factors, including:
| ● | our
customers’ perceptions of our ability to add value through our products and services; |
| ● | introduction
of new products or services by us or our competitors; |
| ● | our
competitors’ pricing policies; |
| ● | our
ability to charge higher prices where market demand or the value of our products or services
justifies it; |
| ● | procurement
practices of our customers; and |
| ● | general
economic and political conditions. |
If
we are not able to maintain favorable pricing for our products and services, our results of operations could be adversely affected.
A
delay in the completion of our customers’ budget processes could delay purchases of our products and services and have an adverse
effect on our business, operating results and financial condition.
We
rely on our customers to purchase products and services from us to maintain and increase our earnings, and customer purchases are frequently
subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. If sales expected from a
specific customer are not realized when anticipated or at all, our results could fall short of public expectations and our business,
operating results and financial condition could be materially adversely affected.
Digital
threats such as cyber-attacks, data protection breaches, computer viruses or malware may disrupt our operations, harm our operating results
and damage our reputation, and cyber-attacks or data protection breaches on our customers’ networks, or in cloud-based services
provided by or enabled by us, could result in liability for us, damage our reputation or otherwise harm our business.
Despite
our implementation of network security measures, the products and services we sell to customers, and our servers, data centers and the
cloud based solutions on which our data, and data of our customers, suppliers and business partners are stored, are vulnerable to cyber-attacks,
data protection breaches, computer viruses, and similar disruptions from unauthorized tampering or human error. Any such event could
compromise our networks or those of our customers, and the information stored on our networks or those of our customers could be accessed,
publicly disclosed, lost or stolen, which could subject us to liability to our customers, business partners and others, and could have
a material adverse effect on our business, operating results, and financial condition and may cause damage to our reputation. Efforts
to limit the ability of malicious third parties to disrupt the operations of the Internet or undermine our own security efforts may be
costly to implement and meet with resistance, and may not be successful. Breaches of network security in our customers’ networks,
or in cloud based services provided by or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products
or services, could result in liability for us, damage our reputation or otherwise harm our business.
Any
failures or interruptions in our services or systems could damage our reputation and substantially harm our business and results of operations.
Our
success depends in part on our ability to provide reliable remote services, technology integration and managed services to our customers.
The operations of our cloud based applications and analytics are susceptible to damage or interruption from human error, fire, flood,
power loss, telecommunications failure, terrorist attacks and similar events. We could also experience failures or interruptions of our
systems and services, or other problems in connection with our operations, as a result of:
| ● | damage
to or failure of our computer software or hardware or our connections; |
| ● | errors
in the processing of data by our systems; |
| ● | computer
viruses or software defects; |
| ● | physical
or electronic break-ins, sabotage, intentional acts of vandalism and similar events; |
| ● | increased
capacity demands or changes in systems requirements of our customers; and |
| ● | errors
by our employees or third-party service providers. |
Any
production interruptions for any reason, such as a natural disaster, epidemic, capacity shortages, or quality problems, at one of our
manufacturing partners would negatively affect sales of product lines manufactured by that manufacturing partner and adversely affect
our business and operating results.
Any
interruptions in our systems or services could damage our reputation and substantially harm our business and results of operations. While
we maintain disaster recovery plans and insurance with coverage we believe to be adequate, claims may exceed insurance coverage limits,
may not be covered by insurance or insurance may not continue to be available on commercially reasonable terms.
We
rely on a limited number of key customers, the importance of which may vary dramatically from year to year, and a loss of one or more
of these key customers may adversely affect our operating results.
Our
top three customers accounted for approximately 27% of our gross revenue during the years ended December 31, 2022 and 2021. One
customer accounted for 11% of our gross revenue in 2022, and a separate customer accounted for 12% of our gross revenue in 2021; however,
each of these customers may or may not continue to be a significant contributor to revenue in 2023. The loss of a significant amount
of business from one of our major customers would materially and adversely affect our results of operations until such time, if ever,
as we are able to replace the lost business. Significant customers or projects in any one period may not continue to be significant customers
or projects in other periods. To the extent that we are dependent on any single customer, we are subject to the risks faced by that customer
to the extent that such risks impede the customer’s ability to stay in business and make timely payments to us.
We
may need additional cash financing and any failure to obtain cash financing, could limit our ability to grow our business and develop
or enhance our service offerings to respond to market demand or competitive challenges.
While
we believe that we have sufficient cash funds to satisfy our working capital needs for the next 12 months, we expect that we may need
to raise funds in order to continue our operations and implement our plans to grow our business. However, if we decide to seek additional
capital, we may be unable to obtain financing on terms that are acceptable to us or at all. If we are unable to raise the required cash,
our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges could
be limited.
If
we cannot collect our receivables or if payment is delayed, our business may be adversely affected by our inability to generate cash
flow, provide working capital or continue our business operations.
Our
business depends on our ability to successfully obtain payment from our customers of the amounts they owe us for products received from
us and any work performed by us. The timely collection of our receivables allows us to generate cash flow, provide working capital and
continue our business operations. Our customers may fail to pay or delay the payment of invoices for a number of reasons, including financial
difficulties resulting from macroeconomic conditions or lack of an approved budget. An extended delay or default in payment relating
to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts receivable.
If we are unable to timely collect our receivables from our customers for any reason, our business and financial condition could be adversely
affected.
If
our products fail to satisfy customer demands or to achieve increased market acceptance our results of operations, financial condition
and growth prospects could be materially adversely affected.
The
market acceptance of our products are critical to our continued success. Demand for our products is affected by a number of factors beyond
our control, including continued market acceptance, the timing of development and release of new products by competitors, technological
change, and growth or decline in the mobile device management market. We expect the proliferation of mobile devices to lead to an increase
in the data security demands of our customers, and our products may not be able to scale and perform to meet those demands. If we are
unable to continue to meet customer demands or to achieve more widespread market acceptance of these products, our business operations,
financial results and growth prospects will be materially and adversely affected.
Defects,
errors, or vulnerabilities in our products or services or the failure of such products or services to prevent a security breach, could
harm our reputation and adversely affect our results of operations.
Because
our location based security products and services are complex, they have contained and may contain design or manufacturing defects or
errors that are not detected until after their commercial release and deployment by customers. Defects may cause such products to be
vulnerable to advanced persistent threats (“APTs”) or security attacks, cause them to fail to help secure information or
temporarily interrupt customers’ networking traffic. Because the techniques used by hackers to access sensitive information change
frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques and provide
a solution in time to protect customers’ data. In addition, defects or errors in our subscription updates or products could result
in a failure to effectively update customers’ hardware products and thereby leave customers vulnerable to APTs or security attacks.
Any
defects, errors or vulnerabilities in our products could result in:
| ● | expenditure
of significant financial and product development resources in efforts to analyze, correct,
eliminate, or work-around errors or defects or to address and eliminate vulnerabilities; |
| ● | delayed
or lost revenue; |
| ● | loss
of existing or potential customers or partners; |
| ● | increased
warranty claims compared with historical experience, or increased cost of servicing warranty
claims, either of which would adversely affect gross margins; and |
| ● | litigation,
regulatory inquiries, or investigations that may be costly and harm our reputation. |
Our
current research and development efforts may not produce successful products or features that result in significant revenue, cost savings
or other benefits in the near future. If we do not realize significant revenue from our research and development efforts, our business
and operating results could be adversely affected.
Developing
products and related enhancements in our field is expensive. Investments in research and development may not result in significant design
improvements, marketable products or features or may result in products that are more expensive than anticipated. We may not achieve
the cost savings or the anticipated performance improvements expected, and we may take longer to generate revenue from products in development,
or generate less revenue than expected.
Our
future plans include significant investments in research and development and related product opportunities. Our management believes that
we must continue to dedicate a significant amount of resources to research and development efforts to maintain a competitive position.
However, we may not receive significant revenue from these investments in the near future, or these investments may not yield the expected
benefits, either of which could adversely affect our business and operating results.
Global
events such as the lasting impact of the COVID-19 pandemic and other general economic factors may impact our results of operations.
While
the impact of the COVID-19 pandemic is generally subsiding, the lasting impact on our business and results of operations continues to
remain uncertain. While we were able to continue operations remotely throughout the pandemic, we have and may continue to see a continued
impact of the pandemic in the deployment and implementation of our products and services as return to office initiatives remain ongoing.
In addition, other global events, such as the recent military conflict between Russian and Ukraine and other general economic factors
that are beyond our control beyond our control may impact our results of operations. These factors can include interest rates; recession;
inflation; unemployment trends; the threat or possibility of war, terrorism or other global or national unrest; political or financial
instability; and other matters that influence our customers spending. Increasing volatility in financial markets and changes in the economic
climate could adversely affect our results of operation. While we have been able to realize growth in the year ended December 31,
2022 as compared to the year ended December 31, 2021, the impact that these global events will have on general economic conditions
is continuously evolving and the ultimate impact that they will have on our results of operations continues to remain uncertain. There
are no assurances that we will be able to continue to experience the same growth or not be materially adversely effected.
Our
international business exposes us to geo-political and economic factors, legal and regulatory requirements, public health and other risks
associated with doing business in foreign countries.
We
provide our products and services to customers worldwide. These risks differ from and potentially may be greater than those associated
with our domestic business.
Our
international business is sensitive to changes in the priorities and budgets of international customers and geo-political uncertainties,
which may be driven by changes in threat environments and potentially volatile worldwide economic conditions, various regional and local
economic and political factors, risks and uncertainties, as well as U.S. foreign policy.
Our
international sales are also subject to local government laws, regulations and procurement policies and practices, which may differ from
U.S. Government regulations, including regulations relating to import-export control, investments, exchange controls and repatriation
of earnings, as well as to varying currency, geo-political and economic risks. Our international contracts may include industrial cooperation
agreements requiring specific in-country purchases, manufacturing agreements or financial support obligations, known as offset obligations,
and provide for penalties if we fail to meet such requirements. Our international contracts may also be subject to termination at the
customer’s convenience or for default based on performance, and may be subject to funding risks. We also are exposed to risks associated
with using foreign representatives and consultants for international sales and operations and teaming with international subcontractors,
partners and suppliers in connection with international programs. As a result of these factors, we could experience award and funding
delays on international programs and could incur losses on such programs, which could negatively affect our results of operations and
financial condition.
We
are also subject to a number of other risks including:
| ● | the
absence in some jurisdictions of effective laws to protect our intellectual property rights; |
| ● | multiple
and possibly overlapping and conflicting tax laws; |
| ● | restrictions
on movement of cash; |
| ● | the
burdens of complying with a variety of national and local laws; |
| ● | restrictions
on the import and export of certain technologies; |
| ● | price
controls or restrictions on exchange of foreign currencies; and |
In
addition, our international operations (or those of our business partners) could be subject to natural disasters such as earthquakes,
tsunamis, flooding, typhoons and volcanic eruptions that disrupt manufacturing or other operations. There may be conflict or uncertainty
in the countries in which we operate, including public health issues (for example, an outbreak of a contagious disease such as 2019-Novel
Coronavirus (2019-nCoV), avian influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities,
nuclear power plant accidents or general economic or political factors. With respect to political factors, the United Kingdom’s
2016 referendum, commonly referred to as “Brexit,” has created economic and political uncertainty in the European Union.
Also, the European Union’s General Data Protection Regulation imposes significant new requirements on how we collect, process and
transfer personal data, as well as significant fines for non-compliance. Any of the above risks, should they occur, could result in an
increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses
for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation
of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on
our business.
Difficult
conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations,
and we do not expect these conditions to improve in the near future.
Our
results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S.
and elsewhere around the world. Weak economic conditions generally, sustained uncertainty about global economic conditions, or a prolonged
or further tightening of credit markets could cause our customers and potential customers to postpone or reduce spending on technology
products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or
cash flows. Concerns over inflation, energy costs, geopolitical issues and the availability of credit, in the U.S. have contributed to
increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile
oil prices and wavering business and consumer confidence, have precipitated an economic slowdown and uncertain global outlook. Domestic
and international equity markets have been experiencing heightened volatility and turmoil. These events and the continuing market upheavals
may have an adverse effect on our business. In the event of extreme prolonged market events, such as the global economic recovery, we
could incur significant losses.
Changes
in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international relations, could
adversely affect our financial performance and supply chain economics.
As
a result of changes to U.S. administrative policy, among other possible changes, there may (i) changes to existing trade agreements;
(ii) greater restrictions on free trade generally; and (iii) significant increases in tariffs on goods imported into the United States,
particularly those manufactured in China. China is currently a leading global source of hardware products, including the hardware products
that we use. In January 2020, the U.S. and China entered into Phase One of the Economic and Trade Agreement Between the United States
of America and the People’s Republic of China (the “Phase One Trade Agreement”). The Phase One Trade Agreement takes
steps to ease certain trade tensions between the U.S. and China, including tensions involving intellectual property theft and forced
intellectual property transfers by China. Although the Phase One Trade Agreement is an encouraging sign of progress in the trade negotiations
between the U.S. and China, questions still remain as to the enforcement of its terms, the resolution of a number of other points of
dispute between the parties, and the prevention of further tensions. If the U.S.-China trade dispute re-escalates or relations between
the United States and China deteriorate, these conditions could adversely affect our ability to source our hardware products and therefore
our ability to manufacture our products. Our ability to manufacture our products could also be affected by economic uncertainty, in China
or by our failure to establish a positive reputation and relationships in China. The occurrence of any of these events could have an
adverse effect on our ability to source the components necessary to manufacture our products, which, in turn, could cause our long-term
business, financial condition and operating results to be materially adversely affected.
There
is also a possibility of future tariffs, trade protection measures, import or export regulations or other restrictions imposed on our
products or on our customers by the United States, China or other countries that could have a material adverse effect on our business.
A significant trade disruption or the establishment or increase of any tariffs, trade protection measures or restrictions could result
in lost sales adversely impacting our reputation and business. A trade war, other governmental action related to tariffs or international
trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade,
manufacturing, development and investment in the territories and countries where we currently do business or any resulting negative sentiments
towards the United States could adversely affect our supply chain economics, consolidated revenue, earnings and cash flow.
We
intend to use and leverage open source technology in which may create risks of security weaknesses.
Some
parts of our technology may be based on open-source technology. There is a risk that the development team or other third parties may
intentionally or unintentionally introduce weaknesses or bugs into the core infrastructure elements of our technology solutions interfering
with the use of such technology or causing loss to us.
We
may not be able to develop new products or enhance our product to keep pace with our industry’s rapidly changing technology and
customer requirements.
The
industry in which we operate is characterized by rapid technological changes, new product introductions, enhancements, and evolving industry
standards. Our business prospects depend on our ability to develop new products and applications for our technology in new markets that
develop as a result of technological and scientific advances, while improving performance and cost-effectiveness. New technologies, techniques
or products could emerge that might offer better combinations of price and performance than the blockchain technology solutions that
are being developed by us. It is important that we anticipate changes in technology and market demand. If we do not successfully innovate
and introduce new technology into our anticipated technology solutions or effectively manage the transitions of our technology to new
product offerings, our business, financial condition and results of operations could be harmed.
Domestic
and foreign government regulation and enforcement of data practices and data tracking technologies is expansive, broadly defined and
rapidly evolving. Such regulation could directly restrict portions of our business or indirectly affect our business by constraining
our customers’ use of our technology and services or limiting the growth of our markets.
Federal,
state, municipal and/or foreign governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies,
and regulations covering user privacy, data security, technologies that are used to collect, store and/or process data, and/or the collection,
use, processing, transfer, storage and/or disclosure of data associated with individuals. The categories of data regulated under these
laws vary widely, are often broadly defined, and subject to new applications or interpretation by regulators. The uncertainty and inconsistency
among these laws, coupled with a lack of guidance as to how these laws will be applied to current and emerging indoor positioning analytics
technologies, creates a risk that regulators, lawmakers or other third parties, such as potential plaintiffs, may assert claims, pursue
investigations or audits, or engage in civil or criminal enforcement. These actions could limit the market for our services and technologies
or impose burdensome requirements on our services and/or customers’ use of our services, thereby rendering our business unprofitable.
Some
features of our services may trigger the data protection requirements of certain foreign jurisdictions, such as the EU General Data Protection
Regulation (the “GDPR”), and the EU ePrivacy Directive. In addition, our services may be subject to regulation under current
or future laws or regulations. For instance, the EU ePrivacy Directive is soon to be replaced in its entirety by the ePrivacy Regulation,
which will bring with it an updated set of rules relevant to many aspects of our business. If our treatment of data, privacy practices
or data security measures fail to comply with these current or future laws and regulations in any of the jurisdictions in which we collect
and/or process information, we may be subject to litigation, regulatory investigations, civil or criminal enforcement, financial penalties,
audits or other liabilities in such jurisdictions, or our customers may terminate their relationships with us. In addition, data protection
laws, such as the GDPR, foreign court judgments or regulatory actions could affect our ability to transfer, process and/or receive transnational
data that is critical to our operations, including data relating to users, customers, or partners outside the United States. For instance,
the GDPR restricts transfers of personal data outside of the European Economic Area, including to the United States, subject to certain
requirements. Such data protection laws, judgments or actions could affect the manner in which we provide our services or adversely affect
our financial results if foreign customers and partners are not able to lawfully transfer data to us.
This
area of the law is currently under intense government scrutiny and many governments, including the U.S. government, are considering a
variety of proposed regulations that would restrict or impact the conditions under which data obtained from individuals could be collected,
processed, stored, transferred, sold or shared with third parties. In addition, regulators such as the Federal Trade Commission and the
California Attorney General are continually proposing new regulations and interpreting and applying existing regulations in new ways.
For example, in June 2018, California passed the California Consumer Privacy Act (the “CCPA”), which provides new data
privacy rights for consumers and new informational, disclosure and operational requirements for companies, effective January 2020.
Fines for non-compliance may be up to $7,500 per violation. The burdens imposed by the GDPR and CCPA, and changes to existing laws or
new laws regulating the solicitation, collection, processing, or sharing of personal and consumer information, and consumer protection
could affect our customers’ utilization of our services and technology and could potentially reduce demand, or impose restrictions
that make it more difficult or expensive for us to provide our services.
In
addition, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the European Economic
Area to the United States could result in further limitations on the ability to transfer data across borders, particularly if governments
are unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers, such as the EU-U.S. and
Swiss-U.S. Privacy Shield frameworks and the European Commission’s Model Contractual Clauses, each of which are currently under
particular scrutiny. Additionally, certain countries have passed or are considering passing laws requiring local data residency. The
costs of compliance with, and other burdens imposed by, privacy laws, regulations and standards may limit the use and adoption of our
services, reduce overall demand for our services, make it more difficult to meet expectations from or commitments to customers, lead
to significant fines, penalties or liabilities for noncompliance, impact our reputation, or slow the pace at which we close sales transactions,
any of which could harm our business.
Furthermore,
the uncertain and shifting regulatory environment and trust climate may cause concerns regarding data privacy and may cause our customers
or our customers’ customers to resist providing the data necessary to allow our customers to use our services effectively. Even
the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could
inhibit sales of our products or services and could limit adoption of our cloud-based solutions.
If
our customers fail to abide by applicable privacy laws or to provide adequate notice and/or obtain any required consent from end users,
we could be subject to litigation or enforcement action or reduced demand for our services.
Our
customers utilize our services and technologies to track connected devices anonymously and we must rely on our customers to implement
and administer notice and choice mechanisms required under applicable laws. If we or our customers fail to abide by these laws, it could
result in litigation or regulatory or enforcement action against our customers or against us directly.
Any
actual or perceived failure to comply with our privacy policy or legal or regulatory requirements in one or multiple jurisdictions could
result in proceedings, actions or penalties against us.
Any
failure or perceived failure to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations
or other legal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition,
release or transfer of personal data or other data, may result in governmental enforcement actions and prosecutions, private litigation,
fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our
reputation and business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable
laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and
liability to us, damage our reputation, inhibit sales and adversely affect our business.
Evolving
and changing definitions of what constitutes “Personal Information” and “Personal Data” within the EU, the United
States and elsewhere, may limit or inhibit our ability to operate or expand our business, including limiting technology alliance partners
that may involve the sharing of data.
If
we are perceived to cause, or are otherwise unfavorably associated with, violations of privacy or data security requirements, it may
subject us or our customers to public criticism, financial penalties and potential legal liability. Existing and potential privacy laws
and regulations concerning privacy and data security and increasing sensitivity of consumers to unauthorized processing of personal data
may create negative public reactions to technologies, products and services such as ours. Public concerns regarding personal data processing,
privacy and security may cause some of our customers’ end users to be less likely to visit their venues or otherwise interact with
them. If enough end users choose not to visit our customers’ venues or otherwise interact with them, our customers could stop using
our platform. This, in turn, may reduce the value of our service, and slow or eliminate the growth of our business, or cause our business
to contract.
Around
the world, there are numerous lawsuits in process against various technology companies that process personal information and personal
data. If those lawsuits are successful, it could increase the likelihood that our company may be exposed to liability for our own policies
and practices concerning the processing of personal data and could hurt our business. Furthermore, the costs of compliance with, and
other burdens imposed by laws, regulations and policies concerning privacy and data security that are applicable to the businesses of
our customers may limit the use and adoption of our technologies and reduce overall demand for it. Privacy concerns, whether or not valid,
may inhibit market adoption of our technologies. Additionally, concerns about security or privacy may result in the adoption of new legislation
that restricts the implementation of technologies like ours or require us to make modifications to our existing services and technology,
which could significantly limit the adoption and deployment of our technologies or result in significant expense.
We
may be subject to the excise tax included in the Inflation Reduction Act of 2022 in connection with redemptions of our common stock on
or after January 1, 2023.
On
August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (H.R. 5376), which, among other things, imposes
a 1% excise tax on certain domestic corporations that repurchase their stock on or after January 1, 2023 (the “Excise Tax”).
The Excise Tax is imposed on the fair market value of the repurchased stock, with certain exceptions. The Excise Tax is expected to apply
to any redemptions of our Class A common stock occurring on or after January 1, 2023, including redemptions in connection with the
Business Combination, unless an exemption is available. Issuances of securities in connection with the Business Combination are expected
to reduce the amount of the Excise Tax in connection with redemptions occurring in the same calendar year, but the fair market value
of securities redeemed may exceed the fair market value of securities issued.
Our
cash and cash equivalents may be exposed to failure of our banking institutions.
While
we seek to minimize our exposure to third-party losses of our cash and cash equivalents, we hold our balances in a number of large financial
institutions. Notwithstanding, those institutions are subject to risk of failure. For example, on March 10, 2023, Silicon Valley
Bank (“SVB”) was unable to continue their operations and the Federal Deposit Insurance Corporation was appointed as receiver
for SVB and created the National Bank of Santa Clara to hold the deposits of SVB after SVB was unable to continue their operations. As
of March 20, 2023, substantially all of our cash and cash equivalents are held with other large financial institutions, and we do
not expect further developments with SVB to have a material impact on our cash and cash equivalents balance, expected results of operations,
or financial performance for the foreseeable future. However, if further failures in financial institutions occur where we hold deposits,
we could experience additional risk. Any such loss or limitation on our cash and cash equivalents would adversely affect our business.
Risks
Relating to Ownership of our Securities
The market price of our securities
have been, and are likely going to continue to be, volatile and fluctuate substantially, which could cause the value of your investment
to decline.
The trading price of our
Common Stock, as well as our warrants, has been, and is likely going to continue to be volatile. Since the closing of our initial business
combination through July 6, 2023, our stock price has ranged from $1.21 to $21.00. The stock market and our securities have experienced
extreme volatility in the past and may experience similar volatility moving forward. This volatility often has been unrelated or disproportionate
to the operating performance of particular companies. You may not be able to resell your shares at an attractive price due to a number
of factors including the following:
| ● | results
of operations that vary from the expectations of securities analysts and investors; |
| ● | results
of operations that vary from those of our competitors; |
| ● | changes
in expectations as to our future financial performance, including financial estimates and
investment recommendations by securities analysts and investors; |
| ● | price
and volume fluctuations in the market prices of stocks generally; |
| ● | strategic
actions by us or our competitors; |
| ● | changes
in how enterprises perceive the benefits of our platform and products; |
| ● | announcements
by us or our competitors of new products, solutions or technologies or significant contracts,
acquisitions, joint ventures, other strategic relationships or capital commitments; |
| ● | any
significant change in our management or departures of key personnel; |
| ● | changes
in general economic or market conditions or trends in our industry or markets; |
| ● | changes
in business or regulatory conditions, including new laws or regulations or new interpretations
of existing laws or regulations applicable to our business; |
| ● | future
sales of our Common Stock or other securities; |
| ● | investor
perceptions or the investment opportunity associated with our Common Stock relative to other
investment alternatives; |
| ● | the
public’s response to press releases or other public announcements by us or third parties,
including our filings with the SEC; |
| ● | litigation
involving us, our industry, or both, or investigations by regulators into our operations
or those of our competitors; |
| ● | guidance,
if any, that we provide to the public, any changes in this guidance or our failure to meet
this guidance; |
| ● | the
development and sustainability of an active trading market for our Common Stock; |
| ● | actions
by institutional or activist stockholders; |
| ● | changes
in accounting standards, policies, guidelines, interpretations or principles; |
| ● | general
economic and political conditions such as recessions, interest rates, fuel prices, trade
wars, pandemics (such as COVID-19), currency fluctuations and acts of war or terrorism; and |
| ● | the
effects of natural disasters, terrorist attacks and the spread and/or abatement of infectious
diseases, such as COVID-19, including with respect to potential operational disruptions,
labor disruptions, increased costs, and impacts to demand related thereto. |
These
broad market and industry fluctuations may adversely affect the market price of our Common Stock, regardless of our actual operating
performance. In addition, price volatility may be greater if the public float and trading volume of our Common Stock is low.
In
the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved
in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business
regardless of the outcome of such litigation.
We
qualify as an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions
from disclosure requirements available to emerging growth companies, it could make our securities less attractive to investors and may
make it more difficult to compare our performance to the performance of other public companies.
We
are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and for as long as
we continue to be an emerging growth company, we 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 auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in this prospectus and our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result,
our stockholders may not have access to certain information they may deem important. We cannot predict whether investors will find our
securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result
of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less
active trading market for our securities and the trading prices of our securities may be more volatile.
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 an election to opt out is irrevocable. We have 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, we, 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 our financial statements 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.
If
we cease to be an emerging growth company, we will no longer be able to take advantage of certain exemptions from reporting, and, absent
other exemptions or relief available from the SEC, we will also be required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote
additional time and effort to implement and comply with such requirements.
We
do not intend to pay dividends on our Common Stock, so any returns will be substantially limited to the value of our Common Stock.
We
have no current plans to pay any cash dividends on our Common Stock. The declaration, amount and payment of any future dividends on shares
of our Common Stock will be at the sole discretion of our Board. We currently anticipate that we will retain future earnings for the
development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends from future earnings
for the foreseeable future. Our Board may take into account general and economic conditions, our financial condition and results of operations,
our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions,
implications on our or our subsidiaries’ payment of dividends to our stockholders and such other factors as our Board may deem
relevant. In addition, our ability to pay dividends is limited by our indebtedness and may be limited by covenants of any future indebtedness
we incur. As a result, you may not receive any return on an investment in our Common Stock unless you sell our Common Stock for a price
greater than that which you paid for it.
If
securities analysts do not publish research or reports about our business or if they publish inaccurate or unfavorable research about
our Common Stock, the stock price and trading volume of our Common Stock could decline.
The
trading market for our Common Stock will rely, in part, on the research and reports that industry or financial analysts publish about
us or our business. In addition, some financial analysts may have limited expertise with our model and operations. Furthermore, if one
or more of the analysts who do cover us downgrade their evaluations of our Common Stock, the price of our Common Stock could decline.
If one or more of these analysts ceases to cover us, we could lose visibility in the market for our Common Stock, which in turn could
cause our stock price or trading volume to decline.
Any
future sales or offerings of our common stock may cause substantial dilution to stockholders and could cause the price of our Common
Stock to decline.
The
sale of shares of our Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market
price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for
us to sell equity securities in the future at a time and at a price that it deems appropriate.
Pursuant
to the Insider Letter (as defined in the Sponsor Support Agreement), during the Founder Shares Lock-Up Period (as defined in the Insider
Letter), KINS’ directors and executive officers will not, subject to the exceptions noted therein, sell, transfer, assign, pledge,
encumber, hypothecate or similarly dispose of any shares of our Common Stock, or any stock options, restricted stock units, or other
equity awards outstanding as of immediately following the Closing in respect of our awards outstanding immediately following the Closing.
Following the expiration or waiver of the Lockup Period, such shares will be eligible for resale, subject to volume, manner of sale and
other limitations under Rule 144. Sales of substantial amounts of our Common Stock in the public market, or the perception that
such sales will occur, could adversely affect the market price of our Common Stock and make it difficult for us to raise funds through
securities offerings in the future.
If
the stockholders to the Registration Rights Agreement, dated as of December 14, 2020, that was entered into by KINS, the Sponsor
and the other parties thereto in connection with the KINS initial public offering exercise their registration rights, the market price
of shares of our Common Stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending
to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our Common
Stock or other securities.
In
addition, the shares of our Common Stock reserved for future issuance under our equity incentive plans will become eligible for sale
in the public market once those shares are issued, subject to provisions relating to various vesting agreements and, in some cases, limitations
on volume and manner of sale applicable to affiliates under Rule 144, as applicable.
In
the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our Common Stock
issued in connection with an investment or acquisition could constitute a material portion of our Common Stock. Any issuance of additional
securities in connection with investments or acquisitions may result in additional dilution to our stockholders.
Anti-takeover
provisions in our organizational documents could delay or prevent a change of control.
Certain
provisions of our Charter and Bylaws have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer,
takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by our stockholders.
These
provisions provide for, among other things:
| ● | a
classified board of directors whose members serve staggered three-year terms; |
| ● | the
ability of our Board to issue shares of preferred stock, including “blank check”
preferred stock and to determine the price and other terms of those shares, including preferences
and voting rights, without stockholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer; |
| ● | advance
notice for nominations of directors by stockholders and for stockholders to include matters
to be considered at our annual meetings; |
| ● | no
cumulative voting in the election of directors, which limits the ability of minority stockholders
to elect director candidates; |
| ● | certain
limitations on convening special stockholder meetings; |
| ● | limiting
the ability of stockholders to act by written consent; |
| ● | the
limitation of the liability of, and the indemnification of, our directors and officers; |
| ● | providing
that our Board is expressly authorized to make, alter or repeal our bylaws; and |
| ● | the
removal of directors only for cause and only upon the affirmative vote of holders of the
majority of the voting power of all of the then outstanding shares of our voting stock entitled
to vote at an election of directors. |
These
anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third-party’s offer may be considered
beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of
your choosing and to cause us to take other corporate actions you desire. See “Description of Capital Stock” for more
information.
Our
Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings
that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers, employees or stockholders.
Our
Charter provides that, subject to limited exceptions, any (1) derivative action, suit or proceeding brought on behalf of us, (2) action,
suit or proceeding asserting a claim of breach of a fiduciary duty owed by any of our director, officer or stockholder to us or our stockholders,
(3) action, suit or proceeding arising pursuant to any provision of the DGCL or the Charter or the Bylaws (as either may be amended from
time to time), (4) any action, suit or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery of the State of
Delaware or (5) action, suit or proceeding asserting a claim against us or any current or former director, officer or stockholder governed
by the internal affairs doctrine of the State of Delaware shall, to the fullest extent permitted by applicable law, be exclusively brought
in the Court of Chancery of the State of Delaware or, if such court lacks subject matter jurisdiction thereof, another state or federal
court located within the State of Delaware; provided that, (i) unless we consent in writing to the selection of an alternative forum,
the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum
for the resolution of any complaint asserting a cause of action arising under the Securities Act and (ii) such exclusive forum provision
shall not apply to claims or causes of action brought to enforce any liability or duty created by the Exchange Act or any other claim
for which the federal courts of the United States have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring
any interest in shares of our capital stock shall be deemed to have notice of and to consent to the provisions of the Charter. This choice
of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and
employees. Alternatively, if a court were to find these provisions of the Charter inapplicable to, or unenforceable in respect of, one
or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business and financial condition.
The
requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the Nasdaq, require
significant resources, increase our costs and distract our management, and we may be unable to comply with these requirements in a timely
or cost-effective manner. We will incur increased costs as a result of operating as a public company, and our management will devote
substantial time to new compliance initiatives.
Legacy
CXApp has previously operated as a privately owned company and expects to incur additional legal, regulatory, finance, accounting, investor
relations and other administrative expenses as a result of having publicly traded common stock. In addition, we will be required under
the Sarbanes-Oxley Act, as well as rules adopted by the SEC and Nasdaq to implement specified corporate governance practices that previously
did not apply to Legacy CXApp as a private company.
As
a public company with equity securities listed on Nasdaq, we will need to comply with rules and regulations of the SEC and the requirements
of Nasdaq. Complying with these rules, regulations and requirements will occupy a significant amount of the time of our board of directors
and management and will significantly increase our costs and expenses. Furthermore, if any issues in complying with those requirements
are identified (for example, if the auditors identify a material weakness or significant deficiency in the internal control over financial
reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect our reputation
or investor perceptions of it. In addition, as a public company we will incur substantial costs to obtain director and officer liability
insurance policies. These factors could make it more difficult for us to attract and retain qualified members of our board of directors,
particularly to serve on our audit committee.
We
will be required to ensure that we have the ability to prepare financial statements on a timely basis that fully comply with all SEC
reporting requirements and maintain effective internal controls over financial reporting. The additional demands associated with being
a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away
from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete
business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. In addition,
failure to comply with any laws or regulations applicable to us as a public company may result in legal proceedings and/or regulatory
investigations, and may cause reputational damage. Any of these effects could harm our business, financial condition and results of operations.
USE
OF PROCEEDS
All
of the shares of common stock and warrants offered by the Selling Securityholders will be sold by them for their respective accounts.
We will not receive any of the proceeds from these sales.
Due to the significant number
of redemptions of our Class A common stock in connection with our Business Combination, the shares of common stock being registered for
issuance or resale are anticipated to constitute a considerable percentage of our public float. Additionally, all the shares of common
stock being registered for resale were purchased by the Selling Securityholders for prices considerably below the current market price
of our Class A common stock. This discrepancy in purchase prices may have an impact on the market perception of the stock’s value
and could contribute to potential downward pressure on the public trading price of our Class A common stock. The registration of these
shares for resale creates the possibility of a significant increase in the supply of our Class A common stock in the market. The increased
supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively affect
the public trading price of our Class A common stock. We will not receive the proceeds from the resale of the shares of common stock
or warrants by the Selling Securityholders.
The exercise price of the
warrants, in certain circumstances, may be higher than the prevailing market price of the underlying securities. The exercise price of
the warrants is subject to market conditions and may not be advantageous if the prevailing market price of the underlying securities
is lower than the exercise price. The cash proceeds associated with the exercise of warrants to purchase our common stock are contingent
upon our stock price. The value of our common stock may fluctuate and may not align with the exercise price of the warrants at any given
time. If the warrants are “out of the money,” meaning the exercise price is higher than the market price of our common stock,
there is a high likelihood that warrant holders may choose not to exercise their warrants. As a result, we may not receive any proceeds
from the exercise of such warrants.
Furthermore, with regard
to the Private Placement Warrants, it is possible that we may not receive cash upon their exercise since these warrants may be exercised
on a cashless basis. A cashless exercise allows warrant holders to convert the warrants into shares of our common stock without the need
for a cash payment. Instead of receiving cash upon exercise, the warrant holder would receive a reduced number of shares based on a predetermined
formula or method as further described in “Description of Capital Stock” further below. As a result, the number of
shares received through a cashless exercise may be lower than if the warrants were exercised on a cash basis, which could impact the
value and dilution of our common stock.
The
Selling Securityholders will pay any underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses
incurred by such Selling Securityholders in disposing of their shares of common stock and warrants, and we will bear all other costs,
fees and expenses incurred in effecting the registration of such securities covered by this prospectus, including, without limitation,
all registration and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accountants.
DETERMINATION
OF OFFERING PRICE
We
cannot currently determine the price or prices at which shares of Common Stock or Warrants may be sold by the Selling Securityholders
under this prospectus.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings,
if any, to fund the development and growth of the business, and therefore, do not anticipate declaring or paying any cash dividends on
our Common Stock in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of
our board of directors after considering our business prospects, results of operations, financial condition, cash requirements and availability,
debt repayment obligations, capital expenditure needs, contractual restrictions, covenants in the agreements governing current and future
indebtedness, industry trends, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and
any other factors or considerations the board of directors deems relevant.
MARKET
INFORMATION
Our Common Stock and Warrants
are listed on Nasdaq under the symbols “CXAI” and “CXAIW,” respectively. Prior to the consummation of the Business
Combination, the Class A common stock, units and warrants were listed on Nasdaq under the symbols “KINZ,” “KINZU”
and “KINZW,” respectively. As of July 6, 2023, there were approximately 45 holders of record of our shares of Class A Common
Stock, approximately 45 holders of record of shares of Class C Common Stock and approximately six holders of record of our redeemable
Warrants. The actual number of stockholders of our Common Stock and the actual number of holders of our Warrants is greater than the
number of record holders and includes holders of our Common Stock or Warrants whose shares of Common Stock or Warrants are held in street
name by brokers and other nominees.
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The
following unaudited pro forma condensed combined financial information presents the combination of the financial information of KINS
and CXApp adjusted to give effect to the Business Combination and related transactions. The following unaudited pro forma condensed combined
financial information has been prepared in accordance with Article 11 of Regulation S-X. Defined terms included below have the same meaning
as terms defined and included in the prospectus.
The
historical financial information of KINS was derived from the audited financial statements of KINS as of and for the year ended December 31,
2022. The historical financial information of CXApp was derived from the audited combined carve-out financial statements of Design Reactor
and subsidiaries as of and for the year ended December 31, 2022, included elsewhere in this Report. Such unaudited pro forma financial
information has been prepared on a basis consistent with the financial statements of KINS and Design Reactor and subsidiaries, respectively.
This information should be read together with the financial statements of KINS and Design Reactor and subsidiaries and related notes,
the sections titled “KINS’ Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Design Reactor, Inc and
Subsidiaries” and other information included in the prospectus and this registration statement, as applicable.
The
Business Combination will be accounted for using the acquisition method (as a forward merger), with goodwill and other identifiable intangible
assets recorded in accordance with GAAP, as applicable. Under this method of accounting, CXApp is treated as the “acquired”
company for financial reporting purposes. KINS has been determined to be the accounting acquirer because KINS maintains control of the
Board of Directors and management of the combined company. For accounting purposes, the acquirer is the entity that has obtained control
of another entity and, thus, consummated a business combination. Under the acquisition method of accounting (as a forward merger), KINS’
assets and liabilities will be recorded at carrying value and the assets and liabilities associated with CXApp will be recorded at estimated
fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net assets acquired, if
applicable, will be recognized as goodwill. The process of valuing the net assets of CXApp immediately prior to the merger for purposes
of presentation within this unaudited pro forma condensed combined financial information is preliminary.
The
unaudited pro forma condensed combined balance sheet as of December 31, 2022 combines the historical balance sheets of KINS and
CXApp on a pro forma basis as if the Business Combination and related transactions had been consummated on December 31, 2022. The
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 gives pro forma effect to the
Business Combination and related transactions as if they had occurred on January 1, 2022, the beginning of the earliest period presented.
KINS and CXApp have not had any historical operating relationship prior to the Business Combination. Accordingly, no pro forma adjustments
were required to eliminate activities between the companies.
These
unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the
results that would have been obtained had the Business Combination and related transactions actually been completed on the assumed date
or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently
available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results
may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.
Description
of the Merger Agreement
On
September 25, 2022, KINS entered into the Merger Agreement, by and among KINS, Inpixon, CXApp, and Merger Sub, pursuant to which
KINS will combine with CXApp, Inpixon’s Enterprise Apps Business. Also on September 25, 2022, and in connection with the execution
of the Merger Agreement, KINS, Inpixon, CXApp and the Sponsor entered into the Sponsor Support Agreement.
Immediately
prior to the Merger and pursuant to the Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon,
CXApp and Design Reactor, and other ancillary conveyance documents, Inpixon, among other things and on the terms and subject to the conditions
of the Separation and Distribution Agreement, transferred the Enterprise Apps Business, including certain related subsidiaries of Inpixon,
including Design Reactor, to CXApp and, in connection therewith, effected the Distribution by distributing to Inpixon securityholders
100% of 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, with CXApp continuing as the surviving company in the Merger and as a wholly-owned subsidiary of KINS (the Merger).
The
Merger Agreement, along with the Separation and Distribution Agreement and the other transaction documents entered into in connection
therewith, provides for, among other things, the consummation of the following transactions (collectively, the “Business Combination”):
(i) Inpixon agreed to transfer the Enterprise Apps Business to its wholly-owned subsidiary, CXApp, and contribute $10 million in capital
thereto (net of cash held by CXApp as of the Effective Time), (ii) following the Separation, Inpixon agreed to distribute 100% of the
shares of CXApp Common Stock to Inpixon securityholders by way of the Distribution and (iii) following the completion of the foregoing
transactions and subject to the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, the parties agreed
to consummate the Merger.
Following
the Business Combination, New CXApp has two classes of common stock: New CXApp Class A Common Stock and New CXApp Class C Common Stock.
The New CXApp Class A Common Stock and the New CXApp Class C Common Stock are identical in all respects, except that the New CXApp Class
C Common Stock is subject to transfer restrictions and automatically converts 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 the 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.
At
the closing of the Business Combination, each share of KINS Class A Common Stock and Class B Common Stock was exchanged for one share
of New CXApp Class A Common Stock, subject to adjustment pursuant to the Sponsor Support Agreement noted below. Additionally, the outstanding
shares of CXApp Common Stock after the Distribution and immediately prior to the effective time of the Merger were converted into an
aggregate of 6.9 million shares of New CXApp Common Stock which were issued to Inpixon shareholders, subject to adjustment. Each holder’s
aggregate merger consideration consisted of 10% New CXApp Class A Common Stock and 90% New CXApp Class C Common Stock (such percentages,
in each case, subject to adjustment to comply with the listing requirements set forth under Nasdaq Listing Rule 5505(b)(2). Pursuant
to the Sponsor Support Agreement, the Sponsor and related parties have agreed that, subject to the limitation set forth therein, the
total amount of shares of New CXApp Common Stock issued to CXApp Stockholders (as of immediately after consummation of the Distribution)
at the Closing will exceed the total amount of shares of New CXApp Common Stock issued to all other parties at the Closing by one share.
The
following summarizes the pro forma ownership of Common Stock of New CXApp following the Business Combination:
| |
Class A | | |
% | | |
Class C | | |
% | | |
Total
Shares | | |
% | |
CXApp existing Stockholders(1) | |
| 1,547,700 | | |
| 11.0 | % | |
| 5,487,300 | | |
| 39.0 | % | |
| 7,035,000 | | |
| 50.0 | % |
KINS Public Stockholders(2)(7) | |
| 157,223 | | |
| 1.1 | % | |
| - | | |
| - | % | |
| 157,223 | | |
| 1.1 | % |
Sponsor(3)(6)(7) | |
| 6,054,776 | | |
| 43.0 | % | |
| - | | |
| - | % | |
| 6,054,776 | | |
| 43.0 | % |
Direct Anchor Investors(4) | |
| 225,000 | | |
| 1.6 | % | |
| - | | |
| - | % | |
| 225,000 | | |
| 1.6 | % |
Inpixon(5)(6)(7) | |
| 598,000 | | |
| 4.3 | % | |
| - | | |
| - | % | |
| 598,000 | | |
| 4.3 | % |
Pro
forma Common Stock | |
| 8,582,699 | | |
| 61.0 | % | |
| 5,487,300 | | |
| 39.0 | % | |
| 14,069,999 | | |
| 100.0 | % |
| (1) | The
New CXApp Class A Common Stock and the New CXApp Class C Common Stock will be identical in
all respects, except that the New CXApp Class C Common Stock will be subject to transfer
restrictions 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 the 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. Includes 135,000 shares of New CXApp Common Stock issuable pursuant to a working
capital adjustment. |
| (2) | Excludes
13,800,000 shares of New CXApp Class A Common Stock underlying the public warrants. |
| (3) | Excludes
10,280,000 shares of New CXApp Class A Common Stock underlying the private warrants. |
| (4) | Includes
225,000 shares of New CXApp Class A Common Stock held by BlackRock Inc. and reflecting forfeiture
to Sponsor of 525,000 shares of KINS Class B Common Stock prior to Closing. |
| (5) | Reflects
shares of New CXApp Class A Common Stock attributable to Inpixon for its existing interests
in KINS. |
| (6) | Pursuant
to the Sponsor Support Agreement, the Sponsor and related parties have agreed, subject to
the limitation set forth therein, to forfeit 22,224 shares of New CXApp Common Stock (as
of immediately prior to the consummation of the Merger). |
| (7) | Reflects
the redemptions of 230,328 KINS public shares prior to Closing. |
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS
OF DECEMBER 31, 2022
(in
thousands, except share and per share amounts)
| |
| | |
| | |
Autonomous | |
| |
Transaction | |
| |
Pro | |
| |
KINS | | |
CXApp | | |
Entity | |
| |
Accounting | |
| |
Forma | |
| |
(Historical) | | |
(Historical) | | |
Adjustments | |
| |
Adjustments | |
| |
Combined | |
ASSETS | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Current assets: | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Cash and cash equivalents | |
$ | 224 | | |
$ | 6,308 | | |
$ | 3,692 | |
A | |
$ | 1,579 | |
C | |
$ | 11,223 | |
| |
| | | |
| | | |
| | |
| |
| (580 | ) |
E | |
| | |
Accounts receivable, net of allowances | |
| - | | |
| 1,338 | | |
| - | |
| |
| - | |
| |
| 1,338 | |
Notes and other receivables | |
| - | | |
| 273 | | |
| - | |
| |
| - | |
| |
| 273 | |
Prepaid expenses
and other current assets | |
| 4 | | |
| 650 | | |
| - | |
| |
| - | |
| |
| 654 | |
Total current
assets | |
| 228 | | |
| 8,569 | | |
| 3,692 | |
| |
| 999 | |
| |
| 13,488 | |
Cash and investments held in Trust
Account | |
| 3,924 | | |
| - | | |
| - | |
| |
| (2,345 | ) |
B | |
| - | |
| |
| | | |
| | | |
| | |
| |
| (1,579 | ) |
C | |
| | |
Property and equipment, net | |
| - | | |
| 202 | | |
| - | |
| |
| - | |
| |
| 202 | |
Operating lease right-of-use asset,
net | |
| - | | |
| 681 | | |
| - | |
| |
| - | |
| |
| 681 | |
Software development costs, net | |
| - | | |
| 487 | | |
| - | |
| |
| (487 | ) |
H | |
| - | |
Goodwill | |
| - | | |
| - | | |
| - | |
| |
| 42,102 | |
H | |
| 42,102 | |
Intangible assets, net | |
| - | | |
| 19,289 | | |
| - | |
| |
| 1,681 | |
H | |
| 20,970 | |
Other assets | |
| - | | |
| 52 | | |
| - | |
| |
| - | |
| |
| 52 | |
Total Assets | |
$ | 4,152 | | |
$ | 29,280 | | |
$ | 3,692 | |
| |
$ | 40,371 | |
| |
$ | 77,495 | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
LIABILITIES, TEMPORARY
EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Current liabilities: | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Accounts payable | |
$ | - | | |
$ | 1,054 | | |
$ | - | |
| |
$ | - | |
| |
$ | 1,054 | |
Accrued liabilities | |
| 2,834 | | |
| 1,736 | | |
| - | |
| |
| 3,699 | |
D | |
| 8,037 | |
| |
| | | |
| | | |
| | |
| |
| (232 | ) |
E | |
| | |
Operating lease obligation, current | |
| - | | |
| 266 | | |
| - | |
| |
| - | |
| |
| 266 | |
Deferred revenue | |
| - | | |
| 2,162 | | |
| - | |
| |
| 226 | |
H | |
| 2,388 | |
Acquisition liability | |
| - | | |
| 197 | | |
| - | |
| |
| (197 | ) |
F | |
| - | |
Income taxes payable | |
| 49 | | |
| - | | |
| - | |
| |
| - | |
| |
| 49 | |
Promissory note
- related party working capital loan | |
| 348 | | |
| - | | |
| - | |
| |
| (348 | ) |
E | |
| - | |
Total current liabilities | |
| 3,231 | | |
| 5,415 | | |
| - | |
| |
| 3,148 | |
| |
| 11,794 | |
Operating lease obligation, noncurrent | |
| - | | |
| 444 | | |
| - | |
| |
| - | |
| |
| 444 | |
Other liabilities, noncurrent | |
| - | | |
| 30 | | |
| - | |
| |
| - | |
| |
| 30 | |
Derivative liabilities | |
| 722 | | |
| - | | |
| - | |
| |
| - | |
| |
| 722 | |
Total Liabilities | |
| 3,953 | | |
| 5,889 | | |
| - | |
| |
| 3,148 | |
| |
| 12,990 | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Temporary Equity: | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Common stock subject to possible redemption | |
| 3,914 | | |
| - | | |
| - | |
| |
| (2,345 | ) |
B | |
| - | |
| |
| | | |
| | | |
| | |
| |
| (1,569 | ) |
G | |
| | |
Total temporary
equity | |
| 3,914 | | |
| - | | |
| - | |
| |
| (3,914 | ) |
| |
| - | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Stockholders’ Equity (Deficit) | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Preferred stock | |
| - | | |
| - | | |
| - | |
| |
| - | |
| |
| - | |
Class A Common Stock | |
| - | | |
| - | | |
| - | |
| |
| 1 | |
G | |
| 1 | |
Class B Common Stock | |
| 1 | | |
| - | | |
| - | |
| |
| (1 | ) |
G | |
| - | |
Class C Common Stock | |
| - | | |
| - | | |
| - | |
| |
| 1 | |
H | |
| 1 | |
Parent’s net equity | |
| - | | |
| 23,391 | | |
| 3,692 | |
A | |
| 197 | |
F | |
| - | |
| |
| | | |
| | | |
| | |
| |
| (27,280 | ) |
H | |
| | |
Additional paid-in capital | |
| - | | |
| - | | |
| - | |
| |
| 1,569 | |
G | |
| 71,918 | |
| |
| | | |
| | | |
| | |
| |
| 70,349 | |
H | |
| | |
Accumulated deficit | |
| (3,716 | ) | |
| - | | |
| - | |
| |
| (3,699 | ) |
D | |
| (7,415 | ) |
Total stockholders’
equity (deficit) | |
| (3,715 | ) | |
| 23,391 | | |
| 3,692 | |
| |
| 41,137 | |
| |
| 64,505 | |
Total liabilities,
temporary equity and stockholders’ equity (deficit) | |
$ | 4,152 | | |
$ | 29,280 | | |
$ | 3,692 | |
| |
$ | 40,371 | |
| |
$ | 77,495 | |
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2022
(in
thousands, except share and per share amounts)
| |
| | |
| | |
Autonomous | |
| |
Transaction | |
| |
Pro | |
| |
KINS | | |
CXApp | | |
Entity | |
| |
Accounting | |
| |
Forma | |
| |
(Historical) | | |
(Historical) | | |
Adjustments | |
| |
Adjustments | |
| |
Combined | |
Revenues | |
$ | - | | |
$ | 8,470 | | |
$ | - | |
| |
$ | - | |
| |
$ | 8,470 | |
Cost of revenues | |
| - | | |
| 2,064 | | |
| - | |
| |
| - | |
| |
| 2,064 | |
Gross profit | |
| - | | |
| 6,406 | | |
| - | |
| |
| - | |
| |
| 6,406 | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Formation and operating costs | |
| 2,951 | | |
| - | | |
| - | |
| |
| - | |
| |
| 2,951 | |
Research and development | |
| - | | |
| 9,323 | | |
| - | |
| |
| - | |
| |
| 9,323 | |
Sales and marketing | |
| - | | |
| 5,096 | | |
| - | |
| |
| - | |
| |
| 5,096 | |
General and administrative | |
| - | | |
| 11,571 | | |
| 811 | |
AA | |
| 3,699 | |
CC | |
| 16,081 | |
Acquisition-related costs | |
| - | | |
| 16 | | |
| - | |
| |
| - | |
| |
| 16 | |
Impairment of goodwill | |
| - | | |
| 5,540 | | |
| - | |
| |
| - | |
| |
| 5,540 | |
Amortization
of intangibles | |
| - | | |
| 3,885 | | |
| - | |
| |
| (162 | ) |
DD | |
| 3,723 | |
Total operating
expenses | |
| 2,951 | | |
| 35,431 | | |
| 811 | |
| |
| 3,537 | |
| |
| 42,730 | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Loss from operations | |
| (2,951 | ) | |
| (29,025 | ) | |
| (811 | ) |
| |
| (3,537 | ) |
| |
| (36,324 | ) |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Other income (expense): | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Interest income, net | |
| - | | |
| 4 | | |
| - | |
| |
| - | |
| |
| 4 | |
Other expense | |
| - | | |
| (1 | ) | |
| - | |
| |
| - | |
| |
| (1 | ) |
Gain on elimination waiver of deferred
underwriting fee | |
| 372 | | |
| - | | |
| - | |
| |
| - | |
| |
| 372 | |
Change in fair value of derivative
liabilities | |
| 10,553 | | |
| - | | |
| - | |
| |
| - | |
| |
| 10,553 | |
Interest earned
on cash and investments held in Trust Account | |
| 422 | | |
| - | | |
| - | |
| |
| (422 | ) |
BB | |
| - | |
Total other
income (expense) | |
| 11,347 | | |
| 3 | | |
| - | |
| |
| (422 | ) |
| |
| 10,928 | |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Income (loss)
before income taxes | |
| 8,396 | | |
| (29,022 | ) | |
| (811 | ) |
| |
| (3,959 | ) |
| |
| (25,396 | ) |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Income tax expense | |
| (49 | ) | |
| (153 | ) | |
| - | |
| |
| - | |
| |
| (202 | ) |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Net
income (loss) | |
$ | 8,347 | | |
$ | (29,175 | ) | |
$ | (811 | ) |
| |
$ | (3,959 | ) |
| |
$ | (25,598 | ) |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Net income (loss)
per share (Note 4): | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Class A common stock (basic &
diluted) | |
$ | 0.43 | | |
| | | |
| | |
| |
| | |
| |
$ | (1.82 | ) |
Class B common stock (basic &
diluted) | |
$ | 0.43 | | |
| | | |
| | |
| |
| | |
| |
| | |
Class C common stock (basic &
diluted) | |
| | | |
| | | |
| | |
| |
| | |
| |
$ | (1.82 | ) |
| |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Weighted average shares outstanding: | |
| | | |
| | | |
| | |
| |
| | |
| |
| | |
Class A common stock (basic &
diluted) | |
| 12,546,423 | | |
| | | |
| | |
| |
| | |
| |
| 8,582,699 | |
Class B common stock (basic &
diluted) | |
| 6,900,000 | | |
| | | |
| | |
| |
| | |
| |
| | |
Class C common stock (basic &
diluted) | |
| | | |
| | | |
| | |
| |
| | |
| |
| 5,487,300 | |
NOTES
TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note
1. Basis of Presentation
The
Business Combination will be accounted for using the acquisition method (as a forward merger), with goodwill and other identifiable intangible
assets recorded in accordance with GAAP, as applicable. Under this method of accounting, CXApp is treated as the “acquired”
company for financial reporting purposes. KINS has been determined to be the accounting acquirer because KINS maintains control of the
Board of Directors and management of the combined company. For accounting purposes, the acquirer is the entity that has obtained control
of another entity and, thus, consummated a business combination. Under the acquisition method of accounting (as a forward merger), KINS’
assets and liabilities will be recorded at carrying value and the assets and liabilities associated with CXApp will be recorded at estimated
fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net assets acquired, if
applicable, will be recognized as goodwill. Significant estimates and assumptions were used in determining the preliminary purchase price
allocation reflected in these unaudited pro forma condensed combined financial statements. As the unaudited pro forma condensed combined
financial statements have been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the
information presented.
The
unaudited pro forma condensed combined balance sheet as of December 31, 2022 gives effect to the Business Combination and related
transactions as if they occurred on December 31, 2022. The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2022 gives effect to the Business Combination and related transactions as if they occurred on January 1,
2022. These periods are presented on the basis that KINS is the acquirer for accounting purposes.
The
pro forma adjustments reflecting the consummation of the Business Combination and the related transaction are based on currently available
information and certain assumptions and methodologies that New CXApp management believes are reasonable under the circumstances. The
unaudited condensed combined pro forma adjustments, which are described in the accompanying notes, may be revised as additional information
becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments, and
it is possible that the difference may be material. New CXApp management believes that its assumptions and methodologies provide a reasonable
basis for presenting all of the significant effects of the Business Combination and the related transactions based on information available
to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in
the unaudited pro forma condensed combined financial information.
The
unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies,
tax savings, or cost savings that may be associated with the Business Combination. The unaudited pro forma condensed combined financial
information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business
Combination and related transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of
operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements
and notes thereto of KINS and Design Reactor and subsidiaries.
Note
2. Accounting Policies and Reclassifications
Upon
consummation of the Business Combination, management will perform a comprehensive review of the two entities’ accounting policies.
As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed,
could have a material impact on the financial statements of New CXApp. Based on its initial analysis, management did not identify any
differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited
pro forma condensed combined financial information does not assume any differences in accounting policies.
Note
3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
The
unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and
related transactions and has been prepared for informational purposes only. The Company has elected not to present management adjustments
and will only be presenting transaction accounting adjustments and autonomous entity adjustments in the unaudited pro forma condensed
combined financial information. The autonomous entity adjustments are management estimates to reflect incremental costs of CXApp being
a standalone entity.
The
pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statement of operations
are based upon the number of shares of New CXApp Common Stock outstanding, assuming the Business Combination and related transactions
occurred on January 1, 2022.
Autonomous
Entity Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
The
autonomous entity adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2022 are as
follows:
| A. | Represents
Inpixon’s remaining contribution to CXApp of approximately $3.7 million in accordance
with the Separation and Distribution Agreement, in which Inpixon has agreed to contribute
cash of $10 million to CXApp, net of cash held by CXApp as of the Effective Time (approximately
$6.3 million as of December 31, 2022). |
Transaction
Accounting Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
The
transaction accounting adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2022
are as follows:
| B. | Reflects
redemptions of 230,328 KINS public shares prior to closing, for aggregate payments to redeeming
shareholders of $2.3 million at a redemption price of $10.18 per share. |
| C. | Reflects
the reclassification of $1.6 million held in the Trust Account after redemptions, inclusive
of interest earned on the Trust Account, to cash and cash equivalents that becomes available
at closing of the Business Combination. |
| D. | Represents
non-recurring estimated transaction costs inclusive of advisory, banking, printing, legal
and accounting fees incurred in connection to the Business Combination. Estimated total transaction
costs of approximately $6.1 million are anticipated to be paid after closing, of which $2.4
million is accrued on the historical financial statements of KINS. Transaction costs expected
to be incurred by CXApp and KINS in connection with the Business Combination totaling $2.8
million and $3.3 million, respectively, are expensed as incurred in accordance with ASC 805. |
| E. | Represents
the settlement of franchise taxes payable by KINS totaling $0.2 million and repayment of
a KINS related party promissory note totaling $0.3 million at closing of the Business Combination. |
| F. | Reflects
the settlement of the acquisition liability by New CXApp and Inpixon. The acquisition liability
relates to the acquisition of Design Reactor (CXApp) by Inpixon in 2021 which Inpixon has
assumed and therefore will not be an obligation of New CXApp. Inpixon has settled the remaining
acquisition related obligations with the sellers. |
| G. | Reflects
the reclassification of approximately $1.6 million of KINS Class A Common Stock to permanent
equity and conversion of KINS Class B Common Stock to New CXApp Class A Common Stock. |
| H. | Represents
adjustments for the estimated preliminary purchase price allocation for the Business Combination.
The preliminary calculation of total consideration is presented below as if the Business
Combination was consummated on December 31, 2022: |
| |
Fair Value | |
| |
(in thousands) | |
Equity consideration
to CXApp existing Stockholders(1) | |
$ | 69,000 | |
Working capital
adjustment(2) | |
| 1,350 | |
Total consideration | |
$ | 70,350 | |
Assets acquired: | |
| | |
Cash and cash equivalents | |
$ | 10,000 | |
Accounts receivable | |
| 1,338 | |
Notes and other receivables | |
| 273 | |
Prepaid expenses and other current
assets | |
| 650 | |
Property and equipment | |
| 202 | |
Operating lease right-of-use asset | |
| 681 | |
Other assets | |
| 52 | |
Trade names and trademarks | |
| 2,960 | |
Customer relationships | |
| 5,654 | |
Developed technology | |
| 10,040 | |
Non-compete agreements | |
| 52 | |
Intellectual property | |
| 1,777 | |
Internal software | |
| 487 | |
Goodwill | |
| 42,102 | |
Total assets acquired | |
| 76,268 | |
Liabilities assumed: | |
| | |
Accounts payable | |
| 1,054 | |
Accrued liabilities | |
| 1,736 | |
Deferred revenue | |
| 2,388 | |
Operating lease obligations | |
| 710 | |
Other liabilities | |
| 30 | |
Total liabilities
assumed | |
| 5,918 | |
Estimated fair
value of net assets acquired | |
$ | 70,350 | |
| (1) | Represents
the pre-transaction equity value of CXApp of $69.0 million issuable to existing CXApp Stockholders
in 6,900,000 shares of New CXApp Common Stock consisting of 10% New CXApp Class A Common
Stock and 90% New CXApp Class C Common Stock (such percentages, in each case, subject to
adjustment to comply with NASDAQ listing requirements), each at a deemed value of $10.00
per share. |
| (2) | Represents
additional equity consideration issuable to existing CXApp Stockholders in 135,000 shares
of New CXApp Common Stock pursuant to a working capital adjustment. |
Below
is a summary of intangible assets identified and acquired in the Business Combination based on the preliminary purchase price allocation
and the resulting adjustments to recognize the step-up in basis:
| |
| | |
Fair Value | | |
Useful Life | |
Identified Intangible Assets
(in thousands) | |
Fair Value | | |
Adjustment | | |
(Years) | |
Trade names and trademarks | |
$ | 2,960 | | |
$ | 1,502 | | |
| 7.00 | |
Customer relationships | |
| 5,654 | | |
| 1,018 | | |
| 5.00 | |
Developed technology | |
| 10,040 | | |
| (1,741 | ) | |
| 10.00 | |
Non-compete agreements | |
| 52 | | |
| (1,362 | ) | |
| 1.58 | |
Intellectual property | |
| 1,777 | | |
| 1,777 | | |
| 2.00 | |
Internal software | |
| 487 | | |
| 487 | | |
| 2.00 | |
Total | |
$ | 20,970 | | |
$ | 1,681 | | |
| | |
Goodwill
represents the excess of total consideration over the estimated fair value of the net assets acquired and is largely attributable to
synergies and acquired workforce. Approximately $42.1 million has been allocated to goodwill pursuant to the preliminary purchase price
allocation.
In
accordance with ASC Topic 350, Goodwill and Other Intangible Assets, Goodwill will not be amortized, but instead will be tested
for impairment at least annually or more frequently if certain indicators are present. In the event that the value of goodwill or other
intangible assets have become impaired, an accounting charge for impairment during the period in which the determination is made may
be recognized. The Company is evaluating whether the goodwill is deductible for income tax purposes.
This
adjustment also eliminates the pro forma historical equity of CXApp of approximately $27.3 million in accordance with the acquisition
accounting at closing, and reflects the issuance of 7,035,000 shares of New CXApp Common Stock at a deemed value of $10.00 per share
as merger consideration at closing within the par value accounts of New CXApp Class A and Class C Common Stock, respectively, and additional
paid-in capital.
Autonomous
Entity Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The
autonomous entity adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended December 31,
2022 are as follows:
AA.
Reflects estimated incremental general and administrative expenses to reflect CXApp as a standalone entity, primarily including additional
compensation costs, insurance, and other general and administrative costs.
Transaction
Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The
transaction accounting adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended
December 31, 2022 are as follows:
BB.
Reflects elimination of investment income on the Trust Account.
CC.
Reflects estimated transaction costs not yet recognized within the historical financial information presented of approximately $3.7 million
to be expensed as if incurred on January 1, 2022, the date the Business Combination occurred for the purposes of the unaudited pro
forma condensed combined statement of operations. This is a non-recurring item.
DD.
Represents incremental adjustments to intangible asset amortization for the step-up in basis of intangible assets subject to amortization
acquired in the Business Combination assuming the Business Combination occurred on January 1, 2022. The following table is a summary
of information related to certain intangible assets acquired, including information used to calculate the amortization expense for each
period presented:
| |
| | |
| | |
Amortization for | |
| |
| | |
| | |
the Year Ended | |
Identified Intangible Assets
(in thousands) | |
Fair
Value | | |
Years of
Amortization | | |
December 31,
2022 | |
Trade names and trademarks | |
$ | 2,960 | | |
| 7.00 | | |
$ | 423 | |
Customer relationships | |
| 5,654 | | |
| 5.00 | | |
| 1,131 | |
Developed technology | |
| 10,040 | | |
| 10.00 | | |
| 1,004 | |
Non-compete agreements | |
| 52 | | |
| 1.58 | | |
| 33 | |
Intellectual property | |
| 1,777 | | |
| 2.00 | | |
| 889 | |
Internal software | |
| 487 | | |
| 2.00 | | |
| 244 | |
Total amortization
expense | |
| | | |
| | | |
$ | 3,723 | |
Note
4. Net Loss per Share
Net
loss per share was calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection
with the Business Combination and the related transactions, assuming the shares were outstanding since January 1, 2022. As the Business
Combination and the related transactions are being reflected as if they had occurred at the beginning of the earliest period presented,
the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating
to the Business Combination and related transactions have been outstanding for the entirety of all periods presented.
| |
Year Ended
December 31, | |
| |
2022(1) | |
| |
Class A | | |
Class C | |
Pro forma net loss | |
$ | (15,615 | ) | |
$ | (9,983 | ) |
Weighted average shares outstanding
- basic and diluted | |
| 8,582,699 | | |
| 5,487,300 | |
Pro forma net loss per share - basic
and diluted | |
$ | (1.82 | ) | |
$ | (1.82 | ) |
Excluded securities:(2) | |
| | | |
| | |
Public Warrants | |
| 13,800,000 | | |
| 13,800,000 | |
Private Warrants | |
| 10,280,000 | | |
| 10,280,000 | |
| (1) | Pro
forma net loss per share includes the related pro forma adjustments as referred to within
the section “Unaudited Pro Forma Condensed Combined Financial Information.” |
| (2) | The
potentially dilutive outstanding securities were excluded from the computation of pro forma
net loss per share, basic and diluted, because their effect would have been anti-dilutive. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF DESIGN REACTOR, INC. AND SUBSIDIARIES
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying
condensed consolidated financial statements, combined carve-out financial statements and related notes included elsewhere in this prospectus.
Some of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to its plans
and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions.
You should read the “Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
The
following discussion refers to the financial results of Design Reactor, Inc. and Subsidiaries, for the years ended December 31,
2022, and December 31, 2021. For purposes of this following discussion the terms “we”, ‘our” or “us”
or “the Company” and similar references refers to Design Reactor, Inc. and Subsidiaries and its affiliates. The terms defined
in this section shall have the meaning ascribed to it in this section only. Except for per share data and as otherwise indicated, all
dollar amounts set out herein are in millions.
Overview
of Our Business
Design
Reactor, Inc. and subsidiaries is in the business of delivering a workplace experience platform for enterprise customers. Our technologies
and solutions help enterprise customers deliver a comprehensive business journey in a work ‘from-anywhere’ world for employees,
partners, customers and visitors. We offer native mapping, analytics, on-device positioning (or ODP) and applications technologies that
aim to bring people together.
Our
customers use our enterprise solutions in a variety of ways, including, but not limited to, workplace experience, employee engagement,
desk and meeting room reservations, workplace analytics, occupancy management, content delivery, corporate communications and notifications,
event management, live indoor mapping, wayfinding and navigation.
Our
enterprise app platform is the intersection of technology, intelligence, automation and experience for today’s hybrid workplace
and the workplace of the future.
Prior
to the closing of the Business Combination, Design Reactor, Inc. and subsidiaries were wholly owned subsidiary of Inpixon (“Inpixon”)
and the Company’s financial statements consist of Design Reactor, Inpixon Canada, Inpixon Philippines and select assets, liabilities,
revenues and expenses of Inpixon and Inpixon India (collectively the “Company,” “we,” “us” or “our”),
show the historical combined carve-out financial position, results of operations, changes in net investment and cash flows of the Company
and should be read in conjunction with the accompanying notes thereto. The Company’s combined carve-out financial statements do
not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Company been a separate
entity nor are they indicative of future results of the Company.
The
combined carve-out operating results of the Company have been specifically identified based on the Company’s existing divisional
organization. The majority of the assets and liabilities of the Company have been identified based on the existing divisional structure.
The historical costs and expenses reflected in the Company’s financial statements include an allocation for certain corporate and
shared service functions. Management believes the assumptions underlying our combined carve-out financial statements are reasonable.
Nevertheless, our combined carve-out financial statements may not include all of the actual expenses that would have been incurred had
we operated as a standalone company during the periods presented and may not reflect our results of operations, financial position and
cash flows had we operated as a standalone company during the periods presented. Actual costs that would have been incurred if we had
operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in
various areas, including information technology and infrastructure. We also may incur additional costs associated with being a standalone,
publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not
reflected in our historical results of operations, financial position and cash flows.
The unaudited condensed
consolidated financial statements of Successor and Predecessor are not comparable due to a new basis of accounting that was created from
the business combination that occurred on the Closing Date. Therefore, the reporting period has been separated by a black line in the
condensed consolidated financial statements with the Predecessor representing the pre-Closing Date period (January 1, 2023 through March
14, 2023) and the Successor representing the post-Closing Date period (March 15, 2023 through March 31, 2023). The Company noted that
the “Predecessor” includes financial information related to the Enterprise Apps Business, while the “Successor”
includes financial information related to the newly formed company after the business combination.
Recent
Events
The
Business Combination
On
September 25, 2022, an Agreement and Plan of Merger (the “Merger Agreement”), was entered into 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 KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary
of KINS (“Merger Sub”), pursuant to which KINS acquired Inpixon’s enterprise apps business (including its workplace
experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps
Business”) in exchange for the issuance of shares of KINS capital stock valued at $69 million (the “Business Combination”).
The transaction closed on March 14, 2023.
Immediately
prior to the Merger and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022, among KINS, Inpixon,
CXApp and Design Reactor, (the “Separation Agreement”), and other ancillary conveyance documents, Inpixon, among other things
and on the terms and subject to the conditions of the Separation Agreement, transferred the Enterprise Apps Business, including certain
related subsidiaries of Inpixon, including Design Reactor, to CXApp (the “Reorganization”). Following the Reorganization,
Inpixon distributed 100% of the common stock of CXApp, par value $0.00001, to certain holders of Inpixon securities as of the record
date (the “Spin-Off”).
Immediately
following the Spin-Off, 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 and as a wholly-owned subsidiary of KINS.
The
Merger Agreement, along with the Separation and Distribution Agreement and the other transaction documents entered into in connection
therewith, provided for, among other things, the consummation of the following transactions: (i) Inpixon transferred the Enterprise Apps
Business (the “Separation”) to its wholly-owned subsidiary, CXApp, and contributed approximately $4 million in additional
cash so that CXApp would have a minimum of $10 million in cash and cash equivalents as of the closing of the Business Combination before
deduction of expenses (the “Cash Contribution”), (ii) following the Separation, Inpixon distributed 100% of the shares of
CXApp Common Stock to Inpixon securityholders by way of the Distribution and (iii) following the completion of the foregoing transactions
and subject to the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, the parties consummated the
Merger. The Separation, Distribution and Merger were intended to qualify as “tax-free” transactions.
At
the time the Business Combination was effected (the “Closing”), the outstanding shares of CXApp Common Stock after the Distribution
and immediately prior to the effective time of the Merger were converted into an aggregate of 7,035,000 shares of KINS Common Stock which
was issued to Inpixon securityholders, subject to adjustment. Each holder’s aggregate merger consideration consisted of approximately
22% KINS Class A Common Stock and approximately 78% KINS Class C Common Stock.
Resale of Shares in this Registration Statement
The Company has filed this
registration statement for the resale of a substantial number of shares, which has the potential to significantly impact the market for
our company’s common stock. When a large number of shares become available for sale, it can create an imbalance between supply
and demand, potentially resulting in downward pressure on the market price of the common stock. The increased supply of shares from this
resale could outweigh the existing demand, leading to a potential decline in market price.
Investors should carefully
consider the impact of the Sponsor’s ability to sell all of its shares, given their significant ownership stake of approximately
43% of outstanding shares of common stock. The sale of these shares by the Sponsor could have a notable effect on the overall market
for our common stock. It is crucial for investors to evaluate the potential consequences of this significant ownership concentration
and its potential impact on the market price.
Furthermore, the availability
of the registration statement allows the Sponsor to sell its shares at any time while the registration statement remains effective. This
unrestricted ability to sell shares may increase the supply of shares in the market, potentially exerting further downward pressure on
the market price of our common stock.
Due to the significant number
of redemptions of our Class A common stock in connection with our Business Combination, the shares of common stock being registered for
issuance or resale are anticipated to constitute a considerable percentage of our public float. Additionally, all the shares of common
stock being registered for resale were purchased by the Selling Securityholders for prices considerably below the current market price
of our Class A common stock. This discrepancy in purchase prices may have an impact on the market perception of the stock’s value
and could contribute to potential downward pressure on the public trading price of our Class A common stock. The registration of these
shares for resale creates the possibility of a significant increase in the supply of our Class A common stock in the market. The increased
supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively affect
the public trading price of our Class A common stock. We will not receive the proceeds from the resale of the shares of common stock
by the Selling Securityholders.
The exercise price of the
warrants, in certain circumstances, may be higher than the prevailing market price of the underlying securities. The exercise price of
the warrants is subject to market conditions and may not be advantageous if the prevailing market price of the underlying securities
is lower than the exercise price. The cash proceeds associated with the exercise of warrants to purchase our common stock are contingent
upon our stock price. The value of our common stock may fluctuate and may not align with the exercise price of the warrants at any given
time. If the warrants are “out of the money,” meaning the exercise price is higher than the market price of our common stock,
there is a high likelihood that warrant holders may choose not to exercise their warrants. As a result, we may not receive any proceeds
from the exercise of such warrants.
Furthermore, with regard
to the Private Placement Warrants, it is possible that we may not receive cash upon their exercise since these warrants may be exercised
on a cashless basis. A cashless exercise allows warrant holders to convert the warrants into shares of our common stock without the need
for a cash payment. Instead of receiving cash upon exercise, the warrant holder would receive a reduced number of shares based on a predetermined
formula or method as further described in “Description of Capital Stock” further below. As a result, the number of
shares received through a cashless exercise may be lower than if the warrants were exercised on a cash basis, which could impact the
value and dilution of our common stock.
Accounting
Treatment for the Business Combination
The
Business Combination will be accounted for using the acquisition method (as a forward merger), with goodwill and other identifiable intangible
assets recorded in accordance with GAAP, as applicable. Under this method of accounting, CXApp is treated as the “acquired”
company for financial reporting purposes. KINS has been determined to be the accounting acquirer because KINS maintains control of the
Board of Directors and management of the combined company.
Key
Factors Affecting Design Reactor’s Results of Operations
Our
financial position and results of operations depend to a significant extent on the following factors:
Customer
Base
Our
customer base is currently operating within approximately 17 different industries, including approximately 24% in software and technology,
24% in healthcare and 20% in retail. Approximately 85% of our customers are headquartered in the United States; however, our products
are deployed across more than 400 customer campuses located in approximately 240 cities and over 55 countries throughout the world.
Our
management uses key metrics such as total revenue growth, recurring and non-recurring revenue, existing customer expansion rates, number
of customer campuses (which management believes is a more meaningful metric to measure performance than total number of customers), and
churn rates to measure customer growth and market penetration. The CXApp carve-out financials show that our revenue has increased from
approximately $6.4M for the twelve-month period ending December 2021 to approximately $8.5M for the twelve-month period ending December 31,
2022 (which was as a result of a full year of the acquisition of Design Reactor in April 2021). Approximately 65% of the Company’s
revenue was recurring in 2022 and approximately 53% was recurring in 2021. Approximately 40% of our customers have expanded to add additional
revenue opportunities with new campuses, features, or integrations within twelve months of initial deployment and we have an average
quarterly customer churn rate of less than 5% for the twelve months ended December 31, 2022.
Our
ability to increase revenues from existing customers by identifying additional opportunities to sell more of our products and services
and our ability to obtain new customers depends on a number of factors, including our ability to offer high quality products and services
at competitive prices, the strength of our competitors and the capabilities of our sales and marketing departments. If we are not able
to continue to increase sales of our products and services to existing customers or to obtain new customers in the future, we may not
be able to increase our revenues and could suffer a decrease in revenues as well.
Our
top three customers accounted for approximately 27% of our gross revenue during each of the years ended December 31, 2022 and 2021.
One customer accounted for 11% of our gross revenue in 2022 and a separate customer accounted for 12% in 2021; however, each of these
customers may or may not continue to be a significant contributor to revenue in 2023. The loss of a significant amount of business from
one of our major customers would materially and adversely affect our results of operations until such time, if ever, as we are able to
replace the lost business. Significant customers or projects in any one period may not continue to be significant customers or projects
in other periods. To the extent that we are dependent on any single customer, we are subject to the risks faced by that customer to the
extent that such risks impede the customer’s ability to stay in business and make timely payments to us.
Competition
Our
industry is developing rapidly and related technology trends are constantly evolving. In this environment, we face, among other things,
significant price competition from our competitors. As a result, we may be forced to reduce the prices of the products and services we
sell in response to offerings made by our competitors and may not be able to maintain the level of bargaining power that we have enjoyed
in the past when negotiating the prices of our products and services.
Our
profitability is dependent on the prices we are able to charge for our products and services. The prices we are able to charge for our
products and services are affected by a number of factors, including:
| ● | our
customers’ perceptions of our ability to add value through our products and services; |
| ● | introduction
of new products or services by us or our competitors; |
| ● | our
competitors’ pricing policies; |
| ● | our
ability to charge higher prices where market demand or the value of our products or services
justifies it; |
| ● | procurement
practices of our customers; and |
| ● | general
economic and political conditions. |
If
we are not able to maintain favorable pricing for our products and services, our results of operations could be adversely affected.
Research
and Development
Our
future plans include investments in research and development and related product opportunities. Our management believes that we must
continue to dedicate resources to research and development efforts to maintain a competitive position. However, if we do not receive
significant revenue from these investments, if the investments don’t yield expected benefits or if we don’t have the needed
funding to invest in the technology, our results of operations could be adversely impacted.
Pandemic
and World Environment
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 of 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. If we are unable to successfully
respond and manage the impact of the pandemic, and the resulting responses to it, our business, operations, financial condition and results
of operations could be adversely impacted.
Components
of Results of Operations
Revenues
The
Company derives revenue from software as a service, design, deployment and implementation services for its enterprise apps business.
Cost
of Revenues
Cost
of revenues includes the direct costs to deliver the services including labor, overhead, hardware and shipping and freight costs.
Gross
Profit
Gross
profit, calculated as revenues less costs of revenues, may vary between periods and is primarily affected by various factors including
average selling prices, product costs, product mix, customer mix, and production volumes.
Operating
Expenses
Operating
expenses consist primarily of research and development costs, sales and marketing costs, and general and administrative costs.
Other
Income (expense)
Other
income (expense) consists primarily of interest expense.
RESULTS
OF OPERATIONS
Comparison
of the results of operations for the periods ended March 31, 2023 (Successor), period ended March 14, 2023 (Predecessor), and the three
months ended March 31, 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
March 31,
2023 | | |
Period from
January 1,
2023 to
March 14,
2023 | | |
Three months
ended
March 31,
2022 | |
Condensed Consolidated
Statements of Operations Data | |
| | | |
| | | |
| | |
Revenues | |
$ | 342 | | |
$ | 1,620 | | |
$ | 2,582 | |
Cost of revenues | |
| 87 | | |
| 483 | | |
| 589 | |
Gross profit | |
| 255 | | |
| 1,137 | | |
| 1,993 | |
Operating expenses | |
| 742 | | |
| 5,518 | | |
| 3,565 | |
Loss from operations | |
| (487 | ) | |
| (4,381 | ) | |
| (1,572 | ) |
Other income (expense), net | |
| 1,685 | | |
| 1 | | |
| 1 | |
Income tax benefit/(provision) | |
| 1,560 | | |
| - | | |
| (100 | ) |
Net
income (loss) | |
$ | 2,758 | | |
$ | (4,380 | ) | |
$ | (1,671 | ) |
Revenues
The
Company derives revenue from subscription software as a service, design, deployment and implementation services for its enterprise apps
business. Revenue was $342 thousand and $1,620 thousand for the period ended March 31, 2023 (Successor) and the period ended
March 14, 2023 (Predecessor), respectively, compared to $2,582 thousand for the three months ended March 31, 2022 (Predecessor). This
decrease of $620 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 $87 thousand and
$483 thousand for the period ended March 31, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively, compared
to $589 thousand for the three months ended March 31, 2022 (Predecessor). The gross profit margin was 75% and 70% for the period
ended March 31, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively, compared to 77% for the three months
ended March 31, 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 $742 thousand and
$5,518 thousand for the period ended March 31, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively,
compared to $3,565 thousand for the three months ended March 31, 2022 (Predecessor). This increase of $2,695 thousand is primarily
attributable to a $2,827 thousand benefit recorded during the three months ended March 31, 2022 (Predecessor) related to an earnout.
Other
Income/(Expense)
Other
income/(expense) was an $1,685 thousand in income and $1 thousand in income for the period ended March 31, 2023 (Successor)
and the period ended March 14, 2023 (Predecessor), respectively, compared to $1 thousand in income for the three months ended March
31, 2022 (Predecessor). This increase in other income was primarily attributable to changes in fair value of derivative warrant liabilities
of $1,686 thousand during the period ended March 31, 2023 (Successor).
Provision
for Income Taxes
There was an income tax benefit of approximately
$1,560 thousand and $0 thousand for the period ended March 31, 2023 (Successor) and the period ended March 14, 2023 (Predecessor),
respectively, compared income tax expense of $100 thousand for the three months ended March 31, 2022 (Predecessor). The
income tax benefit relates for the period ended March 31, 2023 (Successor) primarily a result
of the release of valuation allowance attributable to acquired intangible assets from the Business Combination.
Non-GAAP
Financial information
EBITDA
The
Company includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as
earnings before interest and other income, tax and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix
in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non- recurring items and
non-cash stock-based compensation. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because
it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability
between periods.
Adjusted
EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as
calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within
the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other
companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information
reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net income for the periods indicated
(in thousands).
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | | |
Period from
January 1, 2023 to
March 14,
2023 | | |
Three months
ended
March 31,
2022 | |
Net
income (loss) | |
$ | 2,758 | | |
$ | (4,380 | ) | |
$ | (1,671 | ) |
Interest and
other (income) | |
| 1 | | |
| (1 | ) | |
| (1 | ) |
Income tax (benefit)/provision | |
| (1,560 | ) | |
| - | | |
| 100 | |
Depreciation
and amortization | |
| 120 | | |
| 1,034 | | |
| 1,120 | |
EBITDA | |
| 1,319 | | |
| (3,347 | ) | |
| (452 | ) |
Adjusted for: | |
| | | |
| | | |
| | |
Earnout compensation expense (benefit) | |
| - | | |
| - | | |
| (2,827 | ) |
Changes in fair value of warrant liabilities | |
| (1,686 | ) | |
| - | | |
| - | |
Unrealized (gains) losses | |
| 3 | | |
| (32 | ) | |
| (266 | ) |
Stock-based
compensation - compensation and related benefits | |
| 2 | | |
| 158 | | |
| 647 | |
Adjusted EBITDA | |
$ | (362 | ) | |
$ | (3,221 | ) | |
$ | (2,898 | ) |
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.
Liquidity
and Capital Resources
Liquidity
describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including
working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our
cash flows from operations and their sufficiency to fund our operating and investing activities. As of March 31, 2023 (Successor), our
principal source of liquidity was cash and cash equivalents of $6,724 thousand.
Financing
Obligations and Requirements
As of March 31, 2023 (Successor), the Company
has a working capital surplus of approximately $3,052 thousand, and cash and cash equivalents of approximately $6,724 thousand.
For the period ended March 31, 2023 (Successor), the Company had a net income of approximately $2,758 thousand. During the period
ended March 31, 2023 (Successor), the Company used approximately $4,431 thousand of cash for operating activities.
The
Company cannot assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. To
the extent that our resources from the business combination are insufficient to satisfy our cash requirements, we may enter into equity
or debt financing transactions. These transactions are expected to provide us additional cash to fund our capital and liquidity requirements
in the short and long-term. If the financing is not available, or if the terms of financing are less desirable than we expect, we may
be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities,
or eliminating redundancies, which may adversely affect our business, operating results, financial condition and prospects. Our business
has been impacted by the COVID-19 pandemic and general macroeconomic conditions and may continue to be impacted. While we have been able
to continue operations remotely, we have and continue to experience impact in the demand of certain products and delays in certain projects
and customer orders either because customer facilities being partially or fully closed during the pandemic or because of the uncertainty
of the customer’s financial position and ability to invest in our technology.
The
total impact that COVID-19 and general macroeconomic conditions may continue to impact our
results of operations continues to remain uncertain and there are no assurances that we will
be able to continue to experience the same growth or not be materially adversely affected.
The Company’s recurring losses and utilization of cash in its operations are indicators
of going concern however with the Company’s current liquidity position and access to
capital markets, the Company believes it has the ability to mitigate such concerns for a
period of at least one year from the date this financial statements were made issued.
Liquidity
and Capital Resources
The
Company’s net cash flows used in operating, investing and financing activities and certain balances are as follows (in thousands):
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | | |
Period from
January 1,
2023 to
March 14,
2023 | | |
Three months
ended
March 31,
2022 | |
| |
| |
Cash flows (used in) provided
by | |
| | | |
| | | |
| | |
Net cash used in operating
activities | |
$ | (4,431 | ) | |
$ | (5,144 | ) | |
$ | (4,140 | ) |
Net cash provided by (used in) investing
activities | |
| 9,980 | | |
| (54 | ) | |
| (51 | ) |
Net cash (used in) provided by financing
activities | |
| (328 | ) | |
| 8,892 | | |
| 4,553 | |
Effect of exchange
rates on cash | |
| - | | |
| 1 | | |
| 4 | |
Net
increase in cash and cash equivalents | |
$ | 5,221 | | |
$ | 3,695 | | |
$ | 366 | |
| |
Successor | | |
Predecessor | |
| |
March 31,
2023 | | |
December 31,
2022 | |
Cash and cash equivalents | |
$ | 6,724 | | |
$ | 6,308 | |
Working capital surplus | |
$ | 3,052 | | |
$ | 3,154 | |
Operating
Activities for the periods ended March 31, 2023 (Successor), March 14, 2023 (Predecessor), and the three months ended March 31, 2022
(Predecessor)
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | | |
Period from
January 1,
2023 to
March 14,
2023 | | |
Three months
ended
March 31,
2022 | |
Net income (loss) | |
$ | 2,758 | | |
$ | (4,380 | ) | |
$ | (1,671 | ) |
Non-cash income and expenses | |
| (3,113 | ) | |
| 1,200 | | |
| (1,272 | ) |
Net change in
operating assets and liabilities | |
| (4,076 | ) | |
| (1,964 | ) | |
| (1,197 | ) |
Net cash used
in operating activities | |
$ | (4,431 | ) | |
$ | (5,144 | ) | |
$ | (4,140 | ) |
Cash
Flows from Investing Activities for the periods ended March 31, 2023 (Successor), March 14, 2023 (Predecessor), and the three months
ended March 31, 2022 (Predecessor)
Net cash flows provided
by investing activities during the period ended March 31, 2023 (Successor) was approximately $9,980 thousand compared to net cash flows
used in investing activities for the period ended March 14, 2023 (Predecessor) and during the three months ended March 31, 2022 (Predecessor)
of approximately $54 thousand and $51 thousand, respectively. Cash flows related to investing activities during the period ended March
31, 2023 (Successor) include $23.0 thousand for the purchase of property and equipment, and $10,003 thousand for cash acquired
in connection with the Business Combination. Cash flows related to investing activities during the period ended 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 three months ended March 31, 2022 (Predecessor) include $12 thousand for the purchase
of property and equipment, and $39 thousand for investment in capitalized software.
Cash
Flows from Financing Activities for the periods ended March 31, 2023 (Successor), March 14, 2023 (Predecessor), and the three months
ended March 31, 2022 (Predecessor)
Net cash flows used in financing activities during
period ended March 31, 2023 (Successor) was $328 thousand compared to net cash flows provided by financing activities for the period
ended March 14, 2023 (Predecessor) and during the three months ended March 31, 2022 (Predecessor) of approximately $8,892 thousand and
$4,553 thousand, respectively. During the period ended March 31, 2023 (Successor), the Company paid $328 thousand in cash outflows
from a repayment of a related party promissory note. During the period ended March 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 an acquisition liability.
During the three months ended March 31, 2022 (Predecessor), the Company received $6,444 thousand in incoming cash flows from parent,
and paid $104 thousand and $1,787 thousand in cash outflows from taxes paid related to share based compensation and from a
payment of an acquisition liability, respectively.
Off-Balance
Sheet Arrangements
We
do not have any off-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 liabilities and acquisition liabilities that are included in our balance sheet. As
of March 31, 2023 (Successor), the total obligation for operating leases is approximately $571 thousand, of which approximately
$195 thousand is expected to be paid in the next twelve months.
Quantitative
and Qualitative Disclosures about Market Risk
Not applicable.
Critical
Accounting Estimates
Our
financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In connection
with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments
that affect the reported amounts of assets, liabilities, revenue, expenses and the 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 the 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.
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 period ended March 31, 2023 (Successor) or the year ended December 31, 2022 (Predecessor).
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), period ended March 31, 2023 (Successor), and the three months ended March 31, 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.
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 period ended March 31, 2023 (Successor), based upon certain
economic conditions and historical losses through March 31, 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 March 31, 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 period ended March 31, 2023 (Successor), the period ended March 14, 2023 (Predecessor), or the three months ended March 31, 2022
(Predecessor).
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 from the acquisition date.
Derivative
Warrant Liabilities
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 sheets date until exercised, and any change in fair value is recognized in
our Condensed Consolidated Statements of Operations. We utilized the Public Warrant quoted market price as the fair value of the Warrants
as of each relevant date.
Year
Ended December 31, 2022 compared to the Year Ended December 31, 2021
The
following table sets forth our results of operations for the years ended December 31, 2022 and 2021. This data should be read together
with our financial statements and related notes included elsewhere in this registration statement, and is qualified in its entirety by
reference to such financial statements and related notes in this Report.
| |
For the Years
Ended December 31 | | |
| | |
| |
| |
2022 | | |
2021 | | |
| | |
| |
| |
| | |
% of | | |
| | |
% of | | |
$ | | |
% | |
(in thousands,
except percentages) | |
Amount | | |
Revenues | | |
Amount | | |
Revenues | | |
Change | | |
Change* | |
Revenues | |
$ | 8,470 | | |
| 100 | % | |
$ | 6,368 | | |
| 100 | % | |
$ | 2,102 | | |
| 33 | % |
Cost of revenues | |
| 2,064 | | |
| 24 | % | |
| 1,646 | | |
| 26 | % | |
| 418 | | |
| 25 | % |
Gross profit | |
| 6,406 | | |
| 76 | % | |
| 4,722 | | |
| 74 | % | |
| 1,684 | | |
| 36 | % |
Operating expenses | |
| 35,431 | | |
| 418 | % | |
| 49,225 | | |
| 773 | % | |
| (13,794 | ) | |
| (28 | )% |
Loss from operations | |
| (29,025 | ) | |
| (343 | )% | |
| (44,503 | ) | |
| (699 | )% | |
| 15,478 | | |
| (35 | )% |
Other income (expense) | |
| 3 | | |
| 0 | % | |
| 1 | | |
| 0 | % | |
| 2 | | |
| 200 | % |
Income tax provision | |
| (153 | ) | |
| (2 | )% | |
| 2,527 | | |
| 40 | % | |
| (2,680 | ) | |
| 106 | % |
Net loss | |
$ | (29,175 | ) | |
| (344 | )% | |
$ | (41,975 | ) | |
| (659 | )% | |
| 12,800 | | |
| (30 | )% |
| * | Amounts
used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly,
calculations in this item, which may be rounded to the nearest hundred thousand, may not
produce the same results. |
Revenues
Revenues
for the year ended December 31, 2022 were $8.5 million, compared to $6.4 million for the comparable period in the prior year for
an increase of approximately $2.1 million, or approximately 33%. This increase is primarily the result of the inclusion of a full twelve
months of revenue received from smart office app sales in 2022 as compared to only 8 months of mobile apps sales in 2021 following the
acquisition of Design Reactor in 2021.
Gross
Margin
Cost
of revenues for the year ended December 31, 2022 were $2.1 million compared to $1.6 million for the comparable period in the prior
year. This increase in cost of revenues of approximately $0.4 million, or approximately 25%, was primarily attributable to higher hosting
fees and costs associated with the sale of professional services as a result of increased CXApp product line sales during the year.
The
gross profit margin for the year ended December 31, 2022 was 76% compared to 74% for the year ended December 31, 2021. This
increased margin is primarily due to more smart office app sales in 2022 versus 2021, which has higher overall gross margins.
Operating
Expenses
Operating
expenses for the year ended December 31, 2022 were $35.4 million and $49.2 million for the comparable period ended December 31,
2021. Of this $13.8 million decrease, there was a decrease of $6.4 million in impairment of goodwill, decrease of $9.4 million for the
change in earnout expense, decrease of $2.5 million of stock based compensation offset by an increase of approximately $2.9 million that
is attributable to increased operating expenses primarily due to actions taken to consummate the CXApp- acquisition, increased unrealized
foreign exchange loss of $1.4 million and an approximate $0.2 million increase in sales and marketing expenses. With the Company’s
current liquidity position, the Company has taken steps to reduce operating expenses. Going forward CXApp expects lower acquisition/financing
transaction costs, unrealized losses, lower compensation as a result of headcount reductions in Q4 2022 and Q1 2023, as well as lower
professional fees and insurance expenses.
Loss
From Operations
Loss
from operations for the year ended December 31, 2022 was $29.0 million as compared to $44.5 million for the comparable period in
the prior year. This decrease in loss of $15.5 million is primarily attributable to decreased operating expenses of $13.8 million as
detailed above plus the increased gross profit margin of approximately $1.7 million.
Other
Income/(Expense)
Other
income/expense for the years ended December 31, 2022 and 2021 were income of approximately $0.03 million and $0.01 million, respectively,
and the difference was immaterial.
Provision
for Income Taxes
There
was an income tax loss of $0.2 million for the year ended December 31, 2022 and an income tax benefit of approximately $2.5 million
for the year ended December 31, 2021. The net income tax benefit for the year ended December 31, 2021 is related to a deferred
tax benefit from the release of a valuation allowance following the acquisition of intangibles of Design Reactor.
Net
Loss
Net
loss for the year ended December 31, 2022 was $29.2 million, compared to $42.0 million for the comparable period in the prior year.
This decrease in loss of approximately $12.8 million was primarily attributable to the decrease in operating expenses of $13.8 million
and the higher gross margin of $1.7 million, offset by a lower income tax benefit of approximately $2.7 million.
Non-GAAP
Financial information
EBITDA
This
Report includes a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as
earnings before interest and other income, tax and depreciation and amortization. Adjusted EBITDA is used by our management as the matrix
in which it manages the business. It is defined as EBITDA plus adjustments for other income or expense items, non-recurring items and
non-cash stock-based compensation. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because
it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability
between periods.
Adjusted
EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as
calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within
the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other
companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information
reported in accordance with U.S. GAAP. The table below presents our adjusted EBITDA, reconciled to net income for the periods indicated
(in thousands).
| |
For the
Years Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Net loss | |
$ | (29,175 | ) | |
$ | (41,975 | ) |
Interest and other
income | |
| 4 | | |
| 1 | |
Tax expense (benefit) | |
| 153 | | |
| (2,527 | ) |
Depreciation
and amortization | |
| 4,531 | | |
| 3,571 | |
EBITDA | |
| (24,487 | ) | |
| (40,930 | ) |
Adjusted for: | |
| | | |
| | |
Acquisition transaction/financing
costs | |
| 16 | | |
| 628 | |
Earnout compensation
expense/(benefit) | |
| (2,827 | ) | |
| 6,524 | |
Professional service
fees | |
| - | | |
| 683 | |
Impairment of goodwill | |
| 5,540 | | |
| 11,896 | |
Unrealized gains on
notes, loans, investments | |
| 1,478 | | |
| (185 | ) |
Stock-based compensation
– compensation and related benefits | |
| 1,640 | | |
| 4,120 | |
Severance
costs | |
| 754 | | |
| 135 | |
Adjusted
EBITDA | |
$ | (17,886 | ) | |
$ | (17,129 | ) |
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, earnout
compensation expense, professional service fees, goodwill impairment, unrealized gains, stock
based compensation, severance costs, interest income and expense, and income tax benefit. |
| ● | We
believe that it is useful to provide 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 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.
Liquidity
and Capital Resources
Liquidity describes the
ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital
needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from
operations and their sufficiency to fund our operating and investing activities. In light of the significant number of redemptions and
the unlikelihood that the company will receive significant proceeds from exercises of the warrants due to the disparity between the exercise
price of the warrants and the current trading price of the Class A common stock, the company’s capital resources and its liquidity
position since the business combination are not expected to improve.
As of December 31,
2022, our principal source of liquidity was cash of $6.3 million. As part of the business combination with KINS, our net cash position
increased to $10 million at the closing of the transaction. In addition, the net cash position further increased with the $1.6 million
we received from the KINS trust account. The total net cash position will be reduced by the transaction expenses of the business combination,
which are estimated to be approximately $1.2 million.
The resale of shares under
this registration statement may impact the company’s ability to raise additional capital by influencing investor sentiment, potentially
resulting in a decrease in demand for the company’s securities. Additionally, the resale of shares may lead to dilution of existing
shareholders’ ownership and put downward pressure on the market price of the company’s securities, which could affect the
company’s ability to attract new investors and raise capital at favorable terms.
Financing
Obligations and Requirements
As
of December 31, 2022, the Company had a working capital surplus of approximately $3.2 million, and cash of approximately $6.3 million.
For the year ended December 31, 2022, the Company had a net loss of approximately $29.2 million. During the year ended December 31,
2022, the Company used approximately $18.9 million of cash for operating activities. As part of the Inpixon (“Inpixon”) group
of companies, the Company has historically been dependent upon Inpixon for its working capital and financing requirements until the closing,
as Inpixon uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company
were accounted for through the net parent investment account. Accordingly, none of Inpixon’s cash, cash equivalents or debt at
the corporate level has been assigned to the Company in the combined carve-out financial statements other than any such amounts that
may already be represented as cash balances of the Design Reactor, Inpixon Canada and Inpixon Philippines bank accounts as of December 31,
2022. Net parent investment represents Inpixon’s interest in the recorded net assets of the Company. All significant transactions
between the Company and Inpixon have been included in the accompanying combined carve-out financial statements. Transactions with Inpixon
are reflected in the accompanying Combined Statements of Changes in Equity as “Parent’s net investment” and in the
accompanying Combined Balance Sheets within “Parent’s net investment.” The income statement of the Company includes
revenues and expenses that are specifically identifiable to the Company plus certain allocated corporate overhead or other shared costs
based on methodologies that management deems appropriate for the nature of the cost. All significant intercompany accounts and transactions
between the businesses comprising the Company have been eliminated in the accompanying combined financial statements. As part of the
spin-off transaction, Inpixon contributed the cash needed so that the Company has a $10 million cash balance at the time of the closing
of the transaction.
The
Company cannot assure you that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. To
the extent that our resources from the business combination are insufficient to satisfy our cash requirements, we may enter into equity
or debt financing transactions. These transactions are expected to provide us additional cash to fund our capital and liquidity requirements
in the short and long-term. If the financing is not available, or if the terms of financing are less desirable than we expect, we may
be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities,
or eliminating redundancies, which may adversely affect our business, operating results, financial condition and prospects. Our business
has been impacted by the COVID-19 pandemic and general macroeconomic conditions and may continue to be impacted. While we have been able
to continue operations remotely, we have and continue to experience impact in the demand of certain products and delays in certain projects
and customer orders either because of 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.
Despite
these challenges, we were able to realize growth in total revenue for the year ended December 31, 2022 when compared to the year
ended 2021, as a result of the addition of the new CXApp product line during the second quarter of 2021. 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 the company has taken action to reduce operating expenses and extend its runway. This, along with the capital it will
receive in the KINS transaction, leads the company to believe it has the ability to mitigate such concerns for a period of at least one
year from the date these combined carve-out financials statements were issued.
Liquidity
and Capital Resources as of December 31, 2022 Compared With December 31, 2021
The
Company’s net cash flows used in operating, investing and financing activities for the years ended December 31, 2022 and 2021
and certain balances as of the end of those periods are as follows (in thousands):
| |
For the
Years Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Net cash
used in operating activities | |
$ | (18,895 | ) | |
$ | (16,919 | ) |
Net cash used in
investing activities | |
| (482 | ) | |
| (15,469 | ) |
Net cash provided
by financing activities | |
| 20,728 | | |
| 37,330 | |
Effect
of foreign exchange rate changes on cash | |
| (71 | ) | |
| (61 | ) |
Net
increase in cash and cash equivalents | |
$ | 1,280 | | |
$ | 4,881 | |
| |
As of
December 31, | |
| |
2022 | | |
2021 | |
Cash
and cash equivalents | |
$ | 6,308 | | |
$ | 5,028 | |
Working
capital surplus (deficit) | |
$ | 3,154 | | |
$ | (9,702 | ) |
Operating
Activities for the years ended December 31, 2022 and 2021
Net
cash used in operating activities during the period consisted of the following (in thousands):
| |
For the
Years Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Net loss | |
$ | (29,175 | ) | |
$ | (41,975 | ) |
Non-cash income and
expenses | |
| 10,133 | | |
| 23,585 | |
Net
change in operating assets and liabilities | |
| 147 | | |
| 1,471 | |
Net
cash used in operating activities | |
$ | (18,895 | ) | |
$ | (16,919 | ) |
The
non-cash income and expense for the year ended December 31, 2022 of approximately $10.1 million consisted primarily of the following
(in thousands):
$ | 4,531 | | |
Depreciation and amortization |
| 266 | | |
Amortization of right of use asset |
| 1,640 | | |
Stock-based compensation expense
attributable to warrants and options issued as part of Company operations |
| 1,478 | | |
Unrealized loss on note |
| 5,540 | | |
Impairment of goodwill |
| (2,827 | ) | |
Earnout payment expense |
| (495 | ) | |
Other |
$ | 10,133 | | |
Total non-cash
expenses |
The
net cash used in the change in operating assets and liabilities for the year ended December 31, 2022 aggregated approximately $0.1
million and consisted primarily of the following (in thousands):
$ | 109 | | |
Decrease in accounts
receivable and other receivables |
| 244 | | |
Decrease in inventory, other current
assets and other assets |
| 400 | | |
Increase in accounts payable |
| 583 | | |
Increase in accrued liabilities and
other liabilities |
| (257 | ) | |
Decrease in operating lease liabilities |
| (932 | ) | |
Decrease in
deferred revenue |
$ | 147 | | |
Net cash used
in the changes in operating assets and liabilities |
The
non-cash income and expense for the year ended December 31, 2021 of approximately $23.6 million consisted primarily of the following
(in thousands):
$ | 3,571 | | |
Depreciation and amortization |
| 257 | | |
Amortization of right of use asset |
| 4,120 | | |
Stock-based compensation expense
attributable to warrants and options issued as part of Company operations |
| (185 | ) | |
Unrealized gain/loss on note |
| (2,591 | ) | |
Deferred income tax |
| 11,897 | | |
Impairment of goodwill |
| 6,524 | | |
Earnout payment expense |
| (8 | ) | |
Other |
$ | 23,585 | | |
Total non-cash
expenses |
The
net cash used in the change in operating assets and liabilities for the year ended December 31, 2021 aggregated approximately $1.5
million and consisted primarily of the following (in thousands):
$ | 255 | | |
Decrease in accounts
receivable and other receivables |
| (427 | ) | |
Increase in inventory, other current
assets and other assets |
| 69 | | |
Increase in accounts payable |
| 892 | | |
Increase in accrued liabilities and
other liabilities |
| (275 | ) | |
Decrease in operating lease liabilities |
| 957 | | |
Increase in
deferred revenue |
$ | 1,471 | | |
Net cash used
in the changes in operating assets and liabilities |
Cash
Flows from Investing Activities as of December 31, 2022 and 2021
Net
cash flows used in investing activities during 2022 was approximately $0.5 million compared to net cash flows used in investing activities
during 2021 of approximately $15.5 million. Cash flows related to investing activities during the year ended December 31, 2022 include
$0.1 million for the purchase of property and equipment and $0.4 million for investment in capitalized software. Cash flows related to
investing activities during the year ended December 31, 2021 include $0.2 million for the purchase of property and equipment, $0.2
million for investment in capitalized software, $15.0 million paid for the acquisition of CXApp, $0.01 million for the acquisition of
intangible assets and $0.1 million paid for acquisition of Visualix.
Cash
Flows from Financing Activities as of December 31, 2022 and 2021
Net
cash flows provided by financing activities during the year ended December 31, 2022 was $20.7 million. Net cash flows provided by
financing activities during the year ended December 31, 2021 was $37.3 million. During the year ended December 31, 2022, the
Company received incoming cash flows from Inpixon of $26.0 million, paid $0.1 million of taxes related to the net share settlement of
restricted stock units, and paid a $5.1 million liability related to the CXApp acquisition. During the year ended December 31, 2021,
the Company received incoming cash flows from Inpixon of $39.0 million, paid $0.7 million of taxes related to the net share settlement
of restricted stock units, paid a $0.5 million liability related to the CXApp acquisition, and paid a $0.5 million acquisition liability
to the pre-acquisition stockholders of Locality Systems Inc.
Off-Balance
Sheet Arrangements
We
do not have any off-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 liabilities and acquisition liabilities that are included in our combined balance
sheet. As of December 31, 2022, the total obligation for operating leases is approximately $0.7 million, of which approximately
$0.3 million is expected to be paid in the next twelve months. As of December 31, 2022, our obligation for acquisition liabilities
related to CXApp is approximately $0.2 million of which all is expected to be paid in the next twelve months.
Quantitative
and Qualitative Disclosures about Market Risk
We
have not experienced any significant losses in such accounts, nor does management believe it is exposed to any significant credit risk.
The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. We
use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
We account for forfeitures as they occur.
Critical
Accounting Policies and Estimates
Our
combined financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In
connection with the preparation of our combined carve-out financial statements, we are required to make assumptions and estimates about
future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the 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 consolidated financial statements are prepared. On a regular basis, we review the accounting policies,
assumptions, estimates and judgments to ensure that our combined carve-out 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 the combined carve-out financial statements that 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.
Revenue
Recognition
The
Company recognizes revenue when control of the promised products or services is transferred 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 systems, and professional services for work performed
in conjunction with its systems.
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.
| ● | We
receive fixed consideration for sales of hardware and software products. Revenue is recognized
at the point in time when the customer has title to the product and risks and rewards of
ownership have transferred. |
| ● | Revenue
related to 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. |
| ● | Design
and implementation 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 combined 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
recognize revenue related to Maintenance Services evenly over time using the output method
(days of software provided) because we provide continuous service, and the customer simultaneously
receives and consumes the benefits provided by our performance as the services are performed. |
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 provide 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 years ended December 31, 2022 or 2021.
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 years ended December 31,
2022 and 2021, 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 our acquisitions of Locality, Jibestream, and CXApp. 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.
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 historical data and experience, third-party
appraisals, industry projections, micro and macro general economic condition projections, and 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. For example,
a 100 basis points increase or decrease in only the discount rate utilized as part of the discounted cash flow method (income approach)
related to the Indoor Intelligence reporting unit could impact the overall fair value of the reporting unit, on a weighted average, by
approximately $2.0 million (decrease) and $2.5 million (increase), respectively.
We
performed impairment testing during the period and have recorded impairment of goodwill of $5.5 million and $11.9 million during the
years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, cumulative impairment changes are approximately
$17.4 million.
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 year ended December 31, 2022, based upon certain economic
conditions and historical losses through December 31, 2022. After consideration of these factors, management deemed it appropriate
to establish a full valuation allowance with respect to the deferred tax assets for Design Reactor and Inpixon Philippines as of December 31,
2022 and 2021, 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 years ended December 31, 2022 and 2021.
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 combined financial results will be adjusted.
All acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived
intangible asset and assessed for impairment thereafter until completion, at which point the asset is amortized over its expected useful
life. 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
Combined Financial Statements from the acquisition date.
JOBS
Act Accounting Election
Following
the transaction, Design Reactor will be an “emerging growth company” as defined in the JOBS Act. As such, Design Reactor
will be eligible to take 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. Design Reactor has not made a decision whether to take advantage of any or all of these exemptions. If Design Reactor does
take advantage of some or all of these exemptions, some investors may find Design Reactor’s common stock less attractive. The result
may be a less active trading market for Design Reactor’s common stock and its stock price may be more volatile.
In
addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period
provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with
new or revised accounting standards, meaning that Design Reactor, as an emerging growth company, can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. Design Reactor has elected to take advantage of this extended
transition period, and therefore our financial 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.
BUSINESS
Unless
the context otherwise requires, all references in this section to “we,” “us,” or “our” refer to CXApp
Inc.
Overview
CXApp’s
platform is a workplace experience platform for enterprise customers. Our technologies and solutions help enterprise customers deliver
a comprehensive business journey in a work ‘from-anywhere’ world for employees, partners, customers and visitors. CXApp offers
native mapping, analytics, on-device positioning (or ODP) and applications technologies that aim to bring people together.
Our
customers use our enterprise solutions in a variety of ways, including, but not limited to, workplace experience, employee engagement,
desk and meeting room reservations, workplace analytics, occupancy management, content delivery, corporate communications and notifications,
event management, live indoor mapping, wayfinding and navigation.
Our
enterprise app platform is the intersection of technology, intelligence, automation and experience for today’s hybrid workplace
and the workplace of the future.
Corporate
Strategy
The
office, now, is everywhere. We believe that giving employees and teams the ability to manage different types of ‘office scenarios’
from their personal device will be the dominating path forward for a lot of companies.
We
believe mobile apps are the only technology that can clearly communicate with employees, other technologies, and physical spaces. Enterprise
organizations are considering mobile apps imperative for the successful management of distributed workforces, and the changing office
landscape. Over the next five years, we believe all enterprise organizations will be using a mobile app to manage their workplace experience
initiatives.
We
believe CXApp is uniquely positioned as the connection point of hybrid workplace models — bringing people together through a workplace
experience app that helps companies build a more meaningful and productive work experience. We put key technologies, employee engagement
initiatives, workplace automation and best practices into action with a comprehensive approach to the workplace — so employees
and operations can make faster, reliable, data-driven decisions that influence performance and improve productivity.
Through
our strategic growth model, we aim to connect every experience in the workplace with the CXApp platform no matter who you are, where
you are, or what you’re doing.
Business
Model
The
CXApp workplace solution is a SaaS product for enterprise organizations, distributing a mobile app to all employees within the organization.
It includes a content management system (or CMS) so customers can adjust configurations for their workplace settings autonomously and
spontaneously.
Our
pricing structure consists of recurring software fees as well as a professional service fee to setup and deploy a new location or campus,
including digitized maps and configurations at the global and regional level.
Technology
Overview
CXApp’s
platform is a comprehensive workplace experience solution, helping customers drive engagement across their global workforce by introducing
a mobile-first mindset to everyday interactions and business needs. We bring workplace experience initiatives together in one hassle-free
system so customers don’t have to host, manage, support or maintain. We believe this results in low cost, low overhead and easy
maintenance.
The
benefits of our technology platform include but are not limited to:
| ● | Our
platform is built on a SaaS model with off-the-shelf product and services requiring minimal
customization. |
| ● | Multiple
uses, features, technology and partners are all pulled into one platform, creating a central
hub. |
| ● | Regular
updates, ongoing enhancements and maintenance are performed to ensure all customer apps are
built with industry best practices. |
| ● | All
customer apps are hosted in an exclusive cloud instance for increased security and reliability. |
| ● | Each
customer has access to their own content management system compliance and authentication,
built into the platform. |
| ● | The
iOS mobile app is natively built with the latest version Swift framework. |
| ● | The
AndroidX mobile app is natively built with the latest version AndroidX framework. |
| ● | Security
and data privacy protocols are compliant with the EU General Data Protection Regulation and
have an ISO 27001 certification. |
| ● | Additional
security clearances include SSL/TLS 1.2 for Google App Engine, AES256 bit Advanced Encryption
and Google Cloud Key Store. |
Products
and Services
Our
workplace experience solution is a software-as-a-service (or SaaS) platform for the enterprise. Our technology platform delivers the
following core components that work in combination to deliver an incredible experience for companies around the world.
| ● | Workplace
Experience — Our workplace experience solution enhances employee experience
by providing organizations with a holistic, location-aware, customer-branded employee app
for a more connected workplace. This solution helps organizations provide a frictionless
work environment to employees with features such as: hot desk and room booking, indoor navigation
with turn-by-turn directions on a digital map, company-wide news feeds, an in-app company
directory of colleagues and workplace amenities, as well as bookable opportunities and experiences.
Our clients include facilities teams solving space utilization challenges, workplace operations
teams building incredible experiences for employees and IT teams focused on streamlining
their tech stacks to boost productivity and efficiency. |
| ● | Hybrid
Meeting — Our executive briefing solution helps enterprise organization create
high-touch, high-value, and personalize customer journeys for in-office, remote and hybrid
meetings. Our hybrid solution offering streamlines multi-point customer experiences through
one environment with support for multiple meetings and diversified locations, agendas for
single or multi-day uses, and customizable components for every customer briefing program. |
| ● | Hybrid
Events — Our hybrid event solution provides both mobile app and virtual event
capabilities to connect tens of thousands of remote and in-person audiences through a fully
branded, end-to- end event journey. Our hybrid event platform can host multiple events for
enterprise organizations and support ongoing event engagement touchpoints to attendees before,
during, and after the event through features such as customizable agendas, real-time activity
feeds, instant notifications and more. |
| ● | Mapping
Solutions — Our indoor mapping solution helps enterprise organizations add
intelligence to complex indoor spaces by integrating business data with geospatially accurate
indoor maps to create relevant views of indoor environments. Indoor mapping is integral to
supporting location-aware, “internet of things” (or IoT) enabled smart office
touchpoints or devices within the customer’s premises. Developers use our mapping solution
to bring indoor maps to apps, enabling multiple uses with a single set of maps. This product
is intended to serve as a digital twin of a physical space facilitates and can be used for
facility management, security, customer or worker experiences, asset tracking and more. |
| ● | Analytics
Dashboard — Our robust cloud-based analytics dashboards give enterprise organizations
insights into how real estate, technology and people interact across the workplace, so they
can make business decisions to unlock savings, improve employee experience or optimize services.
With our analytics platform, we allow data from multiple sensors and data sources (third-party
sensors, native mapping solutions and data) to be visualized for action by workplace operations
teams. |
| ● | On-Device
Positioning (or ODP) — Our on-device positioning technology, commonly known
as “blue dot,” enables powerful location-based uses and builds upon our mapping
offering to give enterprises clients a seamless way to provide navigation assistance within
a venue (workplace, event show floor etc.). Our solution displays a user’s precise
location and runs on a smartphone, smartwatch or other IoT wearable device and can operate
without the internet. |
Product
Roadmap and Enhancements
Our
ability to adapt to technological advancements within our industry is critical to our long-term success and growth. As a result, our
executive management must continuously work to ensure that it remains informed and prepared to quickly adapt and leverage new technologies
within our product and service offering as such technologies become available. In connection with that goal, we have multi-year product
roadmap development plans which include activities related to expanding the use of augmented reality (or AR) and 3D mapping, new integrations
with our partners to connect enterprise services to our app, changes to our desk booking solution to allow faster and more informed decision
making by the user and improving our on-device positioning solutions and other initiatives described below.
| ● | Positioning
Innovation Powered by Machine Learning — We are expanding our use of machine
learning and neural networks to improve positioning accuracy, reliability and range for our
positioning and mapping. These improvements will impact our on-device positioning technology
used to provide an indoor blue dot for enterprise customers. Following these enhancements,
we believe our products should be able to assist in providing predictive, more accurate,
bidirectional location information to secure and optimize our deployments using hardware
that includes iOS and Android smartphones, IoT sensors, access points or BLE beacons. In
addition, we are implementing predictive AI models across our workplace experience platform
to provide more actionable insights to our customers on their indoor spaces and how these
spaces are being utilized. We expect certain product enhancements related to these initiatives
to be released in the first half of 2023, however, this is continuously evolving technology
and we would expect to continue to allocate resources to additional development initiatives
over the coming years. |
| ● | Mapping
and Digital Twin — Our advanced mapping platform is built with a set of developer
tools to power an infinite number of experiences across multiple platforms. We are researching
and evaluating ways in which laser imaging, detection, and ranging (or LIDAR) research and
technology can aid map development and points of interest (or POI) location in a deployment.
We believe leveraging these technologies in our mapping platform will allow us to explore
new navigation uses, applications for deployment of assets and possibilities for optimization
in manufacturing and office environments. These enhancements to our mapping platform are
part of a longer-term roadmap initiative which may require allocation of resources over the
next 12-36 months. Initiatives over the next twelve months for these activities are anticipated
to be focused on research and the development of a prototype. |
| ● | App
— With the addition of our on-device positioning technology and the
expanding usage of apps in the workplace, particularly campus-style and large building environments,
we are continuously evaluating ways to improve our app capabilities, including by enhancing
our software development kits (or SDKs) and adding new functionality or features to support
integration with workplace systems and tools. Our application programming interface (or API)
and SDK integrations with customers that provide conferencing, collaboration, delivery, secure
lockers, access control, parking and IoT management are key differentiators that we believe
make our app the gateway for our customers. We have several planned releases over the next
12 months in furtherance of these initiatives. |
| ● | Analytics
and Insights — We provide data science analytics in the cloud, along with specially
optimized algorithms that are intended to increase usability of the data we collect for our
customers. We have released a beta version of our software with additional analytics capabilities
and expect to release a general availability version before the end of the first quarter
of 2023. In the future, we would look to expand this offering, with the goal of allowing
customers to export data to internal business intelligence systems and to upload additional
datasets that might include security systems, or occupancy information. Our plan is for our
system to deliver data reporting and visualizations to the user combining these data sources. |
| ● | Augmented
Reality (or AR) and 3D — Our augmented reality SDKs will allow businesses to
easily scan a space and subsequently attach AR content persistently to any position in the
world. AR technologies may be used to both display and capture spatial data that can be overlaid
with the rich, profile-based maps in our CMS. The use of AR technologies will help in connection
with the application of visual asset tracking use cases without beacons, digital twin creation
and applications for the metaverse or other applications. Our AR roadmap initiatives are
anticipated to be implemented over the course of a multiyear plan. |
We
expect that we will have sufficient funding for planned initiatives on our product roadmap over the next twelve months, however, we expect
that additional funding may be required in connection with certain of the longer term, multi-year development initiatives on the roadmap.
Industry
Background
Around
2009, we saw digital transformation initiatives begin to impact the corporate workplace, manifesting across components such as conference
room signage, room booking, next-gen intranets, and transparent communications. Technology offered an easy way to begin to integrate
these elements into the workplace.
Companies
were slowly moving towards flexible work models, desk booking and sensor integrations. But timelines for digital workplace transformation
were expedited during the pandemic. Since more people were ‘stuck at home’ during this timeframe, especially in the corporate
sector, workplace tools emerged to satisfy niche uses.
As
more third-party platforms were introduced to the workplace ecosystem, data, information, and experiences became increasingly siloed.
Now, mobile apps are proving to be the main connection point to plug into multiple platforms and bring every experience into one mobile
command center. As the workplace and common workday interactions become more accessible and tied together through a single mobile app,
we’re seeing efficiencies across workplace experience, boosts in productivity, reduced overhead, and increased insights into key
workplace initiatives.
As
more tools and systems connect together, comprehensive workplace analytics will become crucial for job roles such as corporate real estate,
facilities, and even human resources as they’ll be able to glean cross- platform, actionable insights that impact spaces, technology,
and the people that use them.
As
we move towards new versions of the workplace, post-pandemic, analysts and industry experts believe hybrid work will remain, but each
company will be responsible for defining and managing their own protocols, expectations, and operating ratios. We see a fruitful opportunity
where workplace technology apps are significantly growing as more companies adopt this technology to manage hybrid workplaces and bring
distributed teams together.
Trends
We
have observed that companies want employees back in the office 3-5 days a week, but employees need more engagement to bring them back
in the post-pandemic environment. Pressing issues and considerations include disinterest in ‘the purpose’ of the office,
uncertainty of colleague’s in-office status, a growing inequity of the hybrid work model, apprehension of densely occupied places,
and overall disengagement from employees.
There
are things real estate, operations, workplace experience, IT teams and cross-functional groups can do to set-up the workplace for success
such as increasing communication, automating interactions, and having better insights into how space is being utilized. This means investment
in IoT, mobility, and cloud solutions to keep the people and technology in the new workplace connected.
As
teams continue to re-enter the post-pandemic workplace in phases and at reduced capacities, we believe a mobile app is more relevant
than ever, as a connection point for an increasingly distributed workforce.
We
believe trends that work in our favor include:
| ● | Heavy
and Complex Tech Stacks. As more technologies come online to fulfill niche uses, the
market becomes saturated, and employees and operations personnel are inundated with app overload,
heavy and somewhat complex tech stacks, and increased expenses. Our one-app approach and
open ecosystem uniquely position CXApp as a one-stop shop for workplace experience, tying
multiple uses together. |
| ● | Incomplete
and Inaccurate Occupancies. With a hybrid model, desks are no longer a 1:1 ratio leading
to confusion around who is sitting where and when. With point-solutions, companies can wind
up with ghost bookings, double-bookings, or gaps across core collaboration capabilities for
teams. Our native desk booking and room reservation technology support advanced reservation,
hot- desking or on-demand reservations, team insights, and integration with sensors to always
provide the most accurate inventory. |
| ● | Changing
Spaces and Places. The average corporate campus encompasses dozens, if not hundreds,
of points of interest — including workstations, conference rooms, dining areas, lobbies,
offices, fitness studios and collaboration zones. With a hybrid work setting, space has become
more flexible and some areas are no longer fixed points of interests. Spaces can easily be
reconfigured to serve a better purpose if they’re being underutilized. There is no
longer a ‘normal workday’ where employees show up to the same cube on the same
floor and eat at the same café. It’s become a scramble. We believe our mapping
solution and blue dot capabilities make it easier for employees to navigate changing workplace
environments and easily locate new desks, new spaces, and find people while on- the-go. |
The
new world of work is a combination of technologies shaped by physical, virtual, and augmented experiences that make up the how, when,
where, and sometimes why we show up. Offices, now, are considered innovation hubs and collaboration centers that attract and connect
talent and inspire innovation.
We
believe successful organizations will turn to mobile apps to welcome employees back to the office, manage expectations, better support
a hybrid work model, enable data-informed decisions, and deliver excellent experiences to employees.
Market
Size
In
its Digital Workplace Market Size & Trends Report, 2030, the global digital workplace market size was valued by the research
company Grand View Research (based in San Francisco, CA) at $27.33 billion in 2021 and is expected by Grand View Research to expand at
a compound annual growth rate (or CAGR) of 22.3% from 2022 to 2030. Grand View Research believes that the current growth in this market
can be attributed to the increased digitalization, increasing demand for desktop-as-a-service, and growing demand for employees for greater
flexibility in terms of work-life balance. With the outbreak of the COVID-19 pandemic, businesses have shifted to remote working and
transformed their technologies to create a digital workplace to ensure business continuity.
In
its Global Virtual Events Market Size & Share Report, 2030, the global virtual events market size was valued by Grand View
Research at $114.12 billion in 2021 and is anticipated by Grand View Research to expand at a CAGR of 21.4% from 2022 to 2030. Grand View
Research anticipates that the widespread use of collaboration and communication tools in various industries and industry verticals, including
retail & e-commerce, healthcare, manufacturing, construction, and education, among others, will boost the market growth during the
forecast period.
In
its Global Market for Workplace Experience Apps Report, 2020 to 2025, the global workplace experience apps market in the commercial
office space was estimated by the research company Memoori (based in Saltsjö-boo, Sweden) at $406 million in 2020, and is expected
by Memoori to rise to $988 million by 2025, growing at a rate of 19% CAGR.
The
occupancy analytics market in the commercial office space (for systems sales) was estimated by Memoori at $2.17 billion in 2019, and
is expected by Memoori to rise to $5.73 billion by 2024, growing at a rate of 21.5% CAGR. We estimate that the workplace experience apps
market is around 15% of this overall occupancy analytics market.
Growth
Strategy
Since
our core workplace product’s inception in 2017, our go to market strategy was direct to customer focusing on the Fortune 3000 enterprise
space. This has benefited us by acquiring customers from the Fortune 500 across financial services, media and software industries, allowing
us to emerge in what we believe is a leadership role for enterprise companies looking for workplace technology.
We
also established a technology partner program that we believe is strong and has served us well. As of today, we have more than 75 partners,
including, but not limited to digital lockers, sensors and single sign-on (or SSO) platforms, which allows us to offer seamless integration
and workflow for delivering a holistic employee experience application.
Part
of our future growth strategy includes, but is not limited to, the following strategic initiatives:
| ● | Continue
to grow our native development roadmap to align with market trends and new features to support
companies and industries going through digital transformation and hybrid workforce models. |
| ● | Take
our existing direct sales team and expand into new verticals. |
| ● | Continue
to grow our foundational channel partner program to forge mutual relationship between other
workplace technologies that want to become integrators and/or resellers. |
| ● | Build
a robust sales and marketing roadmap to increase awareness and open channel opportunities,
program opportunities and cross-marketing opportunities with existing industry associations
and organizations to become thought leaders and trusted advisors in the work tech sector. |
Research
and Development Expenses
Our
research and development (R&D) activities have primarily been focused on enhancing our workplace app and mapping platform with additional
features and capabilities to strengthen the total offering of our workplace solutions. In addition, we have allocated development resources
to integrating our recently acquired technologies with our existing solutions, such as integrating our mapping and app platform, and
incorporating “on device” positioning and analytics capabilities within our platform. Our management believes that we must
continue to dedicate a significant number of resources to research and development efforts to maintain a competitive position in the
market. Our products intersect many emerging fields including AI, the metaverse, augmented reality and space management, and we plan
to continue to innovate and patent new methods to solve problems for our customers. While our R&D expenses have historically exceeded
our revenues, we anticipate R&D expenses will grow at a slower rate than our revenue, however, we may need additional funding to
support our planned R&D activities after the next 12 months or if we decide to accelerate the time to availability for planned development
activities to grow faster or meet customer demand. For more information see “Business — Product Roadmap and Enhancements.”
Sales
and Marketing
We
utilize direct sales and marketing through sales representatives, who are compensated with a base salary and, in certain instances, may
participate in incentive plans such as commissions or bonuses. To generate demand for our products and services, we utilize account-based
marketing initiatives, lead gen and demand gen programs, tradeshows, webinars and other direct and indirect marketing activities to reach
our target audience. Additionally, we have dedicated resources to support and grow our business through strategic channel and technology
partner opportunities.
Our
products are primarily sold on a recurring SaaS license model along with one-time implementation costs (for professional services). The
SaaS model is typically for a multi-year contract and includes maintenance upgrades. It is common for our customers to expand our products
to additional locations as well as implement new features resulting in additional revenue potential.
Customers
We
believe in a unified workplace where employees have on-demand access to real-time communications, collaboration and contextual experiences
in one app — from employee to employee, building to building, campus to campus. Customers use the CXApp platform to streamline
operations in a single mobile app platform to deliver the best possible experience to employees whether they are on-site, in-person and
everywhere in between.
We
believe our unique approach to workplace apps offers customers a feature-rich, white label experience allowing the in-app experience
to reflect each customer’s distinct business goals and brand identity. We go beyond point-solutions, offering a robust product
that serves multiple uses backed by native applications, technology partner integrations and workplace analytics that help employees
and operations make data-informed decisions.
Our
customers include Fortune 1000 enterprises primarily in the United States with deployments globally across industries, including, but
not limited to software/technology, financial services, next-gen auto manufacturing, entertainment and life science companies. A list
of customers is available on our website at www.cxapp.com.
Competition,
Strengths, and Differentiation
For
our workplace experience app, events and executive briefing center products we compete with companies such as Eptura, Modo Labs, HqO,
Robin Powered and Comfy. For our mapping product, we compete with companies such as MappedIn, Mapwize and Esri. For our events product,
we compete with companies such as Cvent, Double Dutch and Event Base.
We
believe we offer a unique and differentiated approach to the market with our workplace experience app that our competition is currently
not positioned/not capable of servicing, as described below.
| ● | One
App. We understand today’s workplace is a collection of spaces, people, activity-based
work, virtual and physical interactions, culture, experiences and the technology that binds
them. CXApp has built a mobile command center through a single workplace app that helps enterprise
companies build culture, foster innovation, empower employees, and create equitable experiences
for a distributed workforce. |
| ● | Delivering
On Experience. The CXApp platform is the connection point for every employee across your
workforce. We have built a culture around workplace experience and help companies deliver
that experience direct to employees to help attract and retain top talent, keep employees
engaged and invested in company culture, and support them through a hybrid workforce model
that is easy to navigate and easy to use. |
| ● | Comprehensive
Uses. The CXApp technology supports a multitude of uses for enterprise organization including,
but not limited to, workplace experience, mapping, meeting room reservations, desk booking,
campus directories, navigation, facility management, analytics and security, across numerous
industries in both the private and public sector. |
| ● | Growing
Ecosystem. With a strong partner ecosystem and broad product integrations (Slack, Zoom,
Office365, G-suite, Okta, ServiceNow, etc.) our smart office app serves as the gateway to
corporate communications and productivity portfolio. We have over 75 partner integrations
and collaborative approach to creating a workplace ecosystem that helps customers streamline
their technology stack and reduce app overload. |
| ● | Scalable
Solution. We are built to support customers’ expanding needs and uses. Our solution
allows for employee growth and can aid on-boarding and employee orientation. We make it easy
to add campus locations around the globe as our clients expand their workforce. |
| ● | Technology-agnostic.
We embrace an ecosystem of hardware, software, integration and distribution partners welcoming
integration and synchronization with third-party data and systems in combination with our
platform. Our open architecture is designed to enable the integration of disparate technologies,
preserve investment and avoid obsolescence. APIs make it possible to move data in and out
of our platform. Our SDKs enable developers to build new apps or to integrate location data
into their existing mobile apps, websites or kiosks. |
Intellectual
Property
To
establish and protect our proprietary rights, we rely on a combination of patents, trademarks, copyrights and trade secrets, including
know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention
assignment agreements and other contractual rights. We do not believe that our proprietary technology is dependent on any single patent
or copyright or groups of related patents or copyrights. We believe the duration of our patents is adequate relative to the expected
lives of our products. Our patent portfolio offers protections including detecting objects and positioning in a 3D environment, indoor
navigation with sensor fusion, wireless signal fingerprinting, source-based anonymity and time synchronization methods.
In
connection with the terms of the Separation and Distribution Agreement, each of Inpixon and CXApp have granted the other party a limited
worldwide, non-exclusive, irrevocable, royalty free, fully paid up, perpetual, non-exclusive license (the “Licensee”) to
use, practice and otherwise exploit such intellectual property (with certain exceptions) that is owned, controlled or purported to be
owned or controlled by the other party (the “Licensor”) to the extent used, practiced or otherwise exploited in the business
of the Licensee during the twelve (12) months prior to the Distribution Time or is reasonably anticipated to be used after the Distribution
Time based on the written business or product plans existing as of the Distribution Time, solely for the conduct of any business of the
Licensee as conducted on or prior to the Distribution Time and reasonably anticipated extension or evolutions thereof that are not substitutes
for any product or service of the Licensor as of the Distribution Time.
As
of this time, and notwithstanding the license granted under the Separation and Distribution Agreement, we do not anticipate that any
of our products and technologies will require reliance on any intellectual property retained by Inpixon.
Government
Regulation
In
general, we are subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection,
employment and labor relations, immigration, taxation, anticorruption, import/export controls, trade restrictions, internal and disclosure
control obligations, securities regulation and anti-competition.
Violations
of one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages,
criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations
or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result
in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage,
restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.
To date, compliance with these regulations has not been financially burdensome.
Employees
and Management
As
of March 20, 2023, there are 87 employees, including 3 management personnel, 8 sales personnel, 2 marketing personnel, 32 technical
and engineering personnel, 32 customer service personnel and 10 finance, legal, human resource and other administration personnel.
Khurram P. Sheikh currently
serves as Chief Executive Officer and as Interim Chief Financial Officer, and Leon Papkoff currently serves as the Chief Product Officer
of CXApp.
Corporate
History
On
March 16, 1998, Design Reactor, Inc. (“Design Reactor”), our operating subsidiary, was incorporated in California as
a statutory close corporation.
On
June 22, 2001, Smart Medium, Inc., a California corporation was merged into Design Reactor.
On
April 30, 2021, Inpixon acquired over 99.9% of the outstanding capital stock of Design Reactor pursuant to the terms of a stock
purchase agreement from various sellers party thereto. On May 10, 2021, Inpixon acquired the remaining interest of Design Reactor
and now own 100% of the outstanding capital stock of Design Reactor.
Following
its acquisition of Design Reactor, Inpixon combined Design Reactor’s business with the following businesses:
| ● | Certain
technology and intellectual property, including patents, related to the analytics business
acquired by Inpixon, through Inpixon Canada as purchaser, in connection with its acquisition
of all of the issued and outstanding capital stock of Locality Systems Inc. on May 21,
2019. |
| ● | Inpixon’s
mapping product, which Inpixon acquired in connection with the acquisition of Jibestream,
Inc. on August 15, 2019, and which was amalgamated into Inpixon Canada (as defined below)
on January 1, 2020. |
| ● | Inpixon’s
suite of on-device “blue-dot” indoor location and motion technologies, including
patents, trademarks, software and related intellectual property, which Inpixon acquired from
Ten Degrees Inc., Ten Degrees International Limited (“TDIL”), mCube International
Limited (“MCI”), the holder of a majority of the outstanding capital of TDIL,
and mCube, Inc., the sole stockholder of 100% of the outstanding capital stock of MCI, on
August 19, 2020. |
| ● | Certain
computer vision, robust localization, large-scale navigation, mapping and 3D reconstruction
technologies (collectively, the “AR Technology”), the intellectual property and
patent applications underlying the AR Technology, Inpixon acquired in connection with its
acquisition of substantially all of the assets of Visualix GmbH i.L. (the “Visualix”)
via an asset purchase agreement with Visualix, its founders and Future Energy Ventures Management
GmbH on April 23, 2021. |
Legacy
CXApp was incorporated under the laws of the State of Delaware on September 19, 2022, specifically for the purpose of effecting
the Separation and was a wholly-owned subsidiary of Inpixon. Legacy CXApp has not carried on any activities to date, except for activities
incidental to its formation and activities undertaken in connection with the transactions. Pursuant to the Separation and Distribution
Agreement, (i) Inpixon undertook a series of internal reorganization and restructuring transactions to effect the transfer of its (direct
or indirect) ownership of the Enterprise Apps Business to Legacy CXApp in the Separation and (ii) immediately prior to the Merger and
after the Separation, Inpixon distributed 100% of the outstanding shares of Legacy CXApp Common Stock to Inpixon securityholders in the
Distribution.
On
March 14, 2023, pursuant to the Merger Agreement, a business combination between KINS and Legacy CXApp was effectuated through the
merger of Merger Sub with and into Legacy CXApp, with Legacy CXApp surviving as the surviving company and as a wholly-owned subsidiary
of KINS. KINS subsequently changed its name to CXApp, and shares of CXApp Class A Common Stock began trading on the Nasdaq on March 15,
2023.
Corporate
Information
We
have four operating subsidiaries: (i) Legacy CXApp, a Delaware corporation, 100% of the capital stock of which is owned by CXApp, (ii)
Design Reactor, Inc., a California corporation (“Design Reactor”), 100% of the capital stock of which is owned by Legacy
CXApp; (iii) Inpixon Canada, Inc., a British Columbia corporation, based in Coquitlam, British Columbia (“Inpixon Canada”),
100% of the capital stock of which is owned by Design Reactor; and (iv) Inpixon Philippines, Inc., a Philippines corporation (“Inpixon
Philippines”), 99.97% of the capital stock of which is owned by Design Reactor.
Our
principal executive offices are located at Four Palo Alto Square, Suite 200, 3000 El Camino Rd., Palo Alto, CA 94306. Our Canadian subsidiary
maintains offices in Toronto, Ontario and our Philippines subsidiary maintains offices in Manila, Philippines. Our Internet website is
www.cxapp.com. The information on, or that can be accessed through, our website is not part of this report, and you should not
rely on any such information in making any investment decision relating to our Common Stock.
MANAGEMENT
The
following sets forth certain information, as of July 6, 2023, concerning the persons who serve as our directors and executive officers.
Unless the context otherwise requires, all references in this section to “we”, “us”, “our”, and “the
Company” are intended to mean CXApp Inc.
Executive
Officers
Name | |
Age | |
Position |
Khurram P. Sheikh | |
51 | |
Chairman, Chief Executive Officer, and Interim Chief Financial Officer |
Leon Papkoff | |
50 | |
Chief Product Officer |
Mr.
Khurram P. Sheikh has served as the Founder, Chairman and Chief Executive Officer of KINS since its inception and Chief Financial
Officer since August 2020. Mr. Sheikh has been at the forefront of innovation in the technology, mobile, semiconductor, telecom
and media industries for the past 25 years with CEO and CTO roles at leading technology companies. Since March 2020, Mr. Sheikh
has been the Founder, Executive Chairman & CEO of Aijaad, a boutique strategic advisory firm where he advises both large private
equity firms as well as boards of public companies on the future of 5G, IoT, Edge Computing and AI technologies and is actively involved
in M&A, technology strategy and market development. From 2016 to early 2020, Mr. Sheikh was the CEO of kwikbit, a private company
building a “network as a service” solution using gigabit radios, edge compute, virtualization, and artificial intelligence.
Prior to kwikbit, in 2014, Mr. Sheikh was appointed as the Chief Strategy and Technology Officer for Silicon Image (SIMG) and the President/CEO
of its millimeter wave/5G subsidiary SiBEAM. SIMG was acquired by Lattice Semiconductor (Nasdaq:LSCC) in 2015 for $600 million after
which Mr. Sheikh was appointed the Chief Strategy and Technology Officer of the combined company responsible for corporate strategy,
roadmap, M&A and technology development and was there until 2016. From 2007 onwards, he was the CTO for Powerwave Technologies, a
large wireless infrastructure vendor. Powerwave filed for Chapter 11 bankruptcy protection in January 2013, and in April 2013
Mr. Sheikh was appointed as the CEO of Powerwave to help with the sale of the company. Later that year, Mr. Sheikh successfully facilitated
the sale of approximately 1,400 patents owned by Powerwave to private equity firm Gores Group. From 2005 to 2007, Mr. Sheikh was Vice
President, Wireless Strategy and Development at Time Warner Cable leading the cable company’s entry into the wireless space. From
1996 to 2005, Mr. Sheikh held senior technology roles at Sprint including CTO Mobile Broadband responsible for deploying the world’s
first 4G system and acquisition of multi-billion dollar spectrum assets at 2.5GHz. Mr. Sheikh holds a Bachelor of Science degree in Electrical
Engineering with highest honors from the University of Engineering & Technology in Pakistan, as well as a Master of Science degree
in Electrical Engineering from Stanford University. Mr. Sheikh is well qualified to serve as Chairman of the Company board because of
his extensive experience advising boards of directors of public and private companies and his extensive professional experience.
Mr.
Leon Papkoff has served as Inpixon’s Executive Vice President of Experience
Apps since April 2021. Currently, Mr. Papkoff is responsible for establishing the product
vision, strategy and overall execution of Inpixon’s product team for the Enterprise
Apps Business. Mr. Papkoff is the Founder of Design Reactor and from March 1998 until
Inpixon’s acquisition of Design Reactor in April 2021, Mr. Papkoff was the Chief
Financial Officer of Design Reactor. From June 2015 until April 2021, Mr. Papkoff
was also the Chief Strategist of Design Reactor responsible for setting corporate strategy
for the company. Mr. Papkoff has over 20 years of executive leadership, entrepreneurship,
fiscal management and innovation experience, setting product vision and corporate strategy,
driving innovation and scaling operations. Mr. Papkoff received a Bachelor of Science degree
from Charles H. Lundquist College of Business at the University of Oregon in 1996. He has
also taught Web Programing and Design at the San Jose State University.
Board
of Directors
The
following table sets forth information with respect to the individuals who serve on our board of directors.
Name | |
Age | |
Position |
Khurram P. Sheikh | |
51 | |
Class III Director Nominee, Chairman and Chief Executive Officer |
Camillo
Martino(1)(2)(3) | |
60 | |
Class II Director Nominee |
Di-Ann
Eisnor(1)(2)(3) | |
50 | |
Class I Director Nominee |
George
Mathai(1)(3) | |
56 | |
Class III Director Nominee |
Shanti
Priya(2)(3) | |
52 | |
Class II Director Nominee |
| (1) | Member
of the compensation committee. |
| (2) | Member
of the audit committee. |
| (3) | Member
of the nominating and corporate governance committee. |
The
biography of Khurram P. Sheikh is set forth under the section entitled “— Executive Officers.”
Ms.
Di-Ann Eisnor has served as a member of our Board of Directors since August 2020. Since November 2019, Ms. Eisnor has
served as Co-Founder and CEO of Core, a venture-backed construction labor marketplace. Before that, from February 2019 until October 2019,
she was an executive of The We Company, a part of the We Work Companies, where she was responsible for development of their cities platform.
Prior to that, Ms. Eisnor served as Director of Urban Systems at Google, from June 2018 until February 2019. Previously, Ms.
Eisnor was with Waze, Inc., a crowd-sourced navigation and real-time traffic application owned by Alphabet, Inc., for 10 years, most
recently serving as the VP Platform and Director of Growth. Prior to joining Waze, Ms. Eisnor was co-founder and Chief Executive Officer
of Platial Inc., a collaborative, user-generated cartographic website. Ms. Eisnor currently serves on the board of Saia Inc. (Nasdaq:
SAIA) and Gray Area Foundation for the Arts. She is a venture partner at Obvious Ventures and is co-founder with Lupe Fiasco of Neighborhood
Start Fund, a neighborhood-based micro-fund in underserved urban neighborhoods. She holds a Bachelor’s Degree in Studio Art and
Business Administration from New York University. She is a 2014 Henry Crown Fellow of the Aspen Institute and a member of the Aspen Global
Leadership Network. Ms. Eisnor is well qualified to serve on our board because of her extensive experience advising boards of directors
of public and private companies and her extensive professional experience.
Mr.
Camillo Martino has served as a member of our Board of Directors since August 2020. Mr. Martino was a senior global semiconductor
company executive and now serves as a board member and executive advisor to many global technology companies. Prior to his current board
roles, Mr. Martino was a chief executive officer and C-suite executive of a number of high technology companies worldwide. He is currently
Chair of the Board of Directors of Magnachip Semiconductor (NYSE: MX) and has served on this Board since August 2016. Since 2018,
he has also served on the Board of Directors at Sensera (ASX: SE1). Mr. Martino also serves on the Board of Directors at multiple privately
held companies, including VVDN Technologies (fastest growing ODM based in India with a focus on Wireless, Networking & IoT) and Sakuu
Corporation (multi-material, multi-process Additive Manufacturing platform). Mr. Martino’s prior board service includes serving
on the boards of Cypress Semiconductor from June 2017 through the sale of the company to Infineon in April 2020 and Moschip
Technologies (BOM: 532407) from April 2017 to May 2019. As an operating executive, Mr. Martino served as Chief Executive Officer
of Silicon Image, Inc. (where he also served as a director) from 2010 until the completion of its sale to Lattice Semiconductor Corporation
(Nasdaq: LSCC) in March 2015, Chief Operating Officer of SAI Technology Inc. from January 2008 to December 2009 (where
he also served as director from 2006 to 2010), and Chief Executive Officer of Cornice Inc. from 2005 to 2007 (where he also served as
a director). From August 2001 to July 2005, Mr. Martino served as the executive vice president and chief operating officer
at Zoran Corporation, a global SoC semiconductor company. Prior to that, Mr. Martino held multiple positions with National Semiconductor
Corporation for a total of nearly 14 years. Mr. Martino holds a Bachelor of Applied Science from the University of Melbourne and a Graduate
Diploma (in Digital Communications) from Monash University in Australia. Mr. Martino is well qualified to serve on our board because
of his extensive experience advising boards of directors of public and private companies and his extensive professional experience.
Mr.
George Mathai has enjoyed decades working, consulting, and investing in early stage and small businesses at the crossroads of
distinct technologies, multiple industries and novel markets. A technically trained business professional, his early experience in bridge
design and infrastructure repair was at Edwards & Kelcey in New York, now Jacobs Engineering. In January 1993, Mr. Mathai transitioned
to managing renovations projects and gaining strong communications and project execution skills, while driving revenue and profitability,
at a small New York construction company. As a founder, he later parlayed his prior management and technical expertise in leading the
biosensor development program at GenoRx in June 2000, an early stage, venture-backed concern in Hayward, California. His team accomplished
a manufacturable process for detecting DNA electronically on a silicon biochip with the eventual sale of the technology to Bridger Technologies
in April 2011. Thereafter, Mr. Mathai helped raise financing for an innovative antibiotic skin care start-up and worked to fundraise
for an early-stage immune-mediated cancer therapeutic while at a boutique brokerage firm Objective Equity LLC. Overlapping these endeavors,
were local business interests in retail, as well as due diligence consulting for mergers and acquisitions. The above broad and varied
interests are also reflected in his educational history which includes bachelors and masters in civil engineering from University of
California, Berkeley (May 1989) and City College of New York (June 1992), respectively, as well as, most recently upskilling
at CalTech’s cybersecurity program (December 2020). Mr. Mathai’s extensive experience in several diverse industries,
markets and customer types will bring a unique and inestimable resource to the board.
Ms.
Shanti Priya has been the CFO of Maxfield Enterprises, Inc., a luxury retail company based in Los Angeles and has been leading
the organization’s finance and operations since February 2018. Prior to that, Ms. Priya worked for over 12 years in corporate
finance at Gap Inc. with her last role at the company as the Global Director of FP&A and Control overseeing the North American, European,
and Asian markets. Before transitioning into a career in finance, Ms. Priya worked as a Producer managing content creation at a tech
start-up, Knowledge Kids Network, an online educational media site. She holds a Bachelor of Arts in Honors English Literature with a
minor in Biology from Scripps College. In addition, she holds a Master of Arts in Print Journalism and a Master of Business Administration
both from the University of Southern California. Ms. Priya also serves on the board and as treasurer of Secular Student Alliance, a non-profit
organization that educates high school and college students regarding secularism and scientific reasoning. She has previously served
on the board of Sequoyah School, a non-profit private school serving the ages from K-8. Ms. Priya is well qualified to serve on our board
of directors because of her substantial financial and operations experience.
Family
Relationships
There
are no family relationships between any of our directors and executive officers.
The
Board Composition and Election of Directors
Director
Independence
The
Company’s board of directors (“Company Board”) consists of five (5) members. We determined that each director, other
than Mr. Sheikh, are independent directors in accordance with the listing requirements of Nasdaq. The Nasdaq independence definition
includes a series of objective tests, including that the director is not, and has not been for at least three years, one of the Company’s
employees and that neither the director nor any of his, her or their family members has engaged in various types of business dealings
with the Company. There are no family relationships among any of the Company’s directors or executive officers.
Classified
Board of Directors
The
Company Board is divided into three classes with staggered, three-year terms, in accordance with the terms of the Charter. At each annual
meeting of stockholders, the directors whose terms then expire will be eligible for reelection until the third annual meeting following
reelection. The directors will be divided among the three classes as follows:
| ● | the
Class I directors will be Di-Ann Eisnor, and her term will expire at our first annual meeting
of stockholders following the Merger; |
| ● | the
Class II directors will be Camillo Martino and Shanti Priya, and their terms will expire
at our second annual meeting of stockholders following the Merger; and |
| ● | the
Class III directors will be Khurram P. Sheikh and George Mathai, and their terms will expire
at our third annual meeting of stockholders following the Merger. |
The
Charter provides that the authorized number of directors may be changed only by resolution of the Company Board. Any additional directorships
resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. The division of the Company Board into three classes with staggered three-year terms
may delay or prevent a change of the Company Board or a change in control of the Company. The Company’s directors may be removed
only for cause by the affirmative vote of the holders of at least two-thirds of the Company’s outstanding voting stock then entitled
to vote in an election of directors.
Board
Leadership Structure
The
Company Board does not anticipate implementing a policy requiring the positions of the Chairman of the Board and Chief Executive Officer
to be separate or held by the same individual. Any further determination to create such a policy is expected to be based on circumstances
existing from time to time, based on criteria that are in the Company’s best interests and the best interests of its stockholders,
including the composition, skills and experience of the Company Board and its members, specific challenges faced by the Company or the
industry in which it operates, and governance efficiency. We elected Mr. Sheikh as Chairman of the Board because Mr. Sheikh’s strategic
vision for the business, his in-depth knowledge of the Company’s operations, and his experience in capital markets make him well
qualified to serve as both Chairman of the Board and Chief Executive Officer of the Company. Combining the roles of Chairman and Chief
Executive Officer will help provide strong and consistent leadership for the management team and the Company Board. However, the Company
Board may decide in the future to separate the roles of Chairman and Chief Executive Officers if it determines that such structure provides
better and more effective oversight and management of the Company. If the Company Board convenes for a meeting, it is expected that the
non-management directors will meet in one or more executive sessions, if the circumstances warrant it. The Company Board may also consider
appointing a lead independent director, if the circumstances warrant it.
Board
Committees and Independence
The
Company Board consists of an audit committee, a compensation committee and a nominating and corporate governance. The composition of
each committee is set forth below.
Role
of Board in Risk Oversight Process
The
Company Board is responsible for the oversight of the Company’s risk management processes and, either as a whole or through its
committees, regularly discusses with management the Company’s major risk exposures, their potential impact on the Company’s
business and the steps the Company takes to manage them. The risk oversight process includes receiving regular reports from board committees
and members of senior management to enable the Company Board to understand the Company’s risk identification, risk management and
risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic
and reputational risk.
The
audit committee reviews information regarding liquidity and operations, and oversees the Company’s management of financial risks.
Periodically, the audit committee reviews the Company’s policies with respect to risk assessment, risk management, loss prevention
and regulatory compliance. Oversight by the audit committee includes direct communication with the Company’s external auditors,
and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control
such exposures. The compensation committee is responsible for assessing whether any of the Company’s compensation policies or programs
has the potential to encourage excessive risk-taking. The nominating and corporate governance committee manages risks associated with
the independence of the Company Board, corporate disclosure practices and potential conflicts of interest. While each committee is responsible
for evaluating certain risks and overseeing the management of such risks, the entire Company Board is regularly informed through committee
reports about such risks. Matters of significant strategic risk is considered by the Company Board as a whole.
Committees
of the Board of Directors
Audit
Committee
The
audit committee’s main function is to oversee the Company’s accounting and financial reporting processes and the audits of
the Company’s financial statements. This committee’s responsibilities include, among other things:
| ● | assisting
board oversight of (1) the integrity of our financial statements, (2) our compliance with
legal and regulatory requirements, (3) our independent auditor’s qualifications and
independence, and (4) the performance of our internal audit function and independent auditors; |
| ● | the
appointment, compensation, retention, replacement, and oversight of the work of the independent
auditors and any other independent registered public accounting firm engaged by us; |
| ● | pre-approving
all audit and permitted non-audit services to be provided by the independent auditors or
any other registered public accounting firm engaged by us, and establishing pre-approval
policies and procedures; |
| ● | reviewing
and discussing with the independent auditors all relationships the auditors have with us
in order to evaluate their continued independence; |
| ● | setting
clear hiring policies for employees or former employees of the independent auditors; |
| ● | setting
clear policies for audit partner rotation in compliance with applicable laws and regulations; |
| ● | obtaining
and reviewing a report, at least annually, from the independent auditors describing (i) the
independent auditor’s internal quality-control procedures and (ii) any material issues
raised by the most recent internal quality-control review, or peer review, of the audit firm,
or by any inquiry or investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out by the firm and
any steps taken to deal with such issues; |
| ● | meeting
to review and discuss our annual audited financial statements and quarterly financial statements
with management and the independent auditor |
| ● | reviewing
and approving any related party transaction required to be disclosed pursuant to Item 404
of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and |
| ● | reviewing
with management, the independent auditors, and our legal advisors, as appropriate, any legal,
regulatory or compliance matters, including any correspondence with regulators or government
agencies and any employee complaints or published reports that raise material issues regarding
our financial statements or accounting policies and any significant changes in accounting
standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other
regulatory authorities. |
The
members of the Company’s audit committee are Shanti Priya, Camillo Martino and Di-Ann Eisnor. Shanti Priya serves as the chair
of the committee. All members of the Company’s audit committee are independent directors and meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and Nasdaq. Shanti Priya is an “audit committee financial expert”
as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq listing standards.
The Company’s board of directors adopted a written charter for the audit committee, which is available on the corporate website
at www.cxapp.com. The information on any of the Company’s websites is deemed not to be incorporated in this prospectus or
to be part of this prospectus.
Compensation
Committee
The
compensation committee’s main function is to oversee the Company’s policies relating to compensation and benefits of the
Company’s officers and employees. This committee’s responsibilities include, among other things:
| ● | reviewing
and approving on an annual basis the corporate goals and objectives relevant to our Chief
Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance
in light of such goals and objectives and determining and approving the remuneration (if
any) of our Chief Executive Officer based on such evaluation; |
| ● | reviewing
and approving on an annual basis the compensation of all of our other officers; |
| ● | reviewing
on an annual basis our executive compensation policies and plans; |
| ● | implementing
and administering our incentive compensation equity-based remuneration plans; |
| ● | assisting
management in complying with our proxy statement and annual report disclosure requirements; |
| ● | approving
all special perquisites, special cash payments and other special compensation and benefit
arrangements for our officers and employees; |
| ● | if
required, producing a report on executive compensation to be included in our annual proxy
statement; and; |
| ● | reviewing,
evaluating and recommending changes, if appropriate, to the remuneration for directors. |
The
charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant,
legal counsel or other adviser and is directly responsible for the appointment, compensation and oversight of the work of any such adviser.
However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation
committee will consider the independence of each such adviser, including the factors required by Nasdaq and the SEC.
The
members of the Company’s compensation committee are Camillo Martino, Di-Ann Eisnor, and George Mathai. Di-Ann Eisnor serves as
the chair of the committee. The Board has determined that each of Camillo Martino, Di-Ann Eisnor, and George Mathai is independent under
the applicable Nasdaq listing standards and is a “non-employee director” as defined in Rule 16b-3 promulgated under
the Exchange Act. The Company’s board of directors adopted a written charter for the compensation committee, which is available
on the corporate website at www.cxapp.com. The information on any of the Company’s websites is deemed not to be incorporated
in this prospectus or to be part of this prospectus. The compensation committee operates under its written charter and will review and
evaluate at least annually.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee is responsible for assisting the Company Board in discharging the board of directors’
responsibilities regarding the identification of qualified candidates to become board members, the selection of nominees for election
as directors at the Company’s annual meetings of stockholders (or special meetings of stockholders at which directors are to be
elected), and the selection of candidates to fill any vacancies on the Company Board and any committees thereof. In addition, the nominating
and corporate governance committee is responsible for overseeing the Company’s corporate governance policies, reporting and making
recommendations to the Company Board concerning governance matters and oversight of the evaluation of the Company Board.
The
charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice
of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search
firm’s fees and other retention terms.
The
members of the Company’s nominating and corporate governance committee are Camillo Martino, Di-Ann Eisnor, and Shanti Priya. Camillo
Martino serves as the chair of the committee. All members of the Company’s nominating and corporate governance committee are independent
directors under the applicable Nasdaq listing standards. The Company’s board of directors adopted a written charter for the nominating
and corporate governance committee, which is available on the corporate website at www.cxapp.com.The information on any of the
Company’s websites is deemed not to be incorporated in this prospectus or to be part of this prospectus. The nominating and corporate
governance committee operates under its written charter and will review and evaluate at least annually.
Compensation
Committee Interlocks and Insider Participation
No
member of the compensation committee serves or served during the fiscal year ended December 31, 2021, as a member of the Company
Board or compensation committee of a company that has one or more executive officers serving as a member of the board of directors or
compensation committee.
Board
Diversity
The
Company’s nominating and corporate governance committee is responsible for reviewing with the Company Board, on an annual basis,
the appropriate characteristics, skills and experience required for the Company Board as a whole and its individual members. In evaluating
the suitability of individual candidates (both new candidates and current members) for election or appointment, the nominating and corporate
governance committee and the Company Board will take into account many factors, including the following:
| ● | personal
and professional integrity, ethics and values; |
| ● | experience
in corporate management, such as serving as an officer or former officer of a publicly held
company; |
| ● | experience
as a board member or executive officer of another publicly held company; |
| ● | strong
finance experience; |
| ● | diversity
of expertise and experience in substantive matters pertaining to our business relative to
other board members; |
| ● | diversity
of background and perspective, including, but not limited to, with respect to age, gender,
race, place of residence and specialized experience; |
| ● | experience
relevant to our business industry and with relevant social policy concerns; and |
| ● | relevant
academic expertise or other proficiency in an area of our business operations. |
The
Company Board evaluates, each individual in the context of the board of directors as a whole, with the objective of assembling a group
that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its
diversity of experience in these various areas.
Nasdaq
Board Diversity Matrix
The
following Board Diversity Matrix presents the Company Board diversity statistics in accordance with Nasdaq Rule 5606, as self-disclosed
by the director nominees.
Board Diversity
Matrix (As of July 6, 2023) |
Total Number of Directors | 5 |
|
| |
Female | |
Male |
Part I: Gender Identity | |
| |
|
Directors | |
2 | |
3 |
Part II: Demographic Background | |
| |
|
Asian | |
1 | |
2 |
White | |
| |
1 |
Two or More Races or Ethnicities | |
1 | |
|
LGBTQ+ | |
| |
|
Code
of Business Conduct and Ethics
The
Company adopted a written code of business conduct and ethics that applies to its directors, officers and employees, including its principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
A copy of the code is posted on the corporate website at www.cxapp.com. In addition, the Company intends to post on its website
all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from, any provision
of the code. The reference to the Company’s website address does not constitute incorporation by reference of the information contained
at or available through its website, and you should not consider it to be a part of this prospectus.
EXECUTIVE
AND DIRECTOR COMPENSATION
This
section discusses the material components of the executive compensation program for CXApp’s executive officers who are named in
the “Summary Compensation Table” below. As an emerging growth company, CXApp complies with the executive compensation disclosure
rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities
Act, which for 2023 require compensation disclosure for CXApp’s principal executive officer and two most highly compensated executive
officers other than its principal executive officers. These three officers are referred to as CXApp’s “named executive officers.”
Summary
Compensation Table
The
following table provides certain information regarding the compensation earned by the named executive officers from their services to
KINS or Inpixon, as applicable, during the fiscal years ended December 31, 2022 and 2021.
Name
and Principal Position(1) | |
Year | | |
Salary ($) | | |
Bonus
($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
All Other Compensation
($) | | |
Total
($) | |
Khurram P. Sheikh | |
2022 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Chief Executive Officer | |
2021 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Leon Papkoff | |
2022 | | |
$ | 250,000.00 | | |
$ | 100,000.00 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 350,000.00 | |
Chief Product Officer | |
2021 | | |
$ | 283,333.39 | | |
$ | 75,000.00 | | |
$ | 6,113,029.93 | (2) | |
$ | - | | |
$ | - | | |
$ | 6,471,363.32 | |
| (1) | The
listed principal position of each named executive officer is the principal position each
named executive officer holds with CXApp. Mr. Sheikh served as Chairman and Chief Executive
Officer of KINS. Mr. Papkoff served as Executive Vice President of Experience Apps of Inpixon. |
| (2) | Represents
the fair market value of shares of common stock of Inpixon as of April 30, 2021, issued
on March 3, 2022, as an earnout payment pursuant to the terms and conditions of that
certain Securities Purchase Agreement pursuant to which Inpixon acquired all of the outstanding
capital stock of Design Reactor (the “Legacy CXApp Purchase Agreement”) and excludes
the value attributed to 1,250,000 shares of restricted stock granted by Legacy CXApp in 2021
and acquired by Inpixon in connection with the terms of the Legacy CXApp Purchase Agreement. |
Narrative
Disclosure to the Summary Compensation Table
Khurram
P. Sheikh, our chief executive officer, did not receive any compensation for his services to KINS during the fiscal years ended December 31,
2022 and 2021.
Leon
Papkoff, our chief product officer, received (i) a salary of $250,000.00 and a bonus of $100,000.00 as compensation for his services
to Inpixon during the fiscal year ended December 31, 2022; and (ii) a salary of $283,333.39, a bonus of $75,000.00 and stock awards
valued at $6,113,029.93 (representing the fair market value of shares of common stock of Inpixon as of April 30, 2021, issued on
March 3, 2022, as an earnout payment pursuant to the terms and conditions of the Legacy CXApp Purchase Agreement and excludes the
value attributed to 1,250,000 shares of restricted stock granted by Legacy CXApp in 2021 and acquired by Inpixon in connection with the
terms of the Legacy CXApp Purchase Agreement) as compensation for his services to Inpixon during the fiscal year ended December 31,
2021.
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding unexercised options, unvested stock, and/or equity incentive plan awards issued to our named executive officers as
of December 31, 2022.
Executive
Compensation Arrangements
Offer
of Employment Letters and Employee Agreements
During
2023, we were party to offer of employment letters with each of our named executive officers, the material terms of which are summarized
below.
Khurram
P. Sheikh Offer Letter
On
March 29, 2023, the Company entered into an employment agreement (the “CEO Agreement”) with Khurram P. Sheikh to serve
as the Company’s Chief Executive Officer. Pursuant to the CEO Agreement, Mr. Sheikh will continue in his role as Chief Executive
Officer, and the terms of the agreement include an annual salary in the amount of $325,000, benefits, and other terms and conditions
of employment, as well as an annual bonus with a target amount of $325,000 for each complete calendar year. This disclosure is qualified
in its entirety by reference to the full text of the CEO Agreement. A copy of the CEO Agreement is attached hereto as Exhibit 10.6 and
is incorporated herein by reference.
Leon
Papkoff Offer Letter
On
March 29, 2023, the Company entered into an employment agreement (the “CPO Agreement”) with Leon Papkoff to serve as
the Company’s Chief Product Officer. Pursuant to the CPO Agreement, Mr. Papkoff will serve as Chief Product Officer, and the terms
of the agreement include an annual salary in the amount of $300,000, benefits, and other terms and conditions of employment, as well
as an annual bonus with a target amount of $150,000 for each complete calendar year. This disclosure is qualified in its entirety by
reference to the full text of the CPO Agreement. A copy of the CPO Agreement is attached hereto as Exhibit 10.7 and is incorporated herein
by reference.
Michael
Angel Offer Letter
We
have entered into an employment agreement with Michael Angel effective upon the consummation of the Business Combination. Mr. Angel serves
as Chief Financial Officer of CXApp for a term commencing on the consummation of the Business Combination and will continue until terminated
by CXApp or the employee or in accordance with the terms of the employment agreement. Mr. Angel will be paid an annualized base salary
of $240,000, as revised periodically by CXApp, as well as an annual bonus with a target amount of $144,000 for each complete calendar
year. The employment agreement contains provisions regarding non-solicitation, confidentiality of information and arbitration of disputes.
Mr. Angel may terminate his employment by giving advance written notice to CXApp. CXApp may also terminate the employment agreement for
cause as defined in the employment agreement, a copy of which is attached hereto as Exhibit 10.5 and is also incorporated herein by reference.
On May 31, 2023, Michael Angel provided formal notice of his resignation as Chief Financial Officer of CXApp Inc. (the “Company”).
Effective June 5, 2023, Mr. Angel's tenure as Chief Financial Officer concluded, and his employment with the Company ceased to be in
an executive capacity. Mr. Angel’s employment as a non-executive employee of the Company concluded on June 30, 2023.
2023
Equity Incentive Plan
At
the special meeting held on March 10, 2023, the KINS stockholders considered and approved, among other things, the CXApp Inc. 2023
Equity Incentive Plan (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. Pursuant to the terms of the Incentive
Plan, there are 2,110,500 shares of CXApp Class A Common Stock available for issuance under the Incentive Plan, which is equal to 15%
of the aggregate number of shares of CXApp common stock issued and outstanding immediately after the Closing (giving effect to the redemptions).
This description is qualified in its entirety by reference to the text of the Incentive Plan, a copy of which is attached hereto as Exhibit
10.7 and also is incorporated herein by reference.
Consulting
Agreement with 3AM, LLC
Effective
as of the Closing, Design Reactor entered into a consulting agreement (the “Consulting Agreement”) with 3AM, LLC, a Delaware
limited liability (3AM) controlled by Nadir Ali, the current Chief Executive Officer and director of Inpixon, pursuant to which 3AM will
provide advisory services in exchange for a one-time payment of $180,000 in consulting fees. The foregoing description is qualified in
its entirety by reference to the text of the Consulting Agreement, a copy of which is attached hereto as Exhibit 10.8 and also is incorporated
herein by reference.
Executive
Compensation Program
We
have developed an executive compensation program, which was approved by our compensation committee, that is designed to align compensation
with business objectives and the creation of stockholder value, while enabling us to attract, motivate and retain individuals who contribute
to our long-term success.
Director
Compensation
Legacy
CXApp and Design Reactor Practices
Legacy
CXApp is a newly formed wholly owned subsidiary of Inpixon as the holding company for the Enterprise Apps Business following the internal
reorganization. As such, until the closing of the Business Combination, its director compensation practices are governed by Inpixon’s
practices, which are described below in “—Inpixon Practice.” Similarly, as a wholly owned subsidiary of Inpixon
until the closing of the Business Combination, Design Reactor’s director compensation practices are also governed by Inpixon’s
practices. See “—Inpixon Practice.”
Inpixon
Practice
Cash
Compensation
Under
Inpixon’s non-employee director compensation policy in effect during 2022, each director is eligible to receive $30,000 per year
for their services rendered on the Inpixon board of directors (“Inpixon Board”), $15,000 per year for service as the audit
committee chair, $10,000 per year for service as the compensation committee chair, $6,000 per year for service on the audit committee,
$4,000 per year for service on the compensation committee, and $2,500 per year for service on the nominating committee.
Non-employee
members of the Inpixon Board are also reimbursed for expenses incurred in connection with such service.
Equity
Compensation
Pursuant
to Inpixon’s non-employee director compensation policy, each non-employee director is eligible to receive an annual non-qualified
stock option to purchase up to 20,000 shares of Inpixon common stock, subject to the approval of the Inpixon Board.
Going
Forward
Our
board will implement an annual compensation program for its non-employee directors. The material terms of this program are not yet known
and will depend on the judgment of the members of our board based on advice and counsel of its advisors.
Limitation
on Liability and Indemnification of Directors and Officers
The
Company’s Charter contains provisions that limit the liability of the Company’s directors for damages to the fullest extent
permitted by Delaware law. Consequently, the Company’s directors will not be personally liable to the Company or its stockholders
for damages as a result of an act or failure to act in his or her capacity as a director, unless:
| ● | the
presumption that directors are acting in good faith, on an informed basis, and with a view
to the interests of the corporation has been rebutted; and |
| ● | it
is proven that the director’s act or failure to act constituted a breach of his or
her fiduciary duties as a director and such breach involved intentional misconduct, fraud
or a knowing violation of law. |
The
Company’s Charter requires the Company to indemnify and advance expenses to, to the fullest extent permitted by applicable law,
its directors, officers and agents. The Company maintains a directors’ and officers’ insurance policy pursuant to which the
Company’s directors and officers are insured against liability for actions taken in their capacities as directors and officers.
Finally, the Company’s Charter prohibits any retroactive changes to the rights or protections or increasing the liability of any
director in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.
In
addition, the Company will enter into separate indemnification agreements with the Company’s directors and officers. These agreements,
among other things, require the Company to indemnify its directors and officers for certain expenses, including attorneys’ fees,
judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as
one of the Company’s directors or officers or any other company or enterprise to which the person provides services at the Company’s
request.
We
believe these provisions in the Company’s Charter are necessary to attract and retain qualified persons as directors and officers.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In
addition to the compensation arrangements with directors and executive officers described under “Executive and Director Compensation”
and “Management” and the registration rights described elsewhere in this prospectus, the following is a description of each
transaction since January 1, 2020, and each currently proposed transaction in which:
| ● | we
have been or are to be a participant; |
| ● | the
amount involved exceeds or will exceed $120,000; and |
| ● | any
of our directors, executive officers or beneficial holders of more than 5% of our capital
stock, or any immediate family member of, or person sharing the household with, any of these
individuals (other than tenants or employees), had or will have a direct or indirect material
interest. |
CXApp
has policies and procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its affiliates
and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time.
Specifically, pursuant to its audit committee charter, the audit committee has the responsibility to review related party transactions.
Employment
Offer Letter Agreements
Khurram
P. Sheikh Offer Letter
On
March 29, 2023, the Company entered into an employment agreement (the “CEO Agreement”) with Khurram P. Sheikh to serve
as the Company’s Chief Executive Officer. Pursuant to the CEO Agreement, Mr. Sheikh will continue in his role as Chief Executive
Officer, and the terms of the agreement include an annual salary in the amount of $325,000, benefits, and other terms and conditions
of employment, as well as an annual bonus with a target amount of $325,000 for each complete calendar year. This disclosure is qualified
in its entirety by reference to the full text of the CEO Agreement. A copy of the CEO Agreement is attached hereto as Exhibit 10.6 and
is incorporated herein by reference.
Leon
Papkoff Offer Letter
On
March 29, 2023, the Company entered into an employment agreement (the “CPO Agreement”) with Leon Papkoff to serve as
the Company’s Chief Product Officer. Pursuant to the CPO Agreement, Mr. Papkoff will serve as Chief Product Officer, and the terms
of the agreement include an annual salary in the amount of $300,000, benefits, and other terms and conditions of employment, as well
as an annual bonus with a target amount of $150,000 for each complete calendar year. This disclosure is qualified in its entirety by
reference to the full text of the CPO Agreement. A copy of the CPO Agreement is attached hereto as Exhibit 10.7 and is incorporated herein
by reference.
Michael
Angel Offer Letter
We have entered into an
employment agreement with Michael Angel effective upon the consummation of the Business Combination. Mr. Angel serves as Chief Financial
Officer of CXApp for a term commencing on the consummation of the Business Combination and will continue until terminated by CXApp or
the employee or in accordance with the terms of the employment agreement. Mr. Angel will be paid an annualized base salary of $240,000,
as revised periodically by CXApp, as well as an annual bonus with a target amount of $144,000 for each complete calendar year. The employment
agreement contains provisions regarding non-solicitation, confidentiality of information and arbitration of disputes. Mr. Angel may terminate
his employment by giving advance written notice to CXApp. CXApp may also terminate the employment agreement for cause as defined in the
employment agreement, a copy of which is attached hereto as Exhibit 10.5 and is also incorporated herein by reference. On
May 31, 2023, Michael Angel provided formal notice of his resignation as Chief Financial Officer of CXApp Inc. (the “Company”).
Effective June 5, 2023, Mr. Angel's tenure as Chief Financial Officer concluded, and his employment with the Company ceased to
be in an executive capacity. Mr. Angel’s employment as a non-executive employee of the Company concluded on June 30, 2023.
Consulting
Agreement with 3AM, LLC
Effective
as of the Closing, Design Reactor entered into a consulting agreement (the “Consulting Agreement”) with 3AM, LLC, a Delaware
limited liability (3AM) controlled by Nadir Ali, the current Chief Executive Officer and director of Inpixon, pursuant to which 3AM will
provide advisory services in exchange for a one-time payment of $180,000 in consulting fees. The foregoing description is qualified in
its entirety by reference to the text of the Consulting Agreement, a copy of which is attached hereto as Exhibit 10.8 and also is incorporated
herein by reference.
Certain
Relationships and Related Party Transactions — CXApp
Agreements
with Inpixon
CXApp
and Inpixon operate separately, each as a public company. In connection with the Separation, Legacy CXApp has entered into various agreements
to effect the Separation and provide a framework for CXApp’s relationship with Inpixon after the Separation, including the Separation
and Distribution Agreement, an Employee Matters Agreement, a Tax Matters Agreement and a Transition Services Agreement. These agreements
provide for the allocation between Legacy CXApp and Inpixon of Inpixon’s assets, employees, liabilities and obligations (including
its property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Legacy CXApp’s
separation from Inpixon and will govern certain relationships between CXApp and Inpixon after the Separation.
The
following summaries of each of the agreements listed above are qualified in their entireties by reference to the full text of the applicable
agreements which are filed as exhibits to this Annual Report.
Separation
and Distribution Agreement
On
September 25, 2022, in connection with the execution of the Merger Agreement, Inpixon, Legacy CXApp, Design Reactor and KINS entered
into the Separation and Distribution Agreement which sets forth the principal actions to be taken in connection with the Separation.
The Separation and Distribution Agreement identifies assets to be transferred, liabilities to be assumed and contracts to be assigned
to each of Inpixon and Legacy CXApp as part of the internal reorganization described therein and requires an Inpixon contribution to
be made to Legacy CXApp. The Separation and Distribution Agreement also sets forth other agreements that govern certain aspects of Legacy
CXApp’s relationship with Inpixon following the Business Combination. In connection with the Separation and Distribution Agreement
and related ancillary agreements, Legacy CXApp issued additional shares of Legacy CXApp common stock to Inpixon. Inpixon distributed
on a pro rata basis all of the outstanding shares of Legacy CXApp common stock to the Inpixon securityholders as of March 6, 2023
by delivering to the distribution agent a book-entry authorization representing the shares of Legacy CXApp common stock being distributed
for the account of Inpixon securityholders. The distribution agent held such book-entry shares for the account of Legacy CXApp’s
stockholders (as of immediately after consummation of the Distribution) pending the Merger.
On
the date of the Distribution, Inpixon distributed on a pro rata basis all of the outstanding shares of Legacy CXApp common stock to the
holders of Inpixon common stock and certain other holders of its securities as of March 6, 2023. The Distribution was effected by
Inpixon delivering to the distribution agent a book-entry authorization representing the shares of Legacy CXApp common stock being distributed
in the Distribution for the account of Inpixon securityholders. The distribution agent held such book-entry shares for the account of
Legacy CXApp’s stockholders (as of immediately after consummation of the Distribution) pending the Merger. The shares of Legacy
CXApp common stock were not be transferrable prior to the exchange of such shares for the shares of KINS common stock pursuant to the
Merger.
Employee
Matters Agreement
Prior
to the Distribution, KINS, Inpixon, Legacy CXApp and Merger Sub entered into the Employee Matters Agreement, which set forth the terms
and conditions of certain employee-related matters in connection with the transaction, including allocation of benefit plan assets and
liabilities between Inpixon and Legacy CXApp, treatment of incentive equity awards in the Distribution and the Business Combination and
related covenants and commitments of the parties.
Tax
Matters Agreement
Prior
to the Distribution, KINS, Legacy CXApp and Inpixon entered into the Tax Matters Agreement that 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.
In
general, KINS and Legacy CXApp are liable for all U.S. federal, state, local and foreign taxes (and any related interest, penalties or
audit adjustments) that are (i) imposed with respect to tax returns that include both Legacy CXApp and Inpixon, to the extent such taxes
are attributable to Legacy CXApp or the Enterprise Apps Business, or (ii) imposed with respect to tax returns that include Legacy CXApp
but not Inpixon, in each case, for tax periods (or portions thereof) beginning after the Distribution.
Notwithstanding
the foregoing, KINS and Legacy CXApp may be liable for certain taxes resulting from the restructuring transactions undertaken to effectuate
the Distribution.
The
Distribution, together with certain related transactions, is intended to qualify as a reorganization under Sections 355 and 368(a)(1)(D)
of the Code. If the Distribution does not so qualify, the difference between the fair market value and the tax basis of the Legacy CXApp
shares distributed by Inpixon to the Inpixon stockholders will be taxable income to Inpixon.
Even
if the contribution and distribution, taken together, otherwise qualify as a transaction described in Sections 355 and 368(a)(1)(D)
of the Code, the Distribution is still taxable to Inpixon (but not to Inpixon stockholders) pursuant to Section 355(e) of the Code
if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of Inpixon or Legacy CXApp, directly
or indirectly (including through acquisitions of our stock), as part of a plan or series of related transactions that includes the Distribution.
For purposes of this test, the Merger is treated as part of a plan that includes the Distribution, but the Merger standing alone did
not cause the Distribution to be taxable to Inpixon under Section 355(e) of the Code because holders of Legacy CXApp common stock
own more than 50% of our common stock.
Per
the terms of the Sponsor Support Agreement, the Sponsor has agreed to exchange up to 1 million shares of KINS Class B common stock for
such number of shares of KINS Class A common stock as shall be necessary to ensure that the number of shares of KINS common stock issued
as aggregate merger consideration to the holders of Legacy CXApp common stock exceeds 50% by at least one share than the number of shares
of KINS common stock owned by all other holders of KINS common stock. Pursuant to the Sponsor Support Agreement, the Sponsor and related
parties have agreed, subject to the limitation set forth therein, to forfeit 22,224 shares of KINS common stock (as of immediately prior
to the consummation of the Merger).
The
Tax Matters Agreement requires KINS and Legacy CXApp to comply with the representations made in the materials submitted to RSM US LLP
in connection with a distribution tax opinion that Inpixon received regarding the intended tax treatment of the Distribution and certain
related transactions.
The
Tax Matters Agreement also includes covenants restricting Legacy CXApp’s and KINS’ ability to take or fail to take any action
if such action or failure to act could reasonably be expected to adversely affect the intended tax treatment. In particular, in the two
years following the Distribution, such restrictive covenants will generally prevent KINS and Legacy CXApp from (i) entering into any
transaction which could, when combined with other transactions (including the Merger), result in a 45% or greater change in ownership
of KINS’ or Legacy CXApp’s equity as part of a plan or series of related transactions that includes the Distribution, (ii)
ceasing the active conduct of certain of Legacy CXApp’s businesses, (iii) voluntarily dissolving or liquidating KINS or Legacy
CXApp and (iv) causing, permitting, or agreeing to the sale, transfer, or disposal of assets of Legacy CXApp that, in the aggregate,
constitute more than 30% of the consolidated gross assets of Legacy CXApp, in each case, unless Legacy CXApp obtains a private letter
ruling from the IRS, an unqualified opinion of a nationally recognized tax advisor that such action will not cause a failure of the intended
tax treatment, or Inpixon consents to the undertaking of such action. Notwithstanding receipt of such ruling, opinion or consent, in
the event that such action causes a failure of the intended tax treatment, KINS and Legacy CXApp could be responsible for all taxes arising
therefrom.
Transition
Services Agreement
In
connection with the Separation, Legacy CXApp and Inpixon entered into the Transition Services Agreement pursuant to which Inpixon and
its affiliates and Legacy CXApp and its affiliates will provide services to each other primarily related to payroll and benefits administration,
IT support, finance and accounting services, contract administration and management services, and other administrative support services
that may be required on an as needed basis, which services are of the type that Legacy CXApp and Inpixon provided to, and received from,
each other prior to the Separation. The fees for each of the transition services are set forth in the Transition Services Agreement.
The Transition Services Agreement will terminate on the expiration of the term of the last service provided under it, and if no expiration
date is provided for any transition service, then such transition service will terminate twelve months after the date of the Transition
Services Agreement, provided that the receiving party shall have the right to an extension of each or any transition service for up to
six months by providing written notice to providing party in advance of the original termination date for such transition service if,
prior to such request for extension, the receiving party has used commercially reasonable efforts to establish analogous capabilities
of its own. The parties will also discuss in good faith any subsequent requests to further extend the transition services. In addition,
(i) the receiving party may terminate a transition service with prior written notice, with certain exceptions, (ii) either party may
terminate the Transition Services Agreement in the event of an uncured material breach by the other party, upon bankruptcy or insolvency
of the other party, or (iii) the parties may terminate a transition service or the Transition Service Agreement upon mutual agreement.
Legacy CXApp does not anticipate that its net costs associated with the Transition Services Agreement will be materially different than
the historical costs that have been allocated by Inpixon to Legacy CXApp related to these same services.
Certain
Relationships and Related Party Transactions — KINS
KINS
Founder Shares
In
November 2020, the Sponsor purchased 150,000 KINS Founder Shares of KINS Class B Common Stock for an aggregate price of $25,000.
On December 11, 2020, KINS effected a 47.91667-for-1 stock split and on December 14, 2020, KINS effected a stock dividend of
1.2 shares of KINS Class B Common Stock for each share of KINS Class B Common Stock outstanding prior to the dividend, resulting in 6,900,000
shares of KINS Class B Common Stock being issued and outstanding. All share and per share amounts have been retroactively restated to
reflect the stock split and stock dividend.
Pursuant
to the Sponsor Support Agreement entered into among Legacy CXApp, KINS and the Sponsor, certain of the KINS Founder Shares are subject
to restrictions. Prior to our Initial Public Offering, the BlackRock Investors acquired 750,000 shares of KINS Class B Common Stock and
up to 525,000 shares are issuable to the Sponsor under certain conditions (as defined in the Sponsor Support Agreement, the “Potential
Forfeiture Shares”).
Administrative
Support Agreement
Commencing
on December 14, 2020, KINS agreed to pay the Sponsor or an affiliate of the Sponsor a total of $20,000 per month for office space,
utilities, secretarial support and administrative services. Upon completion a business combination or KINS’ liquidation, KINS will
cease paying these monthly fees. KINS incurred and paid $60,000 and $180,000 for the three and nine months ended September 30, 2022,
respectively.
Due
from Sponsor
At
the closing of the KINS Initial Public Offering on December 17, 2020, a portion of the proceeds from the sale of the KINS Private
Placement Warrants in the amount of $2,124,125 was due to KINS to be held outside of the Trust Account for working capital purposes.
KINS received the cash on February 18, 2021.
Sponsor
Support Agreement
KINS,
the Sponsor and Legacy CXApp entered into the Sponsor Support Agreement, dated as of September 25, 2022.
Pursuant
to the Sponsor Support Agreement, the Sponsor agreed to, among other things, at any meeting of the KINS Stockholders, or in any other
circumstance in which the vote, consent or other approval of the KINS Stockholders is sought, (i) appear at each such meeting or otherwise
cause all of its KINS Common Stock to be counted as present thereat for purposes of calculating a quorum and (ii) vote (or cause to be
voted), or execute and deliver a written consent covering, all of its KINS Common Stock: (1) in favor of each Transaction Proposal; (2)
against any proposal relating to a business combination (other than the Transaction Proposals); (3) against any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization,
dissolution, liquidation or winding up of or by KINS; (4) against any change in the business, management or the KINS Board (other than
in connection with the Transaction Proposals); and (5) against any proposal, action or agreement that would (A) impede, frustrate, prevent
or nullify any provision of the Sponsor Support Agreement, the Merger Agreement or the Merger, (B) result in a breach in any respect
of any covenant, representation, warranty or any other obligation or agreement of KINS or the Merger Sub under the Merger Agreement,
(C) result in any of the conditions set forth in Article IX of the Merger Agreement not being fulfilled or (D) change in any manner the
dividend policy or capitalization of, including the voting rights of any class of KINS capital stock.
Private
Placement Warrants
Simultaneously
with the closing of the KINS Initial Public Offering, KINS completed the private sale of 10,280,000 KINS Private Placement Warrants at
a price of $1.00 per KINS Private Placement Warrant to the Sponsor and the BlackRock Investors, generating gross proceeds of $10,280,000.
The KINS Private Placement Warrants are identical to the KINS Public Warrants underlying the KINS Units sold in the KINS Initial Public
Offering, except that the KINS Private Placement Warrants and the KINS Class A Common Stock issuable upon the exercise of the KINS 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, except as provided herein, the KINS Private Placement Warrants will be exercisable on a
cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
PRINCIPAL
STOCKHOLDERS
The following table sets
forth the beneficial ownership of our Common Stock as of July 6, 2023 by:
| ● | each
person who is known to be the beneficial owner of more than 5% of the outstanding shares
of each of our shares of Class A and Class C Common Stock; |
| ● | each
of our current named executive officers and directors; and |
| ● | all
our current executive officers and directors as a group. |
Beneficial ownership is
determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she
or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable
or exercisable within 60 days after that date through (a) the exercise of any option, warrant or right, (b) the conversion of a security,
(c) the power to revoke a trust, discretionary account or similar arrangement, or (d) the automatic termination of a trust, discretionary
account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that
person, shares of our Common Stock subject to options or other rights (as set forth above) held by that person that are currently exercisable,
or will become exercisable within 60 days thereafter, are deemed outstanding for such person, while such shares are not deemed outstanding
for purposes of computing percentage ownership of any other person. The table below also reflects the beneficial ownership of shares
of our Common Stock issuable upon the exercise of public warrants or private placement warrants. Each person named in the table has sole
voting and investment power with respect to all of the shares shown as beneficially owned by such person, except as otherwise indicated
in the table or footnotes below.
Unless otherwise indicated,
we believe that all persons named in the table below have sole voting and investment power with respect to the voting securities beneficially
owned by them. To our knowledge, no shares of our Common Stock beneficially owned by any executive officer or director have been pledged
as security. Unless otherwise noted, the address of each beneficial owner is c/o CXApp Inc., Four Palo Alto Square, Suite 200, 3000 El
Camino Real, Palo Alto, CA 94306.
As of July 6, 2023, there
were 14,069,999 shares of Common Stock issued and outstanding, which are comprised of 8,582,699 shares of Class A Common Stock and 5,487,300
shares of Class C Common Stock.
Name
of Beneficial Owners | |
Class A | | |
% | | |
Class C | | |
% | | |
Total
Shares(1) | | |
%(2) | |
5%
Stockholders | |
| | |
| | |
| | |
| | |
| | |
| |
KINS
Capital LLC(3) | |
| 15,756,304 | | |
| 89.09 | % | |
| - | | |
| - | % | |
| 15,756,304 | | |
| 67.99 | % |
BlackRock,
Inc.(4) | |
| 2,022,119 | | |
| 20.72 | % | |
| - | | |
| - | % | |
| 2,022,119 | | |
| 13.26 | % |
Directors and
Executive Officers | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Khurram
P. Sheikh(3) | |
| 15,756,304 | | |
| 89.09 | % | |
| - | | |
| - | % | |
| 15,756,304 | | |
| 67.99 | % |
Camillo Martino | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Di-Ann Eisnor | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shanti Priya | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
George Mathai | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Leon Papkoff | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
All directors
and executive officers as a group (6 individuals) | |
| 15,756,304 | | |
| 89.09 | % | |
| - | | |
| - | % | |
| 15,756,304 | | |
| 67.99 | % |
(1) |
The CXApp Class A Common Stock and the CXApp Class C Common Stock
are identical in all respects, except that the CXApp Class C Common Stock are subject to transfer restrictions and will automatically
convert into 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 the 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. |
| (2) | The
percentage is calculated by dividing the number of securities beneficially owned by the total
number of outstanding shares of CXApp Class A and CXApp Class C Common Stock, inclusive of
any securities for which the listed beneficial owner holds the right to acquire beneficial
ownership within 60 days. |
(3) |
Reflects: (a) 6,652,776 shares of CXApp Class A
Common Stock held of record by KINS Capital LLC ("Sponsor"), and (b) 9,103,528 shares of Class A Common Stock underlying the private
warrants held of record by the Sponsor. Mr. Khurram P. Sheikh is the managing member of the Sponsor, and as such Mr. Khurram P. Sheikh
has voting and investment discretion with respect to the securities held of record by the Sponsor and may be deemed to have shared
beneficial ownership of the securities held of record by the Sponsor. Mr. Khurram P. Sheikh disclaims beneficial ownership of the
securities held of record by the Sponsor other than to the extent of any pecuniary interest he may have therein, directly or indirectly.
Pursuant to the Sponsor Support Agreement, the Sponsor and related parties have, subject to the limitation set forth therein, forfeited
22,224 shares of CXApp Common Stock (as of immediately prior to the consummation of the Merger). This amount also reflects redemptions
of 230,328 KINS public shares prior to Closing. The business address of Sponsor is Four Palo Alto Square, Suite 200, 3000 El Camino
Real, Palo Alto, CA 94306. |
(4) |
The registered holders of the referenced shares,
which are comprised of 845,647 shares of CXApp Class A Common Stock (including 225,000 shares of CXApp Class A Common Stock being
registered for resale hereunder) and 1,176,472 shares of CXApp Class A Common Stock underlying the private warrants, are funds and
accounts under management by BlackRock, Inc. BlackRock, Inc. is the ultimate parent holding company of such funds and accounts. On
behalf of such funds and accounts, the applicable portfolio managers, as managing directors of such entities, have voting and investment
power over the shares held by the funds and accounts which are the registered holders of the referenced shares. Such portfolio managers
expressly disclaim beneficial ownership of all shares held by such funds and accounts. The address of such funds and accounts and
such portfolio managers is 55 East 52nd Street, New York, NY 10055. |
SELLING
SECURITYHOLDERS
This
prospectus relates to (i) the resale of up to 6,977,776 shares of common stock previously issued by certain of the Selling Securityholders,
(ii) the resale of up to 10,280,000 warrants to purchase common stock and (iii) the resale of up to 24,080,000 shares of common stock
reserved for issuance upon the exercise of warrants to purchase common stock. The Selling Securityholders may from time to time offer
and sell any or all of the shares of common stock and warrants set forth below pursuant to this prospectus and any accompanying prospectus
supplement. When we refer to the “Selling Securityholders” in this prospectus, we mean the persons listed in the table below,
and the pledgees, donees, transferees, assignees, successors, designees and others who later come to hold any of the Selling Securityholders’
interest in the common stock or warrants other than through a public sale.
The following table sets
forth, as of the date of this prospectus, the names of the Selling Securityholders, and the aggregate number of shares of common stock
and warrants that the Selling Securityholders may offer pursuant to this prospectus. The following table does not reflect the beneficial
ownership of any shares of common stock issuable upon exercise of warrants unless such securities are exercisable or convertible within
60 days of July 6, 2023.
We
cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such common stock or warrants. In addition,
the Selling Securityholders may sell, transfer or otherwise dispose of, at any time and from time to time, the common stock and warrants
in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus. For purposes of this
table, we have assumed that the Selling Securityholders will have sold all of the securities covered by this prospectus upon the completion
of the offering.
Common
Stock
| |
Beneficial
Ownership Before
the Offering | | |
Shares to
be Sold in
the Offering | | |
Beneficial
Ownership After
the Offering | |
Name of Selling Holder | |
Number of
Shares | | |
% | | |
Number of
Shares | | |
% | | |
Number
of
Shares | | |
% | |
KINS
Capital LLC(1) | |
| 15,756,304 | | |
| 67.99 | % | |
| 15,756,304 | | |
| 67.99 | % | |
| 0 | | |
| 0 | % |
BlackRock,
Inc.(2) | |
| 2,022,119 | | |
| 13.26 | % | |
| 1,401,472 | | |
| 9.08 | % | |
| 620,647 | | |
| 4.48 | % |
BTIG,
LLC(3) | |
| 100,000 | | |
| 0.006 | % | |
| 100,000 | | |
| 0.006 | % | |
| 0 | | |
| 0 | % |
(1) |
KINS Capital LLC (“Sponsor”) is the
record holder of such shares, which are comprised of 6,652,776 shares of CXApp Class A Common Stock and 9,103,528 shares of CXApp
Class A Common Stock underlying the private warrants. Mr. Khurram P. Sheikh is the managing member of the Sponsor, and as such Mr.
Khurram P. Sheikh has voting and investment discretion with respect to the shares held of record by the Sponsor and may be deemed
to have shared beneficial ownership of shares held directly by the Sponsor. Mr. Khurram P. Sheikh disclaims beneficial ownership
of the reported shares other than to the extent of any pecuniary interest he may have therein, directly or indirectly. The business
address of Sponsor is Four Palo Alto Square, Suite 200, 3000 El Camino Real, Palo Alto, CA 94306. |
(2) |
The registered holders of the referenced shares,
which are comprised of 845,647 shares of CXApp Class A Common Stock (including 225,000 shares of CXApp Class A Common Stock being
registered for resale hereunder) and 1,176,472 shares of CXApp Class A Common Stock underlying the private warrants, are funds and
accounts under management by BlackRock, Inc. BlackRock, Inc. is the ultimate parent holding company of such funds and accounts. On
behalf of such funds and accounts, the applicable portfolio managers, as managing directors of such entities, have voting and investment
power over the shares held by the funds and accounts which are the registered holders of the referenced shares. Such portfolio managers
expressly disclaim beneficial ownership of all shares held by such funds and accounts. The address of such funds and accounts and
such portfolio managers is 55 East 52nd Street, New York, NY 10055. |
| (3) | BTIG,
LLC is the record holder of such shares. The business address of BTIG, LLC is 65 E 65th Street,
New York, NY 10065. |
Warrants
| |
Beneficial
Ownership Before
the Offering | | |
Securities
to
be Sold in
the Offering | | |
Beneficial
Ownership After the Offering | |
Name of Selling Holder | |
Number of
Warrants | | |
% | | |
Number of
Warrants | | |
% | | |
Number of
Warrants | | |
% | |
KINS
Capital LLC(1) | |
| 9,103,528 | | |
| 37.8 | % | |
| 9,103,528 | | |
| 37.8 | % | |
| 0 | | |
| 0 | % |
BlackRock,
Inc.(2) | |
| 1,176,472 | | |
| 4.9 | % | |
| 1,176,472 | | |
| 4.9 | % | |
| 0 | | |
| 0 | % |
| (1) | KINS
Capital LLC (“Sponsor”) is the record holder of such shares. Mr. Khurram P. Sheikh
is the managing member of the Sponsor, and as such Mr. Khurram P. Sheikh has voting and investment
discretion with respect to the shares held of record by the Sponsor and may be deemed to
have shared beneficial ownership of shares held directly by the Sponsor. Mr. Khurram P. Sheikh
disclaims beneficial ownership of the reported shares other than to the extent of any pecuniary
interest he may have therein, directly or indirectly. The business address of Sponsor is
Four Palo Alto Square, Suite 200, 3000 El Camino Real, Palo Alto, CA 94306. |
| (2) | The
registered holders of the referenced shares are funds and accounts under management by BlackRock,
Inc. BlackRock, Inc. is the ultimate parent holding company of such funds and accounts. On
behalf of such funds and accounts, the applicable portfolio managers, as managing directors
of such entities, have voting and investment power over the shares held by the funds and
accounts which are the registered holders of the referenced shares. Such portfolio managers
expressly disclaim beneficial ownership of all shares held by such funds and accounts. The
address of such funds and accounts and such portfolio managers is 55 East 52nd Street, New
York, NY 10055. |
DESCRIPTION
OF CAPITAL STOCK
General
The
following description summarizes some of the terms of our certificate of incorporation and bylaws and the DGCL. This description is summarized
from, and qualified in its entirety by reference to, our certificate of incorporation and bylaws, each of which has been publicly filed
with the SEC, as well as the relevant provisions of the DGCL.
Our purpose is to engage
in any lawful act or activity for which corporations may now or hereafter be organized under the DGCL. Our authorized capital stock will
consist of 212,000,000 shares, $0.0001 par value per share, of which: 210,000,000 shares will be designated as Common Stock; and 2,000,000
shares will be designated as Preferred Stock. CXApp has an aggregate of 14,069,999 shares of Common Stock issued and outstanding as of
June 16, 2023.
Class
A Common Stock and Class C Common Stock
The amended and restated
certificate of incorporation authorizes two classes of common stock, the Class A Common Stock and the Class C Common Stock. The Class
A Common Stock and the Class C Common Stock has the same rights, except the Class C Common Stock are not listed on an exchange and is
subject to a 180-day lock-up period beginning on the Closing Date of the Merger. Upon the expiration of the lock-up period, such shares
of Class C Common Stock will convert into shares of Class A Common Stock.
Dividend
Rights
The
DGCL permits a corporation to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of
its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined
as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the board of directors.
The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of
capital stock. Net assets equals the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may
not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding
stock of all classes having a preference upon the distribution of assets. Delaware common law also imposes a solvency requirement in
connection with the payment of dividends.
Subject
to applicable law and the rights and preferences of any holders of any outstanding series of Preferred Stock, the holders of Common Stock
will be entitled to the payment of dividends on the Common Stock when, as and if declared by the Board in accordance with applicable
law.
Voting
Rights
Holders
of Common Stock will be entitled to one vote for each share held as of the record date for determining stockholders entitled to vote
on such matters, except as otherwise required by law.
Right
to Receive Liquidation Distributions
Subject
to the rights and preferences of any holders of any shares of any outstanding series of Preferred Stock, in the event of any liquidation,
dissolution or winding up of CXApp, the funds and assets of CXApp that may be legally distributed to the stockholders will be distributed
among the holders of the then outstanding Common Stock pro rata in accordance with the number of shares of Common Stock held by each
such holder.
Other
Matters
All
outstanding shares of the Common Stock will be fully paid and nonassessable. The Common Stock will not be entitled to preemptive rights
and will not be subject to redemption or sinking fund provisions.
Preferred
Stock
Under
the terms of the certificate of incorporation, the Board is authorized, subject to limitations prescribed by the DGCL, to issue from
time to time Preferred Stock in one or more series, and to determine and fix the number of shares of such series and such designations,
powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case
without approval by the stockholders. The Board is authorized to increase or decrease the number of shares of any series of Preferred
Stock, but not below the number of shares of that series then outstanding, without approval by the stockholders. The Board may also authorize
the issuance of Preferred Stock with voting or other rights that could adversely affect the voting power or other rights of the holders
of Common Stock.
Warrants
Public
Warrants
Following the Business Combination
between KINS and Legacy CXApp, there were 13,800,000 public warrants (“Public Warrants”) and 10,280,000 private placement
warrants (the “Private Placement Warrants” and collectively with the Public Warrants, the “warrants”) outstanding.
Each whole warrant entitles the registered holder to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject
to adjustment as discussed below, at any time commencing on December 15, 2021 (12 months from the closing of the KINS Technology
Group Inc. initial public offering (the “KINS Initial Public Offering”)), except as described below. Pursuant to the warrant
agreement, dated as of December 14, 2020, between Continental Stock Transfer & Trust Company (“Continental”) and
us (the “Warrant Agreement”), a warrant holder may exercise its warrants only for a whole number of shares of our Class A
Common Stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire on the fifth
anniversary of the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption.
We
will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Public Warrant and will have no obligation
to settle such warrant exercise unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”)
covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus
relating to those shares of Class A common stock is available, subject to our satisfying our obligations described below with respect
to registration. No warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to
holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the
securities laws of the state of the exercising holder, or an exemption from registration is available. In the event that the conditions
in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled
to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle
any warrant. We have agreed that as soon as practicable, but in no event later than 20 business days after the closing of the Business
Combination, we will use our commercially reasonable efforts to file with the SEC, and within 60 business days following the closing
of the Business Combination, to have declared effective, a registration statement covering the issuance of the shares of Class A common
stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until
the warrants expire or are redeemed. If any such registration statement has not been declared effective by the 60th Business Day following
the closing of the Business Combination, holders of the Warrants shall have the right, during the period beginning on the 61st Business
Day after the closing of the Business Combination and ending upon such registration statement being declared effective by the Commission,
and during any other period when the Company shall fail to have maintained an effective registration statement covering the issuance
of the shares of Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a “cashless basis,” by
exchanging the Warrants (in accordance with Section 3(a)(9) of the Securities Act (or any successor statute) or another exemption)
for that number of shares of Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number
of shares of Common Stock underlying the Warrants, multiplied by the excess of the “fair market value” (as defined below)
over the Warrant Price by (y) the fair market value and (B) 0.361 shares of Common Stock per Warrant. Notwithstanding the above, if our
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, we may, at our 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 we so elect, we will not be required to file or maintain in effect a registration statement,
but will use our commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption
is not available. In such event, each holder would pay the exercise price by exchanging the warrants for that number of shares of Class
A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying
the warrants, multiplied by the difference between the warrant price and the “fair market value” (as defined below) by (y)
the fair market value. “Fair Market Value” shall mean the volume weighted average price of the Common Stock as reported during
the ten (10) trading day period ending on the third trading day prior to the date that notice of exercise is received by the Warrant
Agent from the holder of such Warrants or its securities broker or intermediary.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $18.00. Once the warrants become exercisable,
we may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
| ● | upon
a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption
period, to each warrant holder; and |
| ● | if,
and only if, the last reported sale price of our Class A common stock equals or exceeds $18.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which we send the notice of redemption to the warrant holders. |
We
have established the $18.00 per share (as adjusted) redemption criteria discussed above to prevent a redemption call unless there is
at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a
notice of redemption of the warrants, each warrant holder will be entitled to exercise its warrant prior to the scheduled redemption
date. However, the price of the Class A common stock may fall below the $18.00 redemption trigger price (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) as well as the $11.50 warrant exercise price after the redemption notice
is issued.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $10.00. Commencing ninety days after the warrants
become exercisable, we may redeem the outstanding warrants:
| ● | in
whole and not in part; |
| ● | at
$0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided
that holders will be able to exercise their warrants prior to redemption and receive that
number of shares of Class A common stock to be determined by reference to the table below,
based on the redemption date and the “fair market value” of our Class A common
stock (as defined below) except as otherwise described below; |
| ● | if,
and only if, the last reported sale price of our Class A common stock equals or exceeds $10.00
per share on the trading day prior to the date on which we send the notice of redemption
to the warrant holders; |
| ● | if,
and only if, the private placement warrants are also concurrently exchanged at the same price
(equal to a number of shares of Class A common stock) as the outstanding public warrants,
as described above; and |
| ● | if,
and only if, there is an effective registration statement covering the issuance of the shares
of Class A common stock (or a security other than the Class A common stock into which the
Class A common stock has been converted or exchanged for in the event we are not the surviving
company in our initial business combination) issuable upon exercise of the warrants and a
current prospectus relating thereto available throughout the 30-day period after written
notice of redemption is given. |
The
numbers in the table below represent the number of shares of Class A common stock that a warrant holder will receive upon exercise in
connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of our Class A common
stock on the corresponding redemption date (assuming holders elect to exercise their warrants and such warrants are not redeemed for
$0.10 per warrant), determined based on the volume-weighted average price of the Class A common stock as reported during the 10 trading
days immediately following the date on which the notice of redemption is sent to the holders of warrants, and the number of months that
the corresponding redemption date precedes the expiration date of the warrants, each as set forth in the table below.
Pursuant
to the warrant agreement, references above to Class A common stock shall include a security other than Class A common stock into which
the Class A common stock has been converted or exchanged for in the event we are not the surviving company in our initial business combination.
The numbers in the tables below will not be adjusted solely as a result of us not being the surviving entity following our initial business
combination.
The stock prices set forth
in the column headings of the table below will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant
is adjusted as set forth in the first three paragraphs under the heading “—Anti-dilution Adjustments” below.
The adjusted stock prices in the column headings will equal the stock prices immediately prior to such adjustment, multiplied by a fraction,
the numerator of which is the number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator
of which is the number of shares deliverable upon exercise of a warrant as so adjusted. The number of shares in the table below shall
be adjusted in the same manner and at the same time as the number of shares issuable upon exercise of a warrant.
|
|
Fair Market
Value of Class A Common Stock | |
Redemption Date (period to
expiration of warrants) |
|
≤$10.00 | | |
$11.00 | | |
$12.00 | | |
$13.00 | | |
$14.00 | | |
$15.00 | | |
$16.00 | | |
$17.00 | | |
≥$18.00 | |
59 | |
| 0.236 | | |
| 0.257 | | |
| 0.277 | | |
| 0.295 | | |
| 0.311 | | |
| 0.325 | | |
| 0.338 | | |
| 0.350 | | |
| 0.361 | |
57 | |
| 0.233 | | |
| 0.255 | | |
| 0.275 | | |
| 0.293 | | |
| 0.309 | | |
| 0.324 | | |
| 0.338 | | |
| 0.350 | | |
| 0.361 | |
54 | |
| 0.229 | | |
| 0.251 | | |
| 0.272 | | |
| 0.291 | | |
| 0.307 | | |
| 0.323 | | |
| 0.337 | | |
| 0.350 | | |
| 0.361 | |
51 | |
| 0.225 | | |
| 0.248 | | |
| 0.269 | | |
| 0.288 | | |
| 0.305 | | |
| 0.321 | | |
| 0.336 | | |
| 0.349 | | |
| 0.361 | |
48 | |
| 0.220 | | |
| 0.243 | | |
| 0.265 | | |
| 0.285 | | |
| 0.303 | | |
| 0.320 | | |
| 0.335 | | |
| 0.349 | | |
| 0.361 | |
45 | |
| 0.214 | | |
| 0.239 | | |
| 0.261 | | |
| 0.282 | | |
| 0.301 | | |
| 0.318 | | |
| 0.334 | | |
| 0.348 | | |
| 0.361 | |
42 | |
| 0.208 | | |
| 0.234 | | |
| 0.257 | | |
| 0.278 | | |
| 0.298 | | |
| 0.316 | | |
| 0.333 | | |
| 0.348 | | |
| 0.361 | |
39 | |
| 0.202 | | |
| 0.228 | | |
| 0.252 | | |
| 0.275 | | |
| 0.295 | | |
| 0.314 | | |
| 0.331 | | |
| 0.347 | | |
| 0.361 | |
36 | |
| 0.195 | | |
| 0.222 | | |
| 0.247 | | |
| 0.271 | | |
| 0.292 | | |
| 0.312 | | |
| 0.330 | | |
| 0.346 | | |
| 0.361 | |
33 | |
| 0.187 | | |
| 0.215 | | |
| 0.241 | | |
| 0.266 | | |
| 0.288 | | |
| 0.309 | | |
| 0.328 | | |
| 0.345 | | |
| 0.361 | |
30 | |
| 0.179 | | |
| 0.208 | | |
| 0.235 | | |
| 0.261 | | |
| 0.284 | | |
| 0.306 | | |
| 0.326 | | |
| 0.345 | | |
| 0.361 | |
27 | |
| 0.170 | | |
| 0.199 | | |
| 0.228 | | |
| 0.255 | | |
| 0.280 | | |
| 0.303 | | |
| 0.324 | | |
| 0.343 | | |
| 0.361 | |
24 | |
| 0.159 | | |
| 0.190 | | |
| 0.220 | | |
| 0.248 | | |
| 0.274 | | |
| 0.299 | | |
| 0.322 | | |
| 0.342 | | |
| 0.361 | |
21 | |
| 0.148 | | |
| 0.179 | | |
| 0.210 | | |
| 0.240 | | |
| 0.268 | | |
| 0.295 | | |
| 0.319 | | |
| 0.341 | | |
| 0.361 | |
18 | |
| 0.135 | | |
| 0.167 | | |
| 0.200 | | |
| 0.231 | | |
| 0.261 | | |
| 0.289 | | |
| 0.315 | | |
| 0.339 | | |
| 0.361 | |
15 | |
| 0.120 | | |
| 0.153 | | |
| 0.187 | | |
| 0.220 | | |
| 0.253 | | |
| 0.283 | | |
| 0.311 | | |
| 0.337 | | |
| 0.361 | |
12 | |
| 0.103 | | |
| 0.137 | | |
| 0.172 | | |
| 0.207 | | |
| 0.242 | | |
| 0.275 | | |
| 0.306 | | |
| 0.335 | | |
| 0.361 | |
9 | |
| 0.083 | | |
| 0.117 | | |
| 0.153 | | |
| 0.191 | | |
| 0.229 | | |
| 0.266 | | |
| 0.300 | | |
| 0.332 | | |
| 0.361 | |
6 | |
| 0.059 | | |
| 0.092 | | |
| 0.130 | | |
| 0.171 | | |
| 0.213 | | |
| 0.254 | | |
| 0.292 | | |
| 0.328 | | |
| 0.361 | |
3 | |
| 0.030 | | |
| 0.060 | | |
| 0.100 | | |
| 0.145 | | |
| 0.193 | | |
| 0.240 | | |
| 0.284 | | |
| 0.324 | | |
| 0.361 | |
0 | |
| 0.000 | | |
| 0.000 | | |
| 0.042 | | |
| 0.115 | | |
| 0.179 | | |
| 0.233 | | |
| 0.281 | | |
| 0.324 | | |
| 0.361 | |
For example, if the volume-weighted
average price of our Class A common stock as reported during the 10 trading days immediately following the date on which the notice of
redemption is sent to the holders of the warrants is $11 per share, and at such time there are 57 months until the expiration of the
warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.233 shares of Class A common
stock for each whole warrant. However, the exact fair market value and redemption date may not be set forth in the table above, in which
case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table,
the number of shares of Class A common stock to be issued for each warrant exercised will be determined by a straight-line interpolation
between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable,
based on a 365 or 366-day year, as applicable. For an example where the exact fair market value and redemption date are not as set forth
in the table above, if the volume-weighted average price of our Class A common stock for the 10 trading days immediately following the
date on which the notice of redemption is sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months
until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for
0.284 shares of Class A common stock for each whole warrant. In no event will the warrants be exercisable in connection with this redemption
feature for more than 0.361 shares of Class A common stock per warrant. Once the average last reported sale price of our Class A common
stock exceeds $18.00, we will have the option to redeem the warrants using this method or as described above under the heading “—Redemption
of warrants when the price per share of Class A common stock equals or exceeds $18.00.”
This redemption feature
differs from the typical warrant redemption features used in other blank check offerings, which typically only provide for a redemption
of warrants for cash (other than the private placement warrants) when the trading price for the Class A common stock exceeds $18.00 per
share for a specified period of time. This redemption feature is structured to allow for all of the outstanding warrants to be redeemed
when the Class A common stock is trading at or above $10.00 per share, which may be at a time when the trading price of our Class A common
stock is below the exercise price of the warrants. We have established this redemption feature to provide us with the flexibility to
redeem the warrants without the warrants having to reach the $18.00 per share threshold set forth above under “—Redemption
of warrants when the price per share of Class A common stock equals or exceeds $18.00.” Holders choosing to exercise their
warrants in connection with a redemption pursuant to this feature will, in effect, receive a number of shares representing the applicable
redemption price for their warrants based on an option pricing model with a fixed volatility input as of the date of this prospectus.
This redemption right provides us with an additional mechanism by which to redeem all of the outstanding warrants, and therefore have
certainty as to our capital structure. As such, we would redeem the warrants in this manner when we believe it is in our best interest
to update our capital structure to remove the warrants.
As
stated above, we can redeem the warrants when the Class A common stock is trading at a price starting at $10.00, which is below the exercise
price of $11.50, because it will provide certainty with respect to our capital structure and cash position while providing warrant holders
with the opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If we choose to redeem the warrants
when the Class A common stock is trading at a price below the exercise price of the warrants, this could result in the warrant holders
receiving fewer shares of Class A common stock than they would have received if they had exercised their warrants for shares of Class
A common stock if and when the Class A common stock trades at a price higher than the exercise price of $11.50.
No
fractional shares of Class A common stock will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional
interest in a share, we will round down to the nearest whole number of the number of shares of Class A common stock to be issued to the
holder. If, at the time of redemption, the warrants are exercisable for a security other than the shares of Class A common stock pursuant
to the warrant agreement (for instance, if we are not the surviving company in our initial business combination), the warrants may be
exercised for such security.
Exercise
Limitations. A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that
such holder will not have the right to exercise such warrant, to the extent that
Redemption Procedures
and Cashless Exercise. If we call the warrants for redemption as described above under “—Redemption of warrants
when the price per share of Class A common stock equals or exceeds $18.00,” our management will have the option to require
all holders that wish to exercise warrants to do so on a “cashless basis” (such option, the “Cashless Exercise Option”).
In determining whether to require all holders to exercise their warrants on a “cashless basis,” our management will consider,
among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing
the maximum number of shares of Class A common stock issuable upon the exercise of our warrants. In such event, each holder would pay
the exercise price by surrendering the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing
(x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the warrant
price and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this
purpose shall mean the average last reported sale price of the Class A common stock for the 10 trading days ending on the third trading
day prior to the date on which the notice of redemption is sent to the holders of the warrants. If our management takes advantage of
this Cashless Exercise Option, the notice of redemption will contain the information necessary to calculate the number of shares of Class
A common stock to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a
cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption.
We believe this Cashless Exercise Option feature is an attractive option to us if we do not need the cash from the exercise of the warrants
after our initial business combination. If we call our warrants for redemption and our management does not take advantage of this Cashless
Exercise Option, KINS Capital LLC, a Delaware limited liability company (“Sponsor”) and its permitted transferees would still
be entitled to exercise their Private Placement Warrants for cash or on a cashless basis using the same formula described above that
other warrant holders would have been required to use had management taken advantage of this Cashless Exercise Option, as described in
more detail below.
A
holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the
right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s
affiliates), would beneficially own in excess of 4.9% or 9.8% (or such other amount as a holder may specify) of the shares of Class A
common stock outstanding immediately after giving effect to such exercise.
Anti-Dilution
Adjustments. If the number of outstanding shares of Class A common stock is increased by a stock dividend payable in shares of
Class A common stock, or by a split-up of shares of Class A common stock or other similar event, then, on the effective date of such
stock dividend, split-up or similar event, the number of shares of Class A common stock issuable on exercise of each warrant will be
increased in proportion to such increase in the outstanding shares of Class A common stock. A rights offering to holders of Class A common
stock entitling holders to purchase shares of Class A common stock at a price less than the “fair market value” (defined
below) will be deemed a stock dividend of a number of shares of Class A common stock equal to the product of (1) the number of shares
of Class A common stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering
that are convertible into or exercisable for Class A common stock) multiplied by (2) one minus the quotient of (x) the price per share
of Class A common stock paid in such rights offering divided by (y) the fair market value. For these purposes, (1) if the rights offering
is for securities convertible into or exercisable for Class A common stock, in determining the price payable for Class A common stock,
there shall be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise
or conversion and (2) “fair market value” means the volume weighted last reported average price of the Class A common stock
as reported during the ten trading day period ending on the trading day prior to the first date on which the shares of Class A common
stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In
addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities
or other assets to the holders of Class A common stock on account of such shares of Class A common stock (or other shares of our capital
stock into which the warrants are convertible), other than as described above or certain ordinary cash dividends, then the warrant exercise
price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value
of any securities or other assets paid on each share of Class A common stock in respect of such event.
If
the number of outstanding shares of our Class A common stock is decreased by a consolidation, combination, reverse stock split or reclassification
of shares of Class A common stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock
split, reclassification or similar event, the number of shares of Class A common stock issuable on exercise of each warrant will be decreased
in proportion to such decrease in outstanding shares of Class A common stock.
Whenever
the number of shares of Class A common stock purchasable upon the exercise of the warrants is adjusted, as described above, the warrant
exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the
numerator of which will be the number of shares of Class A common stock purchasable upon the exercise of the warrants immediately prior
to such adjustment, and (y) the denominator of which will be the number of shares of Class A common stock so purchasable immediately
thereafter.
In
case of any reclassification or reorganization of the outstanding shares of Class A common stock (other than those described above or
that solely affects the par value of such shares of Class A common stock), or in the case of any merger or consolidation of us with or
into another corporation (other than a merger or consolidation in which we are the continuing corporation and that does not result in
any reclassification or reorganization of our outstanding shares of Class A common stock), or in the case of any sale or conveyance to
another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with
which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in the warrants and in lieu of the shares of our Class A common stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property
(including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any
such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior
to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or
other assets receivable upon such merger or consolidation, then the kind and amount of securities, cash or other assets for which each
warrant will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in
such merger or consolidation that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and
accepted by such holders under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together
with members of any group (within the meaning of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2
under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within
the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Class A common stock, the holder of
a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have
been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer,
accepted such offer and all of the Class A common stock held by such holder had been purchased pursuant to such tender or exchange offer,
subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments
provided for in the Warrant Agreement. Additionally, if less than 70% of the consideration receivable by the holders of Class A common
stock in such a transaction is payable in the form of Class A common stock in the successor entity that is listed for trading on a national
securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following
such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure
of such transaction, the warrant exercise price will be reduced as specified in the Warrant Agreement based on the per share consideration
minus Black-Scholes Warrant Value (as defined in the Warrant Agreement) of the warrant.
The warrants have been issued
in registered form under a Warrant Agreement between Continental, as warrant agent and us. Warrant holders should review a copy of the
Warrant Agreement, which is filed as an exhibit to the registration statement with respect to the KINS Initial Public Offering, for a
description of the terms and conditions applicable to the warrants. The Warrant Agreement provides that the terms of the Warrant Agreement
may be amended without the consent of any holder for the purpose of (i) curing any ambiguity, or curing, correcting or supplementing
any defective provision contained therein or adding or changing any other provisions with respect to matters or questions arising under
the warrant agreement as the parties thereto may deem necessary or desirable and that the parties deem shall not adversely affect the
interest of any holder and (ii) providing for the delivery of an alternative issuance in the case of a reclassification, reorganization,
merger or consolidation, or upon a dissolution. All other modifications or amendments require the vote or written consent of a majority
of the then outstanding Public Warrants and, solely with respect to any amendment to the terms of the Private Placement Warrants or any
provision of the Warrant Agreement with respect to the Private Placement Warrants, at least a majority of the holders of the then outstanding
Private Placement Warrants.
The
warrant holders do not have the rights or privileges of holders of Class A common stock and any voting rights until they exercise their
warrants and receive shares of Class A common stock. After the issuance of shares of Class A common stock upon exercise of the warrants,
each holder will be entitled to one vote for each share of Class A common stock held of record on all matters to be voted on by stockholders.
Private
Placement Warrants
Sponsor and the Direct Anchor
Investors purchased 9,103,528 and 1,176,472 private placement warrants, respectively, at a price of $10.00 per unit for an aggregate
purchase price of $9,103,528 and $1,176,472, respectively, in a private placement that occurred concurrently with the KINS Initial Public
Offering. With certain limited exceptions, the Private Placement Warrants were not transferable, assignable or salable (except to our
officers and directors and other persons or entities pursuant to the Warrant Agreement, each of whom was subject to the same transfer
restrictions) until the period ended April 13, 2023. The Private Placement Warrants will not be redeemable by us so long as they
are held by Sponsor or its permitted transferees.
Sponsor,
or its permitted transfers, has the option to exercise the Private Placement Warrants on a cash or cashless basis and is entitled to
certain registration rights. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Public
Warrants. If the Private Placement Warrants are held by holders other than Sponsor or its permitted transferees, the Private Placement
Warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants being sold in this offering. If holders
of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering the warrants
for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares
of Class A common stock underlying the warrants, multiplied by the difference between the warrant price and the “fair market value”
(as defined below), by (y) the fair market value. The “fair market value” shall mean the average last reported sale price
of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which notice of exercise of
the warrant is sent to the warrant agent. If a holder of private placement warrants is affiliated with us, their ability to sell our
securities in the open market will be significantly limited. We have policies in place that prohibit insiders from selling our securities
except during specific periods of time. Even during such periods of time when insiders will be permitted to sell our securities, an insider
cannot trade in our securities if he or she is in possession of material non-public information. Accordingly, unlike public stockholders
who could exercise their warrants and sell the shares of Class A common stock received upon such exercise freely in the open market in
order to recoup the cost of such exercise, the insiders could be significantly restricted from selling such securities.
Dividends
Declaration
and payment of any dividend is subject to the discretion of our board of directors. The time and amount of dividends will be dependent
upon, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, debt
repayment obligations, capital expenditure needs, contractual restrictions, covenants in the agreements governing current and future
indebtedness, industry trends, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and
any other factors or considerations our board of directors may regard as relevant.
We
currently intend to retain all available funds and any future earnings to fund the development and growth of the business, and therefore
we do not anticipate declaring or paying any cash dividends on Common Stock in the foreseeable future.
Anti-Takeover
Provisions
Certain
provisions of Delaware law, the amended and restated certificate of incorporation, and the amended and restated bylaws, which are summarized
below, may have the effect of delaying, deferring, or discouraging another person from acquiring control of CXApp. They are also designed,
in part, to encourage persons seeking to acquire control of CXApp to negotiate first with the Board.
Classified
Board of Directors
The
amended and restated certificate of incorporation provides that the Board is divided into three classes, designated Class I, Class II
and Class III. Each class will be an equal number of directors, as nearly as possible, consisting of one third of the total number of
directors constituting the entire board of directors. The term of the initial Class I directors shall terminate on the date of the first
annual meeting of stockholders following the effectiveness of the amended and restated certificate of incorporation, the term of the
initial Class II directors shall terminate on the date of the second annual meeting of stockholders following the effectiveness of the
amended and restated certificate of incorporation, and the term of the initial Class III directors shall terminate on the date of the
third annual meeting of stockholders following the effectiveness of the amended and restated certificate of incorporation. At each annual
meeting of stockholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year
term.
Removal
of Directors
Subject
to the special rights of the holders of one or more outstanding series of Preferred Stock to elect directors, the amended and restated
certificate of incorporation provides that directors may be removed from office at any time, with or without cause, only by the affirmative
vote of the holders of at least a majority of the voting power of all of the then outstanding shares of voting stock of CXApp entitled
to vote at an election of directors.
Board
of Directors Vacancies
Subject
to the special rights of the holders of one or more outstanding series of Preferred Stock to elect directors, and except as otherwise
provided by law, the amended and restated certificate of incorporation authorizes only a majority of the remaining members of the Board
(other than any directors elected by the separate vote of one or more outstanding series of Preferred Stock), even though less than a
quorum, to fill vacant directorships, including newly created seats. In addition, the number of directors constituting the Board will
be permitted to be set only by a resolution of the Board. These provisions would prevent a stockholder from increasing the size of the
Board and then gaining control of the Board by filling the resulting vacancies with its own nominees. This will make it more difficult
to change the composition of the Board and will promote continuity of management.
Stockholder
Action; Special Meeting of Stockholders
The
amended and restated bylaws provide that the CXApp stockholders may take any action required or permitted to be taken at an annual or
special meeting of stockholders by written consent in lieu of a meeting. The amended and restated certificate of incorporation and amended
and restated bylaws further provide that special meetings of CXApp stockholders may be called only by the chairman of the Board, the
Chief Executive Officer of CXApp or the Board pursuant to a resolution adopted by a majority of Board, and may not be called by any other
person, including CXApp stockholders.
Advance
Notice Requirements for Stockholder Proposals and Director Nominations
The
amended and restated bylaws provide that CXApp stockholders seeking to bring business before CXApp’s annual meeting of stockholders,
or to nominate candidates for election as directors at CXApp’s annual or a special meeting of stockholders must provide timely
notice of their intent in writing. To be timely, a stockholder’s notice must be received by the Secretary at CXApp’s principal
executive offices (i) in the case of an annual meeting, not later than the close of business on the 90th day nor earlier than
the close of business on the 120th day before the anniversary date of the immediately preceding annual meeting of stockholders
(subject to certain exceptions), and (ii) in the case of a special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the 10th day following the day on which public announcement of the date of the special
meeting is first made by CXApp. The amended and restated bylaws also specify certain requirements as to the form and content of a stockholders’
meeting. These provisions may preclude CXApp stockholders from bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders.
No
Cumulative Voting
The
DGCL provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate
of incorporation provides otherwise. The amended and restated certificate of incorporation does not provide for cumulative voting.
Amendment
of Amended and Restated Certificate of Incorporation Provisions
Amendments
to the provisions of the amended and restated certificate of incorporation related to preferred stock; the management of the business
and for the conduct of the affairs of CXApp; special meetings; liabilities of directors of CXApp; restrictions on any business combination
with any interested stockholder; indemnification of directors and officers of CXApp; and forum require the affirmative vote of the holders
of at least sixty six and two-thirds percent (66 and 2/3%) of the total voting power of all the then outstanding shares of stock of CXApp
entitled to vote thereon, voting together as a single class.
Authorized
but Unissued Capital Stock
CXApp’s
authorized but unissued Common Stock and Preferred Stock are available for future issuances without stockholder approval and could be
utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit
plans. The existence of authorized but unissued and unreserved Common Stock and Preferred Stock could render more difficult or discourage
an attempt to obtain control of CXApp by means of a proxy contest, tender offer, merger or otherwise.
Exclusive
Forum
The
amended and restated certificate of incorporation provides that, unless CXApp consents in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district
court for the District of Delaware or other state courts of the State of Delaware) and any appellate court thereof shall, to the fullest
extent permitted by law, be the sole and exclusive forum for: (i) any derivative action, suit or proceeding (“Proceeding”)
brought on behalf of CXApp; (ii) any Proceeding asserting a claim of breach of a fiduciary duty owed by any of CXApp’s directors,
officers, or stockholders to CXApp or its stockholders; (iii) any Proceeding arising pursuant to any provision of the DGCL, amended and
restated certificate of incorporation or the amended and restated bylaws; (iv) any Proceeding as to which the DGCL confers jurisdiction
on the Court of Chancery of the State of Delaware; or (v) any Proceeding asserting a claim against CXApp or any current or former director,
officer or stockholder governed by the internal affairs doctrine. This provision would not apply to suits brought to enforce any liability
or duty created by apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act or any other
claim for which the federal courts of the United States have exclusive jurisdiction. The amended and restated certificate of incorporation
further provides that, unless CXApp consents in writing to the selection of an alternative forum, the federal district courts of the
United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities
Act. These provisions may have the effect of discouraging lawsuits against CXApp or its directors and officers.
Limitations
on Liability and Indemnification of Directors and Officers
The
amended and restated certificate of incorporation provides that no director of CXApp shall have any personal liability to CXApp or its
stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the DGCL. Amendments to these provisions shall not adversely affect any right or protection
of a director of CXApp in respect of any act or omission occurring prior to the time of such amendment.
The
amended and restated certificate of incorporation further provides that CXApp indemnify directors and officers to the fullest extent
permitted by law. CXApp is also expressly authorized to advance certain expenses (including, without limitation, attorneys’ fees)
to its directors and officers and to maintain insurance, at its expense, to protect itself and/or any director, officer, employee or
agent of CXApp against any expense, liability or loss, whether or not CXApp would have the power to indemnify such person against such
expense, liability or loss under the DGCL.
In
addition, CXApp entered into separate indemnification agreements with its directors and officers. These agreements, among other things,
requires CXApp to indemnify its directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement
amounts incurred by a director or officer in any action or proceeding arising out of their services as one of CXApp’s directors
or officers or any other company or enterprise to which the person provides services at CXApp’s request.
Dissenters’
Rights of Appraisal and Payment
Under
the DGCL, with certain exceptions, our stockholders have appraisal rights in connection with a merger or consolidation of the Company.
Pursuant to Section 262 of the DGCL, stockholders who properly demand and perfect appraisal rights in connection with such merger
or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders’
Derivative Actions
Under
the DGCL, any of our stockholders may bring an action in the Company’s name to procure a judgment in its favor, also known as a
derivative action; provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which
the action relates.
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Stock is Continental Stock Transfer & Trust Company.
Trading
Symbols and Market
Our
Common Stock is listed on Nasdaq under the symbol “CXAI,” and our Warrants are listed on Nasdaq under the symbol “CXAIW.”
SECURITIES
ACT RESTRICTIONS ON RESALE OF COMMON STOCK
Rule 144
Pursuant
to Rule 144, a person who has beneficially owned restricted common stock or warrants of CXApp for at least six months would be entitled
to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time
during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three
months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or
such shorter period as we were required to file reports) preceding the sale.
Persons
who have beneficially owned restricted common stock or warrants of CXApp for at least six months but who are our affiliates at the time
of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would
be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
| i. | 1%
of the total number of shares of CXApp Common Stock then outstanding; or |
| ii. | the
average weekly reported trading volume of CXApp Common Stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to the sale. |
Sales
by affiliates of CXApp under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability
of current public information about CXApp.
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144
is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies)
or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this
prohibition if the following conditions are met:
| i. | the
issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| ii. | the
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act; |
| iii. | the
issuer of the securities has filed all Exchange Act reports and material required to be filed,
as applicable, during the preceding 12 months (or such shorter period that the issuer was
required to file such reports and materials), other than Form 8-K reports; and |
| iv. | at
least one year has elapsed from the time that the issuer filed current Form 10 type
information with the SEC reflecting its status as an entity that is not a shell company (“Form 10
information”). |
As
a result of the consummation of the Business Combination, we are no longer a shell company, and so, once the conditions set forth in
the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.
PLAN
OF DISTRIBUTION (CONFLICT OF INTEREST)
The
Selling Securityholders, which as used herein includes donees, pledgees, transferees, distributees or other successors-in-interest selling
shares of our common stock or warrants or interests in our common stock or warrants received after the date of this prospectus from the
Selling Securityholders as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer, distribute
or otherwise dispose of certain of their shares of common stock or warrants or interests in our common stock or warrants on any stock
exchange, market or trading facility on which shares of our common stock or warrants, as applicable, are traded or in private transactions.
These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market
price, at varying prices determined at the time of sale, or at negotiated prices.
The
Selling Securityholders may use any one or more of the following methods when disposing of their shares of common stock or warrants or
interests therein:
| ● | ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | one
or more underwritten offerings; |
| ● | block
trades in which the broker-dealer will attempt to sell the shares of common stock or warrants
as agent, but may position and resell a portion of the block as principal to facilitate the
transaction; |
| ● | purchases
by a broker-dealer as principal and resale by the broker-dealer for its accounts; |
| ● | an
exchange distribution in accordance with the rules of the applicable exchange; |
| ● | privately
negotiated transactions; |
| ● | distributions
to their members, partners or shareholders; |
| ● | short
sales effected after the date of the registration statement of which this prospectus is a
part is declared effective by the SEC; |
| ● | through
the writing or settlement of options or other hedging transactions, whether through an options
exchange or otherwise; |
| ● | in
market transactions, including transactions on a national securities exchange or quotations
service or over-the-counter market; |
| ● | directly
to one or more purchasers; |
| ● | broker-dealers
may agree with the Selling Securityholders to sell a specified number of such shares of common
stock or warrants at a stipulated price per share or warrant; and |
| ● | a
combination of any such methods of sale. |
The
Selling Securityholders may, from time to time, pledge or grant a security interest in some shares of our common stock or warrants owned
by them and, if a Selling Securityholders defaults in the performance of its secured obligations, the pledgees or secured parties may
offer and sell such shares of common stock or warrants, as applicable, from time to time, under this prospectus, or under an amendment
or supplement to this prospectus amending the list of the Selling Securityholders to include the pledgee, transferee or other successors
in interest as the Selling Securityholders under this prospectus. The Selling Securityholders also may transfer shares of our common
stock or warrants in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of shares of our common stock or warrants or interests therein, the Selling Securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our common stock or warrants
in the course of hedging the positions they assume. The Selling Securityholders may also sell shares of our common stock or warrants
short and deliver these securities to close out their short positions, or loan or pledge shares of our common stock or warrants to broker-dealers
that in turn may sell these securities. The Selling Securityholders may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative securities that require the delivery to such broker-dealer
or other financial institution of shares of our common stock or warrants offered by this prospectus, which shares or warrants such broker-dealer
or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The
aggregate proceeds to the Selling Securityholders from the sale of shares of our common stock or warrants offered by them will be the
purchase price of such shares of our common stock or warrants less discounts or commissions, if any. The Selling Securityholders reserve
the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of share
of our common stock or warrants to be made directly or through agents. We will not receive any of the proceeds from any offering by the
Selling Securityholders.
The
Selling Securityholders also may in the future resell a portion of our common stock or warrants in open market transactions in reliance
upon Rule 144 under the Securities Act; provided that they meet the criteria and conform to the requirements of that rule, or pursuant
to other available exemptions from the registration requirements of the Securities Act.
The
Selling Securityholders and any underwriters, broker-dealers or agents that participate in the sale of shares of our common stock or
warrants or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts,
commissions, concessions or profit they earn on any resale of shares of our common stock or warrants may be underwriting discounts and
commissions under the Securities Act. If any Selling Securityholder is an “underwriter” within the meaning of Section 2(11)
of the Securities Act, then the Selling Securityholder will be subject to the prospectus delivery requirements of the Securities Act.
Underwriters and their controlling persons, dealers and agents may be entitled, under agreements entered into with us and the Selling
Securityholders, to indemnification against and contribution toward specific civil liabilities, including liabilities under the Securities
Act.
To
the extent required, our common stock or warrants to be sold, the respective purchase prices and public offering prices, the names of
any agent, dealer or underwriter, and any applicable discounts, commissions, concessions or other compensation with respect to a particular
offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement
that includes this prospectus.
To
facilitate the offering of shares of our common stock and warrants offered by the Selling Securityholders, certain persons participating
in the offering may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock or warrants. This
may include over-allotments or short sales, which involve the sale by persons participating in the offering of more shares of common
stock or warrants than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions by
making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons may stabilize or
maintain the price of our common stock or warrants by bidding for or purchasing shares of common stock or warrants in the open market
or by imposing penalty bids, whereby selling concessions allowed to dealers participating in the offering may be reclaimed if shares
of common stock or warrants sold by them are repurchased in connection with stabilization transactions. The effect of these transactions
may be to stabilize or maintain the market price of our common stock or warrants at a level above that which might otherwise prevail
in the open market. These transactions may be discontinued at any time.
Under
the Registration Rights Agreement, we have agreed to indemnify the Selling Securityholders party thereto against certain liabilities
that they may incur in connection with the sale of the securities registered hereunder, including liabilities under the Securities Act,
and to contribute to payments that the Selling Securityholders may be required to make with respect thereto. In addition, we and the
Selling Securityholders may agree to indemnify any underwriter, broker-dealer or agent against certain liabilities related to the selling
of the securities, including liabilities arising under the Securities Act.
We
have agreed to maintain the effectiveness of this registration statement until all such securities have been sold under this registration
statement or Rule 144 under the Securities Act or are no longer outstanding. We have agreed to pay all expenses in connection with
this offering, other than underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses. The Selling
Securityholders will pay, on a pro rata basis, any underwriting fees, discounts, selling commissions, stock transfer taxes and certain
legal expenses relating to the offering.
Selling
Securityholders may use this prospectus in connection with resales of shares of our common stock and warrants. This prospectus and any
accompanying prospectus supplement will identify the Selling Securityholders, the terms of our common stock or warrants and any material
relationships between us and the Selling Securityholders. Selling Securityholders may be deemed to be underwriters under the Securities
Act in connection with shares of our common stock or warrants they resell and any profits on the sales may be deemed to be underwriting
discounts and commissions under the Securities Act. Unless otherwise set forth in a prospectus supplement, the Selling Securityholders
will receive all the net proceeds from the resale of shares of our common stock or warrants.
A
Selling Securityholder that is an entity may elect to make an in-kind distribution of common stock or warrants to its members, partners
or shareholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus. To the extent that
such members, partners or shareholders are not affiliates of ours, such members, partners or shareholders would thereby receive freely
tradable shares of common stock or warrants pursuant to the distribution through a registration statement.
We
are required to pay all fees and expenses incident to the registration of shares of our common stock and warrants to be offered and sold
pursuant to this prospectus.
LEGAL
MATTERS
The
validity of the shares of Common Stock and Warrants offered hereby will be passed upon for us by Skadden, Arps, Slate, Meagher &
Flom LLP, Palo Alto, California.
EXPERTS
The
financial statements of KINS as of December 31, 2022 and 2021, and for the years ended December 31, 2022 and 2021 appearing
in this prospectus have been audited by WithumSmith+Brown, PC, an independent registered public accounting firm, as set forth in their
report thereon (which contains explanatory paragraphs relating to the correction of certain misstatements related to the consolidated
financial statements and substantial doubt about the ability of KINS to continue as a going concern as described in Note 1 to the financial
statements), appearing elsewhere in this prospectus, and are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
The
combined carve-out financial statements as of December 31, 2022 and 2021, and for each of the two years in the period ended December 31,
2022 of Design Reactor, Inc. and subsidiaries included in this prospectus have been audited by Marcum LLP, an independent registered
public accounting firm, as stated in their report appearing herein. Such financial statements have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed a registration statement
on Form S-1, including exhibits, under the Securities Act with respect to the shares of Common Stock and Warrants offered by this prospectus.
This prospectus is part of the registration statement, but does not contain all of the information included in the registration statement
or the exhibits. Our SEC filings are available to the public on the internet at a website maintained by the SEC located at http://www.sec.gov.
Those filings are also available to the public on, or accessible through, our website under the heading “Investors Relations”
at www.cxapp.com. The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Interim
Financial Statements |
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2023 (unaudited) (Successor) and December 31, 2022 (audited) (Predecessor) |
|
F-29 |
Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Period from March 15, 2023 to March 31, 2023 (Successor),
the Period from January 1, 2023 to March 14, 2023 (Predecessor), and the Three Months Ended March 31, 2022 (Predecessor) |
|
F-30 |
Unaudited
Condensed Consolidated Statements of Stockholders’ Equity for the Period from March 15, 2023 to March 31, 2023 (Successor),
the Period from January 1, 2023 to March 14, 2023 (Predecessor), and the Three Months Ended March 31, 2022 (Predecessor) |
|
F-31 |
Unaudited
Condensed Consolidated Statements of Cash Flows for the Period from March 15, 2023 to March 31, 2023 (Successor), the Period from
January 1, 2023 to March 14, 2023 (Predecessor), and the Three Months Ended March 31, 2022 (Predecessor) |
|
F-32 |
Notes
to Unaudited Condensed Consolidated Financial Statements |
|
F-33
to F-49 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and the Board of Directors of
CXApp,
Inc. (f/k/a KINS Technology Group Inc.):
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of CXApp, Inc. (f/k/a KINS Technology Group Inc.) (the “Company”)
as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ deficit and
cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Restatement
of Financial Statements
As
discussed in Note 2 to the financial statements, the Company previously accounted for its deferred underwriting fee waiver as a forgiveness
of debt and recorded a gain on its statement of income for the year ended 2022. Management has since evaluated its accounting treatment
for the forgiveness and has determined that the forgiveness should have been treated as a credit to stockholders’ deficit. Accordingly,
the 2022 financial statements have been restated to correct the accounting and related disclosure for the forgiveness of the deferred
underwriting fee.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs as
well as complete a business combination by June 15, 2023, then the Company will cease all operations except for the purpose of liquidating.
The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans are also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2020.
New
York, New York
April 17,
2023
PCAOB
ID Number 100
CXAPP
INC. (F/K/A KINS TECHNOLOGY GROUP INC.)
CONSOLIDATED
BALANCE SHEETS
| |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
As Restated | | |
| |
ASSETS | |
| | |
| |
Current assets | |
| | | |
| | |
Cash | |
$ | 224,489 | | |
$ | 406,126 | |
Prepaid expenses | |
| 3,536 | | |
| 126,667 | |
Total current assets | |
| 228,025 | | |
| 532,793 | |
| |
| | | |
| | |
Cash and investments
held in trust account | |
| 3,923,804 | | |
| 278,836,080 | |
TOTAL
ASSETS | |
$ | 4,151,829 | | |
$ | 279,368,873 | |
| |
| | | |
| | |
LIABILITIES, CLASS
A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accrued expenses | |
$ | 2,833,412 | | |
$ | 767,253 | |
Income taxes payable | |
| 49,175 | | |
| - | |
Promissory note
– related party | |
| 347,961 | | |
| - | |
Total current liabilities | |
| 3,230,548 | | |
| 767,253 | |
| |
| | | |
| | |
Derivative liabilities | |
| 722,400 | | |
| 11,275,369 | |
Deferred underwriting
fee payable | |
| - | | |
| 9,660,000 | |
TOTAL
LIABILITIES | |
| 3,952,948 | | |
| 21,702,622 | |
| |
| | | |
| | |
Commitments and
Contingencies | |
| | | |
| | |
Class A common stock subject to possible
redemption, 387,551 and 27,600,000 shares at $10.10 per share redemption value as of December 31, 2022 and 2021, respectively | |
| 3,914,265 | | |
| 278,760,000 | |
| |
| | | |
| | |
Stockholders’
Deficit | |
| | | |
| | |
Preferred stock, $0.0001 par value;
2,000,000 shares authorized; none issued or outstanding | |
| - | | |
| - | |
Class B common stock, $0.0001 par
value; 20,000,000 shares authorized; 6,900,000 shares issued and outstanding at December 31, 2022 and 2021 | |
| 690 | | |
| 690 | |
Additional paid-in capital | |
| - | | |
| - | |
Accumulated
deficit | |
| (3,716,074 | ) | |
| (21,094,439 | ) |
Total
Stockholders’ Deficit | |
| (3,715,384 | ) | |
| (21,093,749 | ) |
TOTAL
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | |
$ | 4,151,829 | | |
$ | 279,368,873 | |
The
accompanying notes are an integral part of these consolidated financial statements.
CXAPP
INC. (F/K/A KINS TECHNOLOGY GROUP INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
| | | |
| | |
| |
Year Ended | | |
Year Ended | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| As
Restated | | |
| | |
Operating
and formation costs | |
$ | 2,950,464 | | |
$ | 1,497,914 | |
Loss from operations | |
| (2,950,464 | ) | |
| (1,497,914 | ) |
| |
| | | |
| | |
Other income: | |
| | | |
| | |
Interest earned on cash and investments
held in Trust Account | |
| 421,504 | | |
| 68,295 | |
Interest income - bank | |
| 76 | | |
| 72 | |
Change in fair value of derivative
liability | |
| 10,552,969 | | |
| 10,637,431 | |
Gain on forgiveness
of deferred underwriting fee | |
| 371,910 | | |
| - | |
Other income | |
| 11,346,459 | | |
| 10,705,798 | |
| |
| | | |
| | |
Income before provision for income
taxes | |
| 8,395,995 | | |
| 9,207,884 | |
Provision for
income taxes | |
| (49,175 | ) | |
| - | |
Net
income | |
$ | 8,346,820 | | |
$ | 9,207,884 | |
| |
| | | |
| | |
Basic and
diluted weighted average shares outstanding, Class A common stock | |
| 12,546,423 | | |
| 27,600,000 | |
| |
| | | |
| | |
Basic
and diluted net income per share, Class A common stock | |
$ | 0.43 | | |
$ | 0.27 | |
| |
| | | |
| | |
Basic and
diluted weighted average shares outstanding, Class B common stock | |
| 6,900,000 | | |
| 6,900,000 | |
| |
| | | |
| | |
Basic
and diluted net income per share, Class B common stock | |
$ | 0.43 | | |
$ | 0.27 | |
The
accompanying notes are an integral part of these consolidated financial statements.
CXAPP
INC. (F/K/A KINS TECHNOLOGY GROUP INC.)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2022 (AS RESTATED) AND 2021
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Class A | | |
Class B | | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance
— December 31, 2020 | |
| - | | |
$ | - | | |
| 6,900,000 | | |
$ | 690 | | |
$ | - | | |
$ | (30,302,323 | ) | |
$ | (30,301,633 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,207,884 | | |
| 9,207,884 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance —
December 31, 2021 | |
| - | | |
| - | | |
| 6,900,000 | | |
| 690 | | |
| - | | |
| (21,094,439 | ) | |
| (21,093,749 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Change in value of common stock subject
to redemption | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,031,545 | | |
| 9,031,545 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,346,820 | | |
| 8,346,820 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
— December 31, 2022 (As Restated) | |
| - | | |
$ | - | | |
| 6,900,000 | | |
$ | 690 | | |
$ | - | | |
$ | (3,716,074 | ) | |
$ | (3,715,384 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
CXAPP
INC. (F/K/A KINS TECHNOLOGY GROUP INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
| | | |
| | |
| |
Year Ended | | |
Year Ended | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| As
Restated | | |
| | |
Cash Flows from Operating Activities: | |
| | | |
| | |
Net income | |
$ | 8,346,820 | | |
$ | 9,207,884 | |
Adjustments to reconcile net income to net cash used in
operating activities: | |
| | | |
| | |
Interest earned on cash and investments held in Trust Account | |
| (421,504 | ) | |
| (68,295 | ) |
Change in fair value of derivative liability | |
| (10,552,969 | ) | |
| (10,637,431 | ) |
Gain on forgiveness of deferred underwriting fee | |
| (371,910 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| 123,131 | | |
| 329,967 | |
Income tax payable | |
| 49,175 | | |
| - | |
Accounts payable and accrued expenses | |
| 2,066,159 | | |
| 572,554 | |
Net cash used in
operating activities | |
| (761,098 | ) | |
| (595,321 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Cash withdrawn from trust account to pay franchise tax | |
| 231,500 | | |
| - | |
Cash withdrawn from trust account
in connection with redemptions | |
| 275,102,280 | | |
| - | |
Net cash provided
by investing activities | |
| 275,333,780 | | |
| - | |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Redemptions of common stock | |
| (275,102,280 | ) | |
| - | |
Borrowings under promissory note | |
| 347,961 | | |
| - | |
Payment of offering costs | |
| - | | |
| (17,579 | ) |
Net cash used in
financing activities | |
| (274,754,319 | ) | |
| (17,579 | ) |
| |
| | | |
| | |
Net Change in Cash | |
| (181,637 | ) | |
| (612,900 | ) |
Cash – Beginning of period | |
| 406,126 | | |
| 1,019,026 | |
Cash –
End of period | |
$ | 224,489 | | |
$ | 406,126 | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Change in value of Class A common
stock subject to possible redemption | |
$ | 256,545 | | |
$ | - | |
Forgiveness of deferred underwriting
fee payable allocated to Class A common stock | |
$ | (9,288,090 | ) | |
$ | - | |
Deferred underwriting fee payable | |
$ | - | | |
$ | 9,660,000 | |
The
accompanying notes are an integral part of these consolidated financial statements.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
NOTE
1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
CXApp
Inc. (the “Company”) was incorporated in Delaware on July 20, 2020 as KINS Technology Group Inc. (“KINS”).
The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses (the “Business Combination”). The Company is not limited to a
particular industry or sector for purposes 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 associated with early stage and emerging growth companies.
The
Company has one wholly-owned subsidiary, KINS Merger Sub Inc., which was incorporated in the State of Delaware on September 16,
2022 (“Merger Sub”). Merger Sub has no activity from date of incorporation, September 16, 2022 through December 31,
2022.
As
of December 31, 2022, the Company had not commenced any operations. All activity for the period from July 20, 2020 (inception)
through December 31, 2022 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.
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”), located in the United States and invested only in U.S. government securities, within the meaning set
forth in Section 2(a)(16) 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.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
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.).
On December 9, 2022 the Special Meeting the Stockholders voted to allow the Company to redeem shares of Class A Common Stock in
connection with the amendment to the Charter to the extent that such redemption would result in the Company having net tangible assets
of less than $5,000,001. 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”) and file tender offer documents with the SEC prior to completing a Business
Combination. If, however, stockholder approval 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 Extended Combination Period (as defined below) or (ii) with
respect to any other provision relating to stockholders’ rights or pre-Business Combination activity, unless the Company provides
the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
The
Company previously had until June 17, 2022 to consummate a business combination. On June 10, 2022, the Company held a special
meeting of stockholders pursuant to which its stockholders approved amending the Company’s amended and restated certificate of
incorporation (the “Initial Charter Amendment”) to extend the date by which the Company has to consummate a business combination
from June 17, 2022 to December 16, 2022. The Company’s stockholders approved the Initial Charter Amendment and as such
the Company had until December 16, 2022 to consummate a business combination. On December 9, 2022, the Company held a special
meeting of the stockholders in which the stockholders approved the proposal to amend the Company’s amended and restated certificate
of incorporation (the “Charter Amendment”) to (A) extend the date by which the Company must (1) consummate a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, (2) cease its operations except for
the purpose of winding up if it fails to complete such initial business combination, and (3) redeem all of the shares of Class A common
stock, par value $0.0001 per share, of the Company (“Class A Common Stock”), included as part of the units sold in the IPO,
from December 16, 2022 to June 15, 2023 (the “Extended Combination Period”), and (B) allow the Company to redeem
shares of Class A Common Stock in connection with the amendment to the Charter to the extent that such redemption would result in the
Company having net tangible assets of less than $5,000,001. On December 14, 2022, the Company filed the Charter Amendment with the
Secretary of State of the State of Delaware.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
If
we have not completed a Business Combination by June 15, 2023 or during any extended time that we have to consummate a Business
Combination beyond June 15, 2023 as a result of a stockholder vote to amend its certificate of incorporation, the Company will (i)
cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten 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 Extended Combination Period.
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 Extended 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 Extended 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 Extended 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”). 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.
Liquidity
and Going Concern
As
of December 31, 2022, the Company had $224,489 in its operating bank accounts and a working capital deficit of $3,002,523.
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, unsecured, non-interest bearing
promissory note of up to $300,000 from the Sponsor, 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. As of December 31, 2022 and 2021, there were no amounts outstanding
under any Working Capital Loan.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
In
connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s
Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue
as a Going Concern,” the Company has until June 15, 2023 to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by this time. Additionally, the Company may not have sufficient liquidity to fund the
working capital needs of the Company through one year from the issuance of these consolidated financial statements. If a business combination
is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined
that the liquidity condition and mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution,
raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should the Company be required to liquidate after June 15, 2023. The Company intends to complete
a Business Combination before the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate
any Business Combination by June 15, 2023. In addition, the Company may need to raise additional capital through loans or additional
investments from our Sponsor, stockholders, officers, directors or third parties. The Company’s officers, directors and Sponsor
may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their
sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing.
If the Company is unable to raise additional capital, the Company may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and
reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable
terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through the
liquidation date of June 15, 2023.
NOTE
2 — RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The
Company had recognized a liability upon closing of their initial public offering in December 2020 for a portion of the underwriter’s
commissions which was contingently payable upon closing of a future business combination, with the offsetting entry resulting in an initial
discount to the securities sold in the initial public offering. The underwriter waived all claims to this deferred commission in June 2022.
The Company previously recognized the waiver as an extinguishment, with a resulting non-operating gain recognized in its statement of
operations for the three and six months ended June 30, 2022, nine months ended September 30, 2022 and the year ended December 31,
2022. Upon subsequent review and analysis, management concluded that the Company should have recognized the extinguishment of the contingent
liability as a reversal in the same relative allocation applied at the initial public offering.
Therefore,
the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”)
concluded that the Company’s previously issued audited financial statements as of December 31, 2022 (the “Annual Report”)
should no longer be relied upon and that it is appropriate to restate the Annual Report. As such, the Company will restate its financial
statements in this Form 10-K/A for the Company’s unaudited financial statements for three and six months ended June 30,
2022, nine months ended September 30, 2022, and the audited financial statements for the year ended December 31, 2022 included
in the Annual Report on the Company’s Form 10-K, as filed with the Securities and Exchange Commission (“SEC”)
on March 21, 2023 (the “Original Filing”).
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Impact
of the Restatement
The
impact of the restatement on the consolidated statements of operations, statements of changes in stockholders’ deficit and statements
of cash flows for the affected period is presented below. The restatement had no impact on net cash flows from operating, investing or
financing activities.
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Unaudited Statement
of Operations for the Three Months Ended June 30, 2022 | |
| | | |
| | | |
| | |
Gain on forgiveness of
deferred underwriting fee payable | |
| 9,660,000 | | |
| (9,288,090 | ) | |
| 371,910 | |
Total other income (expenses) | |
| 10,396,046 | | |
| (9,288,090 | ) | |
| 1,107,956 | |
Income (loss) before benefit from
(provision for) income taxes | |
| 10,094,313 | | |
| (9,288,090 | ) | |
| 806,223 | |
Net Income | |
| 10,071,447 | | |
| (9,288,090 | ) | |
| 783,357 | |
Basic and diluted weighted average
shares outstanding - Class A common stock | |
| 14,481,736 | | |
| - | | |
| 14,481,736 | |
Basic and diluted earnings per share
- Class A common stock | |
$ | 0.47 | | |
$ | (0.43 | ) | |
$ | 0.04 | |
Basic and diluted weighted average
shares outstanding - Class B common stock | |
| 6,900,000 | | |
| - | | |
| 6,900,000 | |
Basic and diluted earnings per share
- Class B common stock | |
$ | 0.47 | | |
$ | (0.43 | ) | |
$ | 0.04 | |
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Unaudited Statement of Operations for
the Six Months Ended June 30, 2022 | |
| | | |
| | | |
| | |
Gain on forgiveness of deferred underwriting
fee payable | |
| 9,660,000 | | |
| (9,288,090 | ) | |
| 371,910 | |
Total other income (expenses) | |
| 18,587,467 | | |
| (9,288,090 | ) | |
| 9,299,377 | |
Income (loss) before benefit from (provision for) income
taxes | |
| 17,962,482 | | |
| (9,288,090 | ) | |
| 8,674,392 | |
Net Income | |
| 17,939,616 | | |
| (9,288,090 | ) | |
| 8,651,526 | |
Basic and diluted weighted average shares outstanding -
Class A common stock | |
| 21,004,630 | | |
| - | | |
| 21,004,630 | |
Basic and diluted earnings per share - Class A common stock | |
$ | 0.64 | | |
$ | (0.33 | ) | |
$ | 0.31 | |
Basic and diluted weighted average shares outstanding -
Class B common stock | |
| 6,900,000 | | |
| - | | |
| 6,900,000 | |
Basic and diluted earnings per share - Class B common stock | |
$ | 0.64 | | |
$ | (0.33 | ) | |
$ | 0.31 | |
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Unaudited Statement
of Operations for the Nine Months Ended September 30, 2022 | |
| | | |
| | | |
| | |
Gain on forgiveness of
deferred underwriting fee payable | |
| 9,660,000 | | |
| (9,288,090 | ) | |
| 371,910 | |
Total other income (expenses) | |
| 20,560,364 | | |
| (9,288,090 | ) | |
| 11,272,274 | |
Income (loss) before benefit from
(provision for) income taxes | |
| 18,838,653 | | |
| (9,288,090 | ) | |
| 9,550,563 | |
Net Income | |
| 18,811,924 | | |
| (9,288,090 | ) | |
| 9,523,834 | |
Basic and diluted weighted average
shares outstanding – Class A common stock | |
| 16,466,455 | | |
| - | | |
| 16,466,455 | |
Basic and diluted earnings per share
– Class A common stock | |
$ | 0.81 | | |
$ | (0.40 | ) | |
$ | 0.41 | |
Basic and diluted weighted average
shares outstanding - Class B common stock | |
| 6,900,000 | | |
| - | | |
| 6,900,000 | |
Basic and diluted earnings per share
- Class B common stock | |
$ | 0.81 | | |
$ | (0.40 | ) | |
$ | 0.41 | |
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Statement of Operations for the Year
Ended December 31, 2022 | |
| | | |
| | | |
| | |
Gain on forgiveness of deferred underwriting
fee payable | |
| 9,660,000 | | |
| (9,288,090 | ) | |
| 371,910 | |
Total other income (expenses) | |
| 20,634,549 | | |
| (9,288,090 | ) | |
| 11,346,459 | |
Income (loss) before benefit from (provision for) income
taxes | |
| 17,684,085 | | |
| (9,288,090 | ) | |
| 8,395,995 | |
Net Income | |
| 17,634,910 | | |
| (9,288,090 | ) | |
| 8,346,820 | |
Basic and diluted weighted average shares outstanding -
Class A common stock | |
| 12,546,423 | | |
| - | | |
| 12,546,423 | |
Basic and diluted earnings per share - Class A common stock | |
$ | 0.91 | | |
$ | (0.48 | ) | |
$ | 0.43 | |
Basic and diluted weighted average shares outstanding -
Class B common stock | |
| 6,900,000 | | |
| - | | |
| 6,900,000 | |
Basic and diluted earnings per share - Class B common stock | |
$ | 0.91 | | |
$ | (0.48 | ) | |
$ | 0.43 | |
Unaudited
Statement of Changes in Stockholders’ Deficit for the Three Months Ended June 30, 2022
| |
Accumulated Deficit | |
| |
As Previously | | |
| | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Balance
– March 31, 2022 | |
$ | (13,226,270 | ) | |
$ | - | | |
$ | (13,225,580 | ) |
Net income | |
| 10,071,447 | | |
| (9,288,090 | ) | |
| 783,357 | |
Accretion of
Class A common stock to redemption value | |
| (242,995 | ) | |
| 9,288,090 | | |
| 9,045,095 | |
Balance
– June 30, 2022 | |
$ | (3,397,818 | ) | |
$ | - | | |
$ | (3,397,128 | ) |
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Statement
of Changes in Stockholders’ Deficit for the Year Ended December 31, 2022
| |
Accumulated Deficit | |
| |
As Previously | | |
| | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Balance
– December 31, 2021 | |
$ | (21,094,439 | ) | |
$ | - | | |
$ | (21,094,439 | ) |
Net income | |
| 17,634,910 | | |
| (9,288,090 | ) | |
| 8,346,820 | |
Accretion of
Class A common stock to redemption value | |
| (256,545 | ) | |
| 9,288,090 | | |
| 9,031,545 | |
Balance
– December 31, 2022 | |
$ | (3,716,074 | ) | |
$ | - | | |
$ | (3,716,074 | ) |
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Unaudited Statement
of Cash Flows for the Six Months Ended June 30, 2022 | |
| | | |
| | | |
| | |
Net Income | |
| 17,939,616 | | |
| (9,288,090 | ) | |
| 8,651,526 | |
Gain on forgiveness of deferred underwriting
fee payable | |
| (9,660,000 | ) | |
| 9,288,090 | | |
| (371,910 | ) |
Non-Cash Investing
and Financing Activities | |
| | | |
| | | |
| | |
Extinguishment of deferred underwriting
fee payable allocated to public shares | |
| - | | |
| (9,288,090 | ) | |
| (9,288,090 | ) |
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Unaudited Statement
of Cash Flows for the Nine Months Ended September 30, 2022 | |
| | | |
| | | |
| | |
Net Income | |
| 18,811,924 | | |
| (9,288,090 | ) | |
| 9,523,834 | |
Gain on forgiveness of deferred underwriting
fee payable | |
| (9,660,000 | ) | |
| 9,288,090 | | |
| (371,910 | ) |
Non-Cash Investing
and Financing Activities | |
| | | |
| | | |
| | |
Extinguishment of deferred underwriting
fee payable allocated to public shares | |
| - | | |
| (9,288,090 | ) | |
| (9,288,090 | ) |
| |
As Previously | | |
Restatement | | |
| |
| |
Reported | | |
Adjustment | | |
As Restated | |
Statement of Cash Flows for the Year
Ended December 31, 2022 | |
| | | |
| | | |
| | |
Net Income | |
| 17,634,910 | | |
| (9,288,090 | ) | |
| 8,346,820 | |
Gain on forgiveness of deferred underwriting fee payable | |
| (9,660,000 | ) | |
| 9,288,090 | | |
| (371,910 | ) |
Non-Cash Investing and Financing Activities | |
| | | |
| | | |
| | |
Extinguishment of deferred underwriting fee payable allocated
to public shares | |
| - | | |
| (9,288,090 | ) | |
| (9,288,090 | ) |
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and
regulations of the Securities and Exchange Commission (the “SEC”).
As
described in Note 2—Restatement of Previously Issued Financial Statements, the Company’s financial statements for the year
ended December 31, 2022 (collectively, the “Affected Period”), are restated in this Annual Report on Form 10-K/A
(Amendment No. 1) (this “Annual Report”) to correct the misapplication of accounting guidance related to the liability extinguishment
in the Company’s previously issued audited financial statements for such period. The restated financial statements are indicated
as “Restated” in the audited financial statements and accompanying notes, as applicable. See Note 2—Restatement of
Previously Issued Financial Statements for further discussion.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.
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 consolidated financial statements 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 consolidated financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during 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 consolidated financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting
estimates included in these consolidated financial statements is the determination of the fair value of the warrant liabilities. Accordingly,
the actual results could differ significantly from those estimates.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of six months or less when purchased to be cash equivalents. The
Company did not have any cash equivalents as of December 31, 2022 and 2021.
Concentration
of Credit Risk
The
Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit
of $250,000. 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.
Class
A Common Stock Subject to Possible Redemption
The
Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards
Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject
to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not within the Company’s control) is classified as temporary equity. At all other times, common
stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are
considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of December 31,
2022 and 2021, 387,551 and 27,600,000 shares of Class A common stock subject to possible redemption are presented as temporary equity,
outside of the stockholders’ deficit section of the Company’s consolidated balance sheets, respectively.
The
Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to
equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock
are affected by charges against additional paid in capital (to the extent available) and accumulated deficit.
At
December 31, 2022 and 2021, the Class A common stock reflected in the consolidated balance sheets are reconciled in the following
table:
Class A common stock subject to possible redemption, January 1, 2021 | |
$ | 278,760,000 | |
Plus: | |
| | |
Accretion of carrying value to redemption value | |
| - | |
Class A common stock subject to possible redemption, December 31, 2021 | |
| 278,760,000 | |
Plus: | |
| | |
Waiver of Class A common stock issuance costs | |
| 9,288,090 | |
Less: | |
| | |
Accretion of carrying value to redemption value | |
| (9,031,545 | ) |
Redemption of Class A Common Stock | |
| (275,102,280 | ) |
Class A common stock subject to redemption, December 31,
2022 | |
$ | 3,914,265 | |
Offering
Costs
Offering
costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the
Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based
on a relative fair value basis, compared to total proceeds received. Offering costs allocated to warrant liabilities were expensed as
incurred in the consolidated statements of operations. Offering costs associated with the Class A common stock issued were initially
charged to temporary equity. Offering 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 $15,239,420 was charged to temporary equity and $449,428
was allocated to the warrant liability and expensed through the consolidated statements of operations.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
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”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging
(“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under
ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
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. 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, and 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 consolidated statements of operations.
The Private Placement 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, the Public Warrant quoted market
price was used as the fair value of the Warrants (as defined below) as of each relevant date.
Income
Taxes
The
Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred
tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities
and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation
allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC
740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in
interim periods under ASC 740-270-30-5. As of December 31, 2022 and December 31, 2021, the Company’s deferred tax asset
had a full valuation allowance recorded against it. The Company’s effective tax rate was 0.3% and 0.0%, respectively. The effective
tax rate differs from the statutory tax rate of 21% for the years ended December 31, 2022 and 2021, due to changes in fair value
in warrant liability and the valuation allowance on the deferred tax assets.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes
a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
period, disclosure and transition.
The
Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized
tax benefits and no amounts accrued for interest and penalties as of December 31, 2022 and December 31, 2021. 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 has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation
by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus
of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect
that the total amount of unrecognized tax benefits will materially change over the next twelve months.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Net
Income per Common Share
The
Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per
common share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period.
The Company applies the two-class method in calculating earnings per share. Accretion associated with the redeemable shares of Class
A common stock is excluded from earnings per share as the redemption value approximates fair value.
The
calculation of diluted income per share does not consider the effect of the Warrants issued in connection with the (i) Initial Public
Offering, and (ii) the private placement since the exercise of the Warrants is contingent upon the occurrence of future events. The Warrants
are exercisable to purchase 24,080,000 shares of Class A common stock in the aggregate. As of December 31, 2022 and 2021, the Company
did not have any other dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and
then share in the earnings of the Company. As a result, diluted net income per common share is the same as basic net income per common
share for the periods presented.
The
following table reflects the calculation of basic and diluted net income per common share (in dollars, except per share amounts):
| |
Year Ended | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
| Class
A | | |
| Class
B | | |
| Class
A | | |
| Class
B | |
Basic and diluted
net income per common stock | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Allocation of net income,
as adjusted | |
$ | 5,385,193 | | |
$ | 2,961,627 | | |
$ | 7,366,307 | | |
$ | 1,841,577 | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted
weighted average shares outstanding | |
| 12,546,423 | | |
| 6,900,000 | | |
| 27,600,000 | | |
| 6,900,000 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net income per
common stock | |
$ | 0.43 | | |
$ | 0.43 | | |
$ | 0.27 | | |
$ | 0.27 | |
Fair
Value of Financial Instruments
The
fair value of the Company’s assets and liabilities which qualify as financial instruments under ASC Topic 820, “Fair Value
Measurement,” approximate the carrying amounts represented in the accompanying consolidated balance sheets, primarily due to their
short-term nature, except the derivative warrant liabilities (see Note 10).
Recent
Accounting Standards
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt — Debt with Conversion
and Other Options (Subtopic 470-20) 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 and should be applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The Company adopted ASU 2020-06 as of January 1, 2021 and the adoption did not have an impact
on its financial position, results of operations or cash flows.
Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on the Company’s consolidated financial statements.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
NOTE
4 — 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, at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half
of one redeemable warrant (“Public Warrant” and, together with the Private Placement Warrants, the “Warrants”).
Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to
adjustment (see Note 8).
NOTE
5 — PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, 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 one 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 Extended 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
6 — 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 extent
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, no 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 the 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-trading day period commencing at least 150
days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other
similar transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash,
securities or other property.
Administrative
Services Agreement
The
Company entered into an agreement, commencing on December 14, 2020 through the earlier of the Company’s consummation 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. For each of the years ended December 31, 2022 and 2021, the Company incurred and paid $240,000 in fees
for these services.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Promissory
Note — Related Party
On
August 10, 2022, KINS Capital LLC issued an unsecured promissory note to the Company, pursuant to which the Company may borrow up
to an aggregate principal amount of $400,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) closing
of the Merger as described in the BCA or (ii) June 15, 2023. As December 31, 2022, $347,961 was outstanding under the Promissory
Note.
Working
Capital Loans
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, 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 December 31,
2022 and 2021, there were no amounts outstanding under the Working Capital Loans.
NOTE
7 — COMMITMENTS AND CONTINGENCIES
Risks
and Uncertainties
Various
social and political circumstances in the United States and around the world (including wars and other forms of conflict, including rising
trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the United States
and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such
as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market volatility
and economic uncertainties or deterioration in the United States and worldwide. Specifically, the rising conflict between Russia and
Ukraine, and resulting market volatility could adversely affect the Company’s ability to complete a Business Combination. In response
to the conflict between Russia and Ukraine, the United States and other countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could
have a material adverse effect on the Company’s ability to complete a Business Combination and the value of the Company’s
securities.
Management
continues to evaluate the impact of these types of risks and has concluded that while it is reasonably possible that these risks and
uncertainties 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 consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation
Reduction Act of 2022
On
August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides
for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations
and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise
tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise
tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating
the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair
market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department
of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent
the abuse or avoidance of the excise tax.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Any
redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or
otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection
with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of
the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination
(or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination)
and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the
Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing
could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete
a Business Combination.
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 three 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 were entitled to a deferred fee of $0.35 per Unit, or up to $9,660,000 in the aggregate. The deferred fee was to become
payable to the underwriters from the amounts held in the Trust Account in the event that the Company completed a Business Combination,
subject to the terms of the underwriting agreement.
On
June 9, 2022, one of the underwriters waived its entitlement to the payment of any deferred fee to be paid under the terms of the
underwriting agreement and is no longer serving in an advisor capacity. As a result, the Company recognized $9,660,000 of income in relation
to the reduction of the deferred underwriter fee in the accompanying consolidated financial statements.
Merger
Agreement
On
September 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among
the Company, Inpixon, a Nevada corporation (“Inpixon”), CXApp Holding Corp., a Delaware corporation and wholly-owned subsidiary
of Inpixon (“CXApp” and, together with Inpixon, collectively, the “Companies”), and Merger Sub, pursuant to which
the Company will combine with 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”). Also on September 25,
2022, and in connection with the execution of the Merger Agreement, the Company, Inpixon, CXApp and the Sponsor entered into that certain
sponsor support agreement (the “Sponsor Support Agreement”).
Immediately
prior to the Merger (as defined below) and pursuant to a Separation and Distribution Agreement, dated as of September 25, 2022,
among the Company, Inpixon, CXApp and Design Reactor, Inc., a California corporation (“Design Reactor”) (the “Separation
Agreement”), and other ancillary conveyance documents, Inpixon will, among other things and on the terms and subject to the conditions
of the Separation Agreement, transfer the Enterprise Apps Business, including certain related subsidiaries of Inpixon, including Design
Reactor, to CXApp (the “Reorganization”) and, in connection therewith, will distribute (the “Distribution”) to
Inpixon stockholders and other security holders 100% of the common stock of CXApp, par value $0.00001 (the “CXApp Common Stock”),
as further described below.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Immediately
following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge
with and into CXApp (the “Merger”), with CXApp continuing as the surviving company in the Merger and as a wholly-owned subsidiary
of the Company.
The
Merger Agreement, along with the Separation Agreement and the other transaction documents to be entered into in connection therewith,
provides for, among other things, the consummation of the following transactions (collectively, the “Business Combination”):
(i) Inpixon will transfer the Enterprise Apps Business (the “Separation”) to its wholly-owned subsidiary, CXApp, and contribute
$10 million in capital thereto (the “Cash Contribution”), (ii) following the Separation, Inpixon will distribute 100% of
the shares of CXApp Common Stock to Inpixon stockholders and other security holders by way of the distribution and (iii) following the
completion of the foregoing transactions and subject to the satisfaction or waiver of certain other conditions set forth in the Merger
Agreement, the parties shall consummate the Merger. The Separation, Distribution and Merger are intended to qualify as “tax-free”
transactions.
Upon
consummation of the Business Combination, the Company will have two classes of common stock: Class A common stock, par value $0.0001
per share (the “Company’s Class A Common Stock”), and Class C common stock, par value $0.0001 per share (the “Company’s
Class C Common Stock” and together with the Company’s Class A Common Stock, the “Company’s Common Stock”).
The Company’s Class A Common Stock and the Company’s Class C Common Stock will be identical in all respects, except that
the Company’s Class C Common Stock will be subject to transfer restrictions and will automatically convert into Company’s
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 the Company’s Class A Common Stock equals or exceeds $12.00 per share for any 20 trading days within any
30-trading day period following the closing of the Merger. The Company’s Class A Common Stock will be listed on the Nasdaq Capital
Market (“Nasdaq”) and are expected to be trading under a new ticker symbol. The outstanding warrants of the Company will
be listed on Nasdaq and are expected to be trading under a new ticker symbol.
Consideration
Paid
At
the time the Business Combination is effected (the “Closing”), the outstanding shares of CXApp Common Stock after the Distribution
and immediately prior to the effective time of the Merger will be converted into an aggregate of 6.9 million shares of The Company’s
Common Stock which shall be issued to Inpixon shareholders, subject to adjustment. Each holder’s aggregate merger consideration
will consist of 10% Company’s Class A Common Stock and 90% Company’s Class C Common Stock (such percentages, in each case,
subject to adjustment to comply with the listing requirements set forth under Nasdaq Listing Rule 5505(b)(2) with respect to KINS).
Representations
and Warranties & Covenants
Pursuant
to the Merger Agreement, the Company, CXApp and Inpixon each made representations and warranties customary for transactions of this type
regarding themselves and their respective businesses. The representations and warranties made pursuant to the Merger Agreement will not
survive the Closing. In addition, the parties to the Merger Agreement agreed to be bound by certain covenants that are customary for
transactions of this type. The covenants made under the Merger Agreement generally will not survive the Closing, with the exception of
certain covenants and agreements that by their terms are to be performed in whole or in part after the Closing, which will survive in
accordance with the terms of the Merger Agreement.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Conditions
to Closing
The
consummation of the Business Combination is subject to conditions customary for transactions involving special purpose acquisition companies,
including, among others: (i) there is not in force any order, judgment, injunction, decree, writ, stipulation, determination or award,
in each case, entered by or with any governmental authority of competent jurisdiction, statute, rule or regulation enjoining or prohibiting
the consummation of the Merger, (ii) the Company shall have at least $5,000,001 of net tangible assets as of the Closing, (iii) the Company’s
Class A Common Stock issuable pursuant to the Business Combination shall have been approved for listing on Nasdaq, (iv) CXApp and the
Company shall each have performed and complied in all material respects with the covenants required by the Merger Agreement to be performed
by it as of or prior to Closing, (v) customary bring down conditions related to the accuracy of the CXApp’s and the Company’s
respective representations and warranties in the Merger Agreement, (vi) the consummation of the Distribution, the Reorganization and
other transactions contemplated by the Separation and Distribution Agreement, (vii) the Company’s registration statement to be
filed with the Securities and Exchange Commission (“SEC”) shall have become effective (and no stop order suspending effectiveness
have been issued and no proceedings for that purpose has been initiated or threatened by the SEC), (viii) each of the Company’s
and CXApp’s stockholder approvals shall have been obtained and (ix) the sum of (A) the aggregate amount of cash available in KINS’s
trust account following the Company’s stockholders’ meeting, after deducting the amount required to satisfy the Acquiror
Share Redemption Amount (as defined in the Merger Agreement) (but prior to payment of any transaction expenses), (B) the aggregate gross
purchase price of any other purchase of shares of the Company’s Common Stock (or securities convertible or exchangeable for the
Company’s Common Stock) actually received by the Company prior to or substantially concurrently with the closing of the Merger,
and (C) the aggregate gross purchase price of any other purchase of shares of CXApp Common Stock (or securities convertible or exchangeable
for CXApp Common Stock) actually received by CXApp prior to or substantially concurrently with the closing of the Merger, shall be equal
to or greater than $9.5 million. The Company’s obligation to consummate the Business Combination is also conditioned on there having
been no event that has had, or would reasonably be expected to have, individually or in the aggregate, a “Material Adverse Effect”
on CXApp.
Termination
The
Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing, including (i)
by the mutual written consent of the Company and CXApp, (ii) by the Company or CXApp, if the Closing shall not have occurred on or before
March 16, 2023, (iii) by the Company or CXApp, if there has been any order, judgment, injunction, decree, writ, stipulation, determination
or award, in each case, entered by or with any governmental authority that would make the Merger illegal or otherwise prevent or prohibit
the Merger, (iv) by the Company or CXApp, if KINS has not obtained the requisite approval from its stockholders, (v) by KINS or CXApp
if the other party breaches certain representations, warranties, or covenants, as specified in the Merger Agreement, and that breach
is unable to be cured, or is not cured, within 30 days, or by CXApp if there has been an uncured breach by Sponsor of certain of its
obligations under the Sponsor Support Agreement or (vi) by the Company if CXApp has not obtained the requisite approval from its stockholders
within one hour of the effective date of the Company’s registration statement, provided that CXApp or the Company pay a termination
fee of $2.0 million to the other party if the Merger Agreement is terminated pursuant to (v) or (vi) above.
Separation
and Distribution Agreement
On
September 25, 2022, in connection with the execution of the Merger Agreement, the Company entered into the Separation Agreement
with CXApp, Inpixon and Design Reactor, pursuant to which, among other things, (i) Inpixon will undertake a series of internal reorganization
and restructuring transactions to effect the transfer of its (direct or indirect) ownership of the Enterprise Apps Business to CXApp
in the Separation and (ii) immediately prior to the Merger and after the Separation, Inpixon will distribute 100% of the outstanding
shares of CXApp Common Stock to Inpixon’s stockholders and certain other security holders in the Distribution.
The
Separation Agreement also sets forth other agreements among Inpixon and CXApp related to the Separation, including provisions concerning
the termination and settlement of intercompany accounts and the obtaining of third-party consents. The Separation Agreement also sets
forth agreements that will govern certain aspects of the relationship between Inpixon and CXApp after the Distribution, including provisions
with respect to release of claims, indemnification, access to financial and other information and access to and provision of records.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
Consummation
of the Distribution is subject to a number of conditions, including, among others, (i) the completion of the Reorganization and other
related transactions, (ii) the execution of the ancillary agreements by the parties and (iii) the satisfaction or waiver of all conditions
under the Merger Agreement (other than those conditions that are to be satisfied contemporaneously with the Distribution and/or the Merger,
provided that such conditions are capable of being satisfied at such time).
Sponsor
Support Agreement
On
September 25, 2022, in connection with the execution of the Merger Agreement, the Company, Inpixon, CXApp and the Sponsor entered
into the Sponsor Support Agreement, pursuant to which, among other things, the Sponsor agreed to vote any of the Company’s securities
held by it to approve the Business Combination and the other of the Company’s stockholder matters required pursuant to the Merger
Agreement, and not to seek redemption of any of the Company’s securities in connection with the consummation of the Business Combination.
Pursuant to the Sponsor Support Agreement, the Sponsor and the Company also agreed to amend the letter agreement, dated as of December 14,
2020 between the Sponsor and the Company (the “Insider Letter”) to amend the Founder Shares Lock-Up Period (as defined in
the Insider Letter) to provide for lock-up of its shares of the Company’s Class B common stock, par value $0.0001 per share (“Company’s
Class B Common Stock”) (or Company’s Class A Common Shares issuable upon conversion thereof) until the earlier of (A) the
180th day after the closing of the Merger and (B) (x) the date on which the Company completes a liquidation, merger, stock exchange,
reorganization or other similar transaction following the closing of the Merger or (y) the day that the last reported sale price of the
Company’s Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within any 30-trading day period following the Closing of the Merger; provided,
that 22% of such shares (subject to adjustment) shall not be subject to foregoing lock-up. Additionally, Sponsor has agreed to exchange
6,150,000 shares of the Company’s Class B Common Stock, equal to such that the number of shares of the Company’s Common Stock
issued as aggregate merger consideration exceeds (by one share): (i) the aggregate number of shares of the Company’s Class A Common
Stock held by Sponsor at Closing (after taking into the exchange), plus (ii) the aggregate number of shares of the Company’s Class
B Common Stock held by certain funds and accounts managed by BlackRock, Inc. (including all Potential Forfeiture Shares (as defined in
the Sponsor Support Agreement)), plus (iii) the aggregate number of shares of the Company’s Class A Common Stock that have not
properly elected to redeem their shares of the Company’s Class A Common Stock pursuant to the Company’s governing documents,
plus (iii) any shares of the Company’s Common Stock issued as incentives for non-redemption transactions and financing transactions,
in each case, free and clear of all liens; provided, that, in no instance shall the number of shares issued to Sponsor in the exchange
be less than 5,150,000 shares of the Company’s Class A Common Stock.
NOTE
8 — STOCKHOLDERS’ DEFICIT
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 December 31, 2022 and 2021, there were no shares of preferred stock issued or outstanding.
Class
A Common Stock — The Company is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.0001
per share. Holders of Class A common stock are entitled to one vote for each share. At December 31, 2022 and 2021, there were
387,551 and 27,600,000 shares of Class A common stock issued and outstanding which are subject to possible redemption and presented as
temporary equity, 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 one vote for each share. At December 31, 2022 and 2021, there were
6,900,000 shares of Class B common stock issued and outstanding.
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.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
The
shares of Class B common stock will automatically convert into Class A common stock at the time 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 one-for-one basis, 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 issued 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, 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 issued in connection with a Business Combination (excluding any shares or
equity-linked securities issued or issuable to any seller in a Business Combination).
NOTE
9 — DERIVATIVE WARRANT LIABILITIES
As
of December 31, 2022 and 2021 there were 13,800,000 Public Warrants outstanding and 10,280,000 Private Placement 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) 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 Combination 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, a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable
upon exercise of the warrants. The Company will use its commercially reasonable efforts to maintain the effectiveness of such registration
statement and a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding
the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such
that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may,
at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance
with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or
maintain in effect a registration statement, but we will be required to use our commercially reasonable efforts to register or qualify
the shares under applicable blue sky laws to the extent an exemption is not available.
Redemptions
of warrants when the price of Class A common stock equals or exceeds $18.00 — Once the warrants become exercisable, the Company
may redeem the Public Warrants:
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
| ● | upon
not less than 30 days’ prior written notice of redemption, or the 30-day redemption
period, to each warrant holder; and |
| ● | if,
and only if, the reported last sale price of the Company’s Class A common stock equals
or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations, and the like) for any 20 trading days within a 30-trading day period
ending on the third trading day prior to the date on which the Company sends the notice of
redemption to the warrant holders. |
If
and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register
or qualify the underlying securities for sale under all applicable state securities laws.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $10.00 – Once the warrants become exercisable,
the Company may redeem the outstanding warrants:
| ● | in
whole and not in part; |
| ● | at
a price of $0.10 per warrant provided that holders will be able to exercise their warrants
prior to redemption and receive that number of shares of Class A common stock determined
based on the redemption date and the “fair market value” of the Company’s
Class A common stock; |
| ● | upon
not less than 30 days’ prior written notice of redemption, or the 30-day redemption
period; |
| ● | if,
and only if, the last reported sale price of the Company’s Class A common stock equals
or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) on the trading day prior to the date on which the Company
sends the notice of redemption to the warrant holders; |
| ● | if,
and only if, there is an effective registration statement covering the issuance of the shares
of Class A common stock issuable upon exercise of the warrants and a current prospectus relating
thereto is available throughout the 30-day period after the written notice of redemption
is given. |
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 December 31, 2022 and 2021 there were 10,280,000 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.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
NOTE
10 — INCOME TAX
The
Company’s net deferred tax assets are as follows as of December 31, 2022 and 2021:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax asset | |
| | | |
| | |
Organizational costs/startup
expenses | |
$ | 924,537 | | |
$ | 322,963 | |
Net operating
loss carryforward | |
| - | | |
| 28,689 | |
Total deferred tax asset | |
| 924,537 | | |
| 351,652 | |
Valuation allowance | |
| (924,537 | ) | |
| (351,652 | ) |
Deferred tax
asset, net of allowance | |
$ | - | | |
$ | - | |
The
income tax provision consists of the following for the years ended December 31, 2022 and 2021:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Federal | |
| | | |
| | |
Current | |
$ | 49,175 | | |
$ | - | |
Deferred | |
| (572,885 | ) | |
| (300,205 | ) |
| |
| | | |
| | |
State and Local | |
| | | |
| | |
Current | |
| - | | |
| - | |
Deferred | |
| - | | |
| - | |
Change in valuation allowance | |
| 572,885 | | |
| 300,205 | |
Income tax provision | |
$ | 49,175 | | |
$ | - | |
As
of December 31, 2022 and 2021, the Company had U.S. federal net operating loss carryover of approximately $0 and $137,000 available
to offset future taxable income indefinitely, respectively.
In
assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. After consideration of all of the information available, management believes that significant uncertainty
exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the
year ended December 31, 2022 and 2021, the change in the valuation allowance was $572,885 and $300,205, respectively.
A
reconciliation of the federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2022 and
2021 are as follows:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Statutory federal income tax rate | |
| 21.0 | % | |
| 21.0 | % |
State taxes, net of federal tax benefit | |
| 0.0 | % | |
| 0.0 | % |
Transaction costs allocated to derivative warrant liabilities | |
| 0.0 | % | |
| 0.0 | % |
Change in fair value of derivative warrant liabilities | |
| (23.9 | )% | |
| (24.3 | )% |
Valuation allowance | |
| 3.2 | % | |
| 3.3 | % |
Income tax provision | |
| 0.3 | % | |
| 0.0 | % |
The
Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions and is subject to examination
by the various taxing authorities.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
NOTE
11 — FAIR VALUE MEASUREMENTS
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would
have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction
between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, 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). The following fair value hierarchy is
used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and
liabilities:
| Level
1: | Quoted
prices in active markets for identical assets or liabilities. An active market for an asset
or liability is a market in which transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing basis. |
| Level
2: | Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active
markets for similar assets or liabilities and quoted prices for identical assets or liabilities
in markets that are not active. |
| Level
3: | Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing
the asset or liability. |
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 which the Company has the ability and intent to
hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying consolidated balance sheets
and adjusted for the amortization or accretion of premiums or discounts.
On
December 31 2022, assets held in the Trust Account consisted of $3,923,804 held in an interest-bearing commercial checking account.
Cash held in commercial checking accounts is reported on the balance sheet at its approximate fair value. During the year ended December 31,
2022, the Company withdrew $231,500 of interest income from the Trust Account for taxes and $275,102,280 was withdrawn from the Trust
Account in connection with the redemption of Class A common stock.
At
December 31, 2021, assets held in the Trust Account were comprised of $898 in cash and $278,835,182 in money market funds, respectively.
Through December 31, 2021, the Company did not withdraw any interest income from the Trust Account.
The
following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring
basis at December 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine
such fair value:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Description | |
Level | | |
Fair Value | | |
Level | | |
Fair Value | |
Assets: | |
| | |
| | |
| | |
| |
Money Market Funds | |
1 | | |
| - | | |
1 | | |
$ | 278,835,182 | |
Liabilities: | |
| | |
| | | |
| | |
| | |
Warrant liabilities – public
warrants | |
1 | | |
$ | 414,000 | | |
1 | | |
$ | 6,461,798 | |
Warrant liabilities – private
placement warrants | |
2 | | |
$ | 308,400 | | |
2 | | |
$ | 4,813,571 | |
The
Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the accompanying
December 31, 2022 and 2021 consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a
recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the consolidated statements
of operations.
CXAPP INC. (F/K/A KINS
TECHNOLOGY GROUP INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
AS RESTATED
The
Warrants are measured 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. As of December 31, 2022, the Public Warrants were valued
using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement
due to the use of an observable market quote in an active market.
The
Private Placement Warrants were initially valued using a lattice model, specifically a binomial lattice model incorporating 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 detachment 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, as the transfer
of Private Placement Warrants to anyone outside of a small group of individuals who are permitted transferees would result in the Private
Placement Warrants having substantially the same terms as the Public Warrants.
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 December 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
period ended December 31, 2021 was approximately $9.0 million, when the Public Warrants were separately listed and traded and the
estimated fair value of the Private Warrants of approximately $6.7 million was transferred from a Level 3 to a Level 2 fair value measurement.
There were no transfers during the year ended December 31, 2022.
NOTE
12 — SUBSEQUENT EVENTS
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the consolidated
financial statements were issued. Based upon this review, other than as noted below, the Company did not identify any subsequent events
that would have required adjustment or disclosure in the consolidated financial statements.
On
January 9, 2023, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”)
stating that the Company failed to hold an annual meeting of stockholders within 12 months after its fiscal year ended December 31,
2021, as required by Nasdaq Listing Rule 5620(a). In accordance with Nasdaq Listing Rule 5810(c)(2)(G), the Company had 45
calendar days (or until February 23, 2023) to submit a plan to regain compliance and, if Nasdaq accepts the plan, Nasdaq may grant
the Company up to 180 calendar days from its fiscal year end, or until June 29, 2023, to regain compliance. The Company submitted
a compliance plan within the specified period. While the plan is pending, the Company’s securities will continue to trade on Nasdaq.
On
January 21, 2023, the Company received a written notice (the “Notice”) from the Listing Qualifications Department of
The Nasdaq Stock Market (“Nasdaq”) indicating that the Company is not in compliance with Listing Rule 5550(a)(4), due
to the Company’s failure to meet the minimum 500,000 publicly held shares requirement for continued listing on the Nasdaq Capital
Market. The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading
of the Company’s securities on the Nasdaq Capital Market. The Notice stated that the Company had until March 9, 2023 to submit
a plan to regain compliance with Listing Rule 5550(a)(4). The Company believes that the issue identified in the Notice will be resolved
upon completion of the previously announced proposed business combination with CXApp Holding Corp. The Company submitted a compliance
plan within the specified period. If Nasdaq accepts the Company’s plan, Nasdaq may grant the Company an extension of up to 180
calendar days from the date of the Notice to evidence compliance with Listing Rule 5550(a)(4). If Nasdaq does not accept the Company’s
plan, the Company will have the opportunity to appeal the decision in front of a Nasdaq Hearings Panel.
CXAPP
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share and per share data)
| |
| | | |
| | |
| |
Successor | | |
Predecessor | |
| |
March 31,
2023 | | |
December 31,
2022 | |
| |
(unaudited) | | |
| |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 6,724 | | |
$ | 6,308 | |
Accounts receivable | |
| 2,671 | | |
| 1,338 | |
Notes and other receivables | |
| 102 | | |
| 273 | |
Prepaid expenses
and other current assets | |
| 1,232 | | |
| 650 | |
Total current assets | |
| 10,729 | | |
| 8,569 | |
| |
| | | |
| | |
Property and equipment, net | |
| 153 | | |
| 202 | |
Intangible assets, net | |
| 20,753 | | |
| 19,289 | |
Operating lease right-of-use asset,
net | |
| 549 | | |
| 681 | |
Software development costs, net | |
| - | | |
| 487 | |
Goodwill | |
| 44,122 | | |
| - | |
Other assets | |
| 78 | | |
| 52 | |
| |
| | | |
| | |
Total
Assets | |
$ | 76,384 | | |
$ | 29,280 | |
| |
| | | |
| | |
Liabilities and Stockholders’
Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 596 | | |
$ | 1,054 | |
Accrued liabilities | |
| 3,233 | | |
| 1,736 | |
Deferred revenue | |
| 2,690 | | |
| 2,162 | |
Acquisition liability | |
| - | | |
| 197 | |
Warrant liability | |
| 963 | | |
| - | |
Operating lease
obligation, current | |
| 195 | | |
| 266 | |
Total current liabilities | |
| 7,677 | | |
| 5,415 | |
| |
| | | |
| | |
Operating lease obligation, noncurrent | |
| 376 | | |
| 444 | |
Other liabilities | |
| - | | |
| 30 | |
Deferred tax
liability | |
| 2,778 | | |
| - | |
Total
Liabilities | |
$ | 10,831 | | |
$ | 5,889 | |
| |
| | | |
| | |
Commitments and
Contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’
Equity | |
| | | |
| | |
Class A Common Stock, $0.0001 par
value; 200,000,000 shares authorized, 8,582,699 shares issued and outstanding as of March 31, 2023 | |
| 1 | | |
| - | |
Class C Common Stock, $0.0001 par
value; 10,000,000 shares authorized, 5,487,300 shares issued and outstanding as of March 31, 2023 | |
| 1 | | |
| - | |
Additional paid-in capital | |
| 71,536 | | |
| - | |
Accumulated deficit | |
| (5,985 | ) | |
| - | |
Accumulated other comprehensive income | |
| - | | |
| 1,155 | |
Net parent investment | |
| - | | |
| 22,236 | |
Total
Stockholders’ Equity | |
$ | 65,553 | | |
$ | 23,391 | |
| |
| | | |
| | |
Total
Liabilities and Stockholders’ Equity | |
$ | 76,384 | | |
$ | 29,280 | |
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CXAPP
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in
thousands, except share and per share data)
| |
| | | |
| | | |
| | |
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to March 31,
2023 | | |
Period from
January 1,
2023 to March 14,
2023 | | |
Three months ended
March 31,
2022 | |
Revenues | |
$ | 342 | | |
$ | 1,620 | | |
$ | 2,582 | |
| |
| | | |
| | | |
| | |
Cost
of Revenues | |
| 87 | | |
| 483 | | |
| 589 | |
| |
| | | |
| | | |
| | |
Gross Profit | |
| 255 | | |
| 1,137 | | |
| 1,993 | |
| |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | |
Research and development | |
| 211 | | |
| 1,455 | | |
| 1,991 | |
Sales and marketing | |
| 174 | | |
| 964 | | |
| 1,122 | |
General and administrative | |
| 241 | | |
| 2,293 | | |
| 2,304 | |
Amortization of intangible assets | |
| 116 | | |
| 806 | | |
| 975 | |
Change in fair
value of earnout | |
| - | | |
| - | | |
| (2,827 | ) |
Total Operating
Expenses | |
| 742 | | |
| 5,518 | | |
| 3,565 | |
| |
| | | |
| | | |
| | |
Loss from Operations | |
| (487) | | |
| (4,381 | ) | |
| (1,572 | ) |
| |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | |
Interest income (expense), net | |
| (1 | ) | |
| 1 | | |
| 1 | |
Change in fair
value of derivative liability | |
| 1,686 | | |
| - | | |
| - | |
Total Other Income
(Expense) | |
| 1,685 | | |
| 1 | | |
| 1 | |
| |
| | | |
| | | |
| | |
Net Income (Loss),
before tax | |
| 1,198 | | |
| (4,380 | ) | |
| (1,571 | ) |
Income tax benefit/(provision) | |
| 1,560 | | |
| - | | |
| (100 | ) |
Net Income (Loss) | |
$ | 2,758 | | |
$ | (4,380 | ) | |
$ | (1,671 | ) |
Unrealized foreign
exchange loss from cumulative translation adjustments | |
| - | | |
| (28 | ) | |
| (189 | ) |
Comprehensive
Income (Loss) | |
$ | 2,758 | | |
$ | (4,408 | ) | |
$ | (1,860 | ) |
| |
| | | |
| | | |
| | |
Basic and
dilutive weighted average shares outstanding, Class A common stock | |
| 8,582,699 | | |
| | | |
| | |
Basic
and dilutive net income per share, Class A common stock | |
$ | 0.20 | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Basic and
dilutive weighted average shares outstanding, Class C common stock | |
| 5,487,300 | | |
| | | |
| | |
Basic
and dilutive net income per share, Class C common stock | |
$ | 0.20 | | |
| | | |
| | |
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CXAPP
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in
thousands, except share data)
| |
| | | |
| | | |
| | |
Predecessor |
| |
| | |
| | |
| |
| |
Net parent
investment | | |
Accumulated
other
comprehensive income (loss) | | |
Total
Stockholders’
Equity | |
Balance
at January 1, 2022 | |
$ | 20,155 | | |
$ | 56 | | |
$ | 20,211 | |
Net loss | |
| (1,671 | ) | |
| - | | |
| (1,671 | ) |
Stock-based compensation allocated
from parent | |
| 647 | | |
| - | | |
| 647 | |
Parent’s common shares issued
for CXApp earnout | |
| 3,697 | | |
| - | | |
| 3,697 | |
Taxes paid related to net share settlement
of restricted stock units | |
| (104 | ) | |
| - | | |
| (104 | ) |
Net investments from parent | |
| 6,444 | | |
| - | | |
| 6,444 | |
Cumulative translation
adjustment | |
| - | | |
| (189 | ) | |
| (189 | ) |
Balance
at March 31, 2022 | |
$ | 29,168 | | |
$ | (133 | ) | |
$ | 29,035 | |
| |
| | | |
| | | |
| | |
Balance at January
1, 2023 | |
$ | 22,236 | | |
$ | 1,155 | | |
$ | 23,391 | |
Net loss | |
| (4,380 | ) | |
| - | | |
| (4,380 | ) |
Stock-based compensation allocated
from parent | |
| 158 | | |
| - | | |
| 158 | |
Net investments from parent | |
| 8,680 | | |
| - | | |
| 8,680 | |
Cumulative translation
adjustment | |
| - | | |
| (28 | ) | |
| (28 | ) |
Balance
at March 14, 2023 | |
$ | 26,694 | | |
$ | 1,127 | | |
$ | 27,821 | |
| |
| | | |
| | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Successor |
| |
| |
|
| | |
| | |
| | |
| | |
| |
| |
Class
A
Common Stock | |
|
Class
C
Common Stock | | |
Additional
paid-in | | |
Accumulated | | |
Accumulated
other
comprehensive | | |
Total
Stockholders’
Equity | |
| |
Shares | | |
Amount | |
|
Shares | | |
Amount | | |
capital | | |
Deficit | | |
income | | |
(Deficit) | |
Balance
at March 15, 2023 | |
| 7,034,999 | | |
$ | 1 | |
|
| - | | |
$ | - | | |
$ | 1,607 | | |
$ | (8,743 | ) | |
$ | - | | |
$ | (7,135 | ) |
Shares
issued in connection with Business Combination | |
| 1,547,700 | | |
| - | |
|
| 5,487,300 | | |
| 1 | | |
| 69,927 | | |
| - | | |
| - | | |
| 69,928 | |
Net
income | |
| - | | |
| - | |
|
| - | | |
| - | | |
| - | | |
| 2,758 | | |
| - | | |
| 2,758 | |
Stock-based
compensation | |
| - | | |
| - | |
|
| - | | |
| - | | |
| 2 | | |
| - | | |
| - | | |
| 2 | |
Balance
at March 31, 2023 | |
| 8,582,699 | | |
$ | 1 | |
|
| 5,487,300 | | |
$ | 1 | | |
$ | 71,536 | | |
$ | (5,985 | ) | |
$ | - | | |
$ | 65,553 | |
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CXAPP
INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
| |
| | | |
| | | |
| | |
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to March 31,
2023 | | |
Period from
January 1,
2023 to March 14,
2023 | | |
Three months ended
March 31,
2022 | |
Operating activities | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 2,758 | | |
$ | (4,380 | ) | |
$ | (1,671 | ) |
Adjustments to reconcile net income
(loss) to net cash used in operating activities | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| 4 | | |
| 228 | | |
| 145 | |
Amortization of intangible assets | |
| 116 | | |
| 806 | | |
| 975 | |
Amortization of right of use asset | |
| 8 | | |
| 40 | | |
| 56 | |
Deferred income taxes | |
| (1,560 | ) | |
| - | | |
| (2 | ) |
Stock-based compensation expense | |
| 2 | | |
| 158 | | |
| 647 | |
Gain on earnout payment liability | |
| - | | |
| - | | |
| (2,827 | ) |
(Gain) loss on foreign currency transactions | |
| 3 | | |
| (32 | ) | |
| (266 | ) |
Gain on change in fair value of derivative
liability | |
| (1,686 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
Change in assets and liabilities: | |
| | | |
| | | |
| | |
Accounts receivable and other receivables | |
| (335 | ) | |
| (857 | ) | |
| (304 | ) |
Prepaid expenses and other current
assets | |
| (100 | ) | |
| (20 | ) | |
| (521 | ) |
Other assets | |
| (37 | ) | |
| - | | |
| 42 | |
Accounts payable | |
| 135 | | |
| (796 | ) | |
| (94 | ) |
Accrued liabilities | |
| (3,888 | ) | |
| (787 | ) | |
| 100 | |
Income tax liabilities | |
| - | | |
| - | | |
| 6 | |
Operating lease liabilities | |
| (7 | ) | |
| (38 | ) | |
| (56 | ) |
Deferred revenue | |
| 156 | | |
| 534 | | |
| (370 | ) |
Net cash used
in operating activities | |
| (4,431 | ) | |
| (5,144 | ) | |
| (4,140 | ) |
| |
| | | |
| | | |
| | |
Investing activities | |
| | | |
| | | |
| | |
Purchases of property and equipment | |
| (23 | ) | |
| (9 | ) | |
| (12 | ) |
Investment in capitalized software | |
| - | | |
| (45 | ) | |
| (39 | ) |
Cash acquired
in connection with Business Combination | |
| 10,003 | | |
| - | | |
| - | |
Net cash provided
by (used in) investing activities | |
| 9,980 | | |
| (54 | ) | |
| (51 | ) |
| |
| | | |
| | | |
| | |
Financing activities | |
| | | |
| | | |
| | |
Net equity investment from parent | |
| - | | |
| 9,089 | | |
| 6,444 | |
Taxes paid related to stock based
compensation | |
| - | | |
| - | | |
| (104 | ) |
Repayment of CXApp acquisition liability | |
| - | | |
| (197 | ) | |
| (1,787 | ) |
Repayment of
related party promissory note | |
| (328 | ) | |
| - | | |
| - | |
Net cash (used
in) provided by financing activities | |
| (328 | ) | |
| 8,892 | | |
| 4,553 | |
| |
| | | |
| | | |
| | |
Effect of exchange rate changes on
cash and cash equivalents | |
| - | | |
| 1 | | |
| 4 | |
Net increase in cash and cash equivalents | |
| 5,221 | | |
| 3,695 | | |
| 366 | |
Cash and cash
equivalents, beginning of period | |
| 1,503 | | |
| 6,308 | | |
| 5,028 | |
Cash and cash
equivalents, end of period | |
$ | 6,724 | | |
$ | 10,003 | | |
$ | 5,394 | |
| |
| | | |
| | | |
| | |
Supplemental disclosures
of cash flow information | |
| | | |
| | | |
| | |
Cash paid for
taxes | |
$ | - | | |
$ | - | | |
$ | - | |
Cash paid for
interest | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | |
Supplemental schedule
of noncash investing and financing activities | |
| | | |
| | | |
| | |
Parent’s
net equity issued for CX App earnout | |
$ | - | | |
$ | - | | |
$ | 3,697 | |
Noncash distribution | |
$ | - | | |
$ | 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) | |
$ | 537 | | |
$ | - | | |
$ | - | |
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Organization, Nature of Business and Basis of Presentation
CXApp Inc. and its subsidiaries
(“CXApp” or the “Company”) is in the business of delivering intelligent enterprise workplace experiences. The
CXApp SaaS platform offers a suite of leading-edge technology workplace experience solutions including an enterprise employee application,
indoor mapping, on-device positioning, augmented reality technologies and an AI-based analytics platform, targeting the emerging hybrid
workplace market to provide enhanced experiences across people, places, and things. CXApp creates a connected workplace by reducing app
overload, data fragmentation, and complex workflows and streamlines all capabilities through The Workplace SuperApp. All features, services
and integrations are housed in one easy-to-access platform allowing businesses to deliver a more holistic employee experiences in a hybrid
workplace.
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States
of America (“GAAP”), for interim financial information and the rules and regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, CXApp does not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of CXApp, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Interim results for the three months ended March 31, 2023 are not necessarily indicative of the results for the full
year ending December 31, 2023. These interim unaudited condensed consolidated financial statement should be read in conjunction with
KINS Technology Group Inc.’s (“KINS”) audited consolidated financial statements and notes for the year ended December
31, 2022 and 2021 included in the annual report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on April 19,
2023, and the annual report of Legacy CXApp for the year ended December 31, 2022 and 2021 included as an exhibit to Form 8-K filed with
the SEC on March 20, 2023. All material inter-company balances and transactions have been eliminated.
On September 25, 2022, an Agreement and Plan
of Merger (the “Merger Agreement”), was entered into by and among Inpixon, KINS Technology Group Inc., a Delaware corporation,
CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to
which KINS acquired Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events
platform, augmented reality and related business solutions) (“Legacy CXApp”) in exchange for the issuance of shares of KINS
capital stock (the “Business Combination”). As a result of the Business Combination, KINS changed their name to CXApp Inc.
(“New 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”), the Company
prior to the Business Combination. All references herein to the “Board” refer to the board of directors of the Company. “Legacy
CXApp” refers to CXApp Holding Corp., a Delaware corporation and a wholly owned subsidiary of the Company, which the Company acquired
through the Business Combination. Prior to the Separation (as defined below), Legacy CXApp was a wholly owned subsidiary of Inpixon,
a Nevada corporation (“Inpixon”).
The Business Combination was accounted for using
the acquisition method (as a forward merger), with goodwill and other identifiable intangible assets recorded in accordance with GAAP,
as applicable. Under this method of accounting, the “Enterprise Apps Business” (formerly known as CXApp) is treated as the
“acquired” company for financial reporting purposes. KINS (now known as CXApp Inc.) has been determined to be the accounting
acquirer because KINS maintains control of the Board of Directors and management of the combined company.
The
unaudited condensed consolidated financial statements of Successor and Predecessor are not comparable due to a new basis of accounting
that was created from the business combination that occurred on the Closing Date (Note 3). Therefore, the reporting period has been separated
by a black line in the condensed consolidated financial statements with the Predecessor representing the pre-Closing Date period (January
1, 2023 through March 14, 2023) and the Successor representing the post-Closing Date period (March 15, 2023 through March 31, 2023).
The Company noted that the “Predecessor” includes financial information related to the Enterprise Apps Business (as defined
in Note 3), while the “Successor” includes financial information related to the newly formed company after the business combination.
NOTE
2 – Summary of Significant Accounting Policies
Liquidity
As
of March 31, 2023 (Successor), the Company has a working capital surplus of approximately $3,052 thousand and cash and cash equivalents
of approximately $6,724 thousand. For the period ended March 31, 2023 (Successor), the Company incurred net income of approximately
$2,758 thousand. During the period ended March 31, 2023 (Successor), the Company used approximately $4,431 thousand of cash for operating
activities, of which $3,888 thousand was from a reduction in accrued liabilities, primarily paying merger related transaction liabilities.
In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to
generate sufficient cash flow in the future to support its operating and capital expenditure commitments.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 and extend
it’s runway. 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 at least twelve months from the issuance of these condensed consolidated financial statements. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to further implement its business plan. The accompanying unaudited condensed
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the
uncertainties described above.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each of the reporting
periods. Actual results could differ from those estimates. The Company’s significant estimates consist of:
| ● | the
valuation of stock-based compensation; |
| ● | the
valuation of warrant liabilities; |
| ● | the
allowance for credit losses; |
| ● | the
valuation allowance for deferred tax assets; and |
| ● | impairment
of long-lived assets and goodwill. |
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash, checking accounts, money market accounts, temporary investments and certificates of deposit with
maturities of three months or less when purchased. As of March 31, 2023 (Successor), the Company had cash equivalents of approximately
$2,000 thousand of certificates of deposit held by a number of banks limited to $250 thousand per bank with a duration of 90 days or
less and at 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 March 31, 2023 (Successor) and at December 31, 2022 (Predecessor).
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 3 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 1 to 10 years, which approximates customer attrition
rate and technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment each year. Based on
its assessments, the Company did not incur any impairment charges for the period ended March 31, 2023 (Successor), period ended March
14, 2023 (Predecessor), and three months ended March 31, 2022 (Predecessor).
Goodwill
The
Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that
the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the
reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment,
the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that
the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs
a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
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.
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.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits
are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely
than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that
future deductibility is uncertain.
Comprehensive
Income (Loss) and Foreign Currency Translation
The
Company reports comprehensive income (loss) and its components in its unaudited condensed consolidated financial statements. Comprehensive
loss consists of net loss and foreign currency translation adjustments, affecting stockholders’ equity that, under GAAP, are excluded
from net loss.
Assets
and liabilities related to the Company’s foreign operations are calculated using the Philippine peso and Canadian Dollar, and are
translated at end-of-period exchange rates, while the related revenues and expenses are translated at average exchange rates prevailing
during the period. Gains or losses resulting from transactions denominated in foreign currencies are included in general and administrative
expenses in the unaudited condensed consolidated statements of operations. The Company engages in foreign currency denominated transactions
with customers that operate in functional currencies other than the U.S. dollar. Aggregate foreign currency net transaction losses were
not material for the period ended March 31, 2023 (Successor), period ended March 14, 2023 (Predecessor) and three months ended March
31, 2022 (Predecessor).
Revenue
Recognition
The Company recognizes
revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from its software as a
service for cloud based software, as well as design, implementation and other professional services for work performed in conjunction
with its cloud based software. The Company enters into contracts with its customers whereby it grants a non-exclusive cloud-based license
for the use of its proprietary software and for professional services. The contracts may also provide for on-going services for a specified
price, which may include maintenance services, designated support, and enhancements, upgrades and improvements to the software, depending
on the contract. Licenses for cloud software provide the customer with a right to use the software as it exists when made available to
the customer. All software provides customers with the same functionality and differ mainly in the duration over which the customer benefits
from the software.
License
Subscription Revenue Recognition (Software As A Service)
With respect to sales of the Company’s
license agreements, customers generally pay fixed annual fees in advance in exchange for the Company’s software service provided
by via electronic, 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.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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 period ended March 31, 2023 (Successor), period
ended March 14, 2023 (Predecessor) and three months ended March 31, 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 $2,690 thousand and $2,162 thousand as of March 31, 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 generally twelve months following the commencement of the license. The Company recognized revenue in the
reporting period of $170 thousand, $865 thousand, and $1,328 thousand that was included in the contract liability balance at the
beginning of the period, for the period ended March 31, 2023 (Successor), period ended March 14, 2023 (Predecessor) and three months
ended March 31, 2022 (Predecessor), respectively.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Costs
to Obtain a Contract
The Company recognizes eligible sales commissions
as an asset 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. 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.
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 nominal during each of the reporting
periods.
Business
Combinations
The
Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and
liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over
the estimated fair value is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the accounts and
results of operations are included as of and subsequent to the acquisition date.
Segments
The
Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determines
its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a
reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine
if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition
of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable,
when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically
similar and, if so, the operating segments are aggregated. The Company has one operating segment and reporting unit. The Company is organized
and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered
meaningful only by the fact that such information is presented and reviewed in the aggregate.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based
Compensation
The
Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments
based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as an expense over
the period during which the recipient is required to provide services in exchange for that award. Forfeitures of unvested stock options
are recorded when they occur.
The
Company incurred stock-based compensation charges of approximately $2 thousand, $158 thousand and $647 thousand for the
period ended March 31, 2023 (Successor), the period ended March 14, 2023 (Predecessor) and three months ended March 31, 2022 (Predecessor),
respectively, which are included in general and administrative expenses.
Derivative
Warrant Liabilities
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in FASB ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging”
(“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under
ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding. The Company currently has two sets of warrants outstanding, known as the
Private Placement Warrants and the Public Warrants, which are both classified as a liability.
For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the
time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required
to be recorded at their initial fair value on the date of issuance as a warrant liability, and adjusted to the then fair value in each
balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed
consolidated statements of operations and amounted to approximately $1,686 thousand for the period ended March 31, 2023 (Successor).
The Company utilized the Public Warrant quoted market price as the fair value of the Warrants as of each relevant date.
Earnings
Per Share
The Company computes basic and diluted earnings
per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per
share are similarly calculated with the inclusion of dilutive common stock equivalents. The following table summarizes the number of
common shares and common share equivalents excluded from the calculation of diluted net income per common share for period ended March
31, 2023 (Successor), which are excluded from the calculation because (i) the warrants were below their exercise price and (ii) the stock
options were not vested :
| |
Successor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | |
Stock options | |
| 1,377 | |
Warrants | |
| 24,080 | |
Total | |
| 25,457 | |
Fair
Value Measurements
FASB
ASC 820, “Fair Value Measurements” (“ASC 820”), provides guidance on the development and disclosure of fair value
measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework
for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value
measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
| ● | Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date
for identical assets or liabilities. |
| ● | Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated
by market data. |
| ● | Level
3: Unobservable inputs which are supported by little or no market activity and values determined
using pricing models, discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires significant judgment or
estimation. |
Fair
value measurements discussed herein are based upon certain market assumptions and pertinent information available to management. Fair
value measurements are applied, when applicable, to determine the fair value of the Company’s warrant liability at each reporting
period. See Note 10.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value of Financial Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable, notes and other receivable and accounts payable. The Company determines
the estimated fair value of such financial instruments presented in these financial statements using available market information and
appropriate methodologies. These financial instruments are stated at their respective historical carrying amounts, which approximate
fair value due to their short-term nature.
Carrying
Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted FASB ASC 360 “Property,
Plant, and Equipment” (“ASC 360”) for its long-lived assets. Pursuant to ASC 360-10-35-17, an impairment loss shall
be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying
amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset
(asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount
of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC 360-10-35-20 if an impairment loss is recognized, the adjusted
carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated
(amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant
to ASC 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes
in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group);
(b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;
(c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset
group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow
loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated
with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset
group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests
its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
Based
on its assessments, the Company recorded no impairment charges on long-lived assets for period ended March 31, 2023 (Successor), period
ended March 14, 2023 (Predecessor) and three months ended March 31, 2022 (Predecessor), respectively.
Recently
Issued and Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08,
“Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which
addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. Under
the new guidance, the acquirer is required to apply Topic 606 to recognize and measure contract assets and contract liabilities in a
business combination. The effective date of the standard is for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years, with early adoption permitted. CXApp adopted ASU 2021-08 on January 1, 2022. As a result of management’s
evaluation, the adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.
The Company evaluated recently issued FASB accounting
pronouncements and noted that no recent announcements were applicable to the Company.
NOTE
3 – Business Combination
On
March 14, 2023, the Company completed the Agreement and Plan of Merger (the “Merger Agreement”), by and among KINS, Inpixon,
CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to
which KINS combined with 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
agreed upon aggregate purchase price of approximately $69,928 thousand, the Company acquired all of the related assets and liabilities
of Legacy CXApp. The consideration transferred in connection with the Business Combination consisted of 1,547,700 shares of the Company’s
Class A Common Stock and 5,487,300 shares of the Company’s Class C Common Stock valued at a price of $9.94 per share. The preliminary
estimated goodwill of approximately $44,122 thousand arising from the Business Combination consists of an acquired workforce, as well
as synergies expected from combined operations of KINS and the CXApp.
The Company has authorized Class A and Class
C common stock. Class A common stock and New CXApp Class C common stock are identical in all respects, except that New CXApp Class C
common stock is not listed and will automatically convert into New CXApp Class A common stock on the earlier to occur of (i) the 180th
day following the closing of the Merger and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or
exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger.
The Business Combination is being accounted for
as a business combination in accordance with ASC 805 Combinations. The Company has determined preliminary fair values of the assets acquired
and liabilities assumed in the Business Combinations. These values are subject to change as we perform additional reviews of our assumptions
utilized.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company has made a provisional allocation of the purchase price of the Business Combination to the assets acquired and the liabilities
assumed as of the closing date. The following table summarizes the preliminary purchase price allocations relating to the Business Combination
(in thousands):
Description | |
Fair Value | | |
Weighted
Average Useful
Life
(in years) |
|
Purchase Price | |
$ | 69,928 | | |
|
|
| |
| | | |
|
|
Assets acquired: | |
| | | |
|
|
Cash and cash equivalents | |
$ | 10,003 | | |
|
|
Accounts receivable | |
| 2,226 | | |
|
|
Notes and other receivables | |
| 209 | | |
|
|
Prepaid assets and other current
assets | |
| 588 | | |
|
|
Operating lease right of use asset | |
| 557 | | |
|
|
Property and equipment, net | |
| 133 | | |
|
|
Other assets | |
| 42 | | |
|
|
Developed technology | |
| 9,268 | | |
10 years |
|
Patents | |
| 2,703 | | |
10 years |
|
Customer relationships | |
| 5,604 | | |
5 years |
|
Tradenames and trademarks | |
| 3,294 | | |
7 years |
|
Total assets
acquired | |
$ | 34,627 | | |
|
|
| |
| | | |
|
|
Liabilities assumed: | |
| | | |
|
|
Accounts payable | |
$ | 461 | | |
|
|
Accrued liabilities | |
| 911 | | |
|
|
Deferred revenues | |
| 2,534 | | |
|
|
Operating lease obligation, current | |
| 194 | | |
|
|
Operating lease obligation, noncurrent | |
| 384 | | |
|
|
Deferred tax
liability | |
| 4,337 | | |
|
|
Total liabilities
assumed | |
| 8,821 | | |
|
|
Goodwill | |
$ | 44,122 | | |
|
|
The value of the intangible assets and goodwill
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 tax deductible for tax purposes.
Total
acquisition-related costs for the Business Combination were approximately $3,000 thousand, which 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.
Measurement Period
The preliminary purchase price allocations for the
acquisitions described above are based on initial estimates and provisional amounts. In accordance with ASC 805-10-25-13, if the initial
accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer
shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement
period, acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts
and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized
as of that date. The Company continues to refine its inputs and estimates inherent in (i) the valuation of intangible assets, (ii) deferred
income taxes, (iii) realization of tangible assets and (iv) the accuracy and completeness of liabilities.
CXApp
Proforma Financial Information
The
following unaudited proforma financial information presents the condensed consolidated results of operations of the Company for the three
month periods ended March 31, 2023 and March 31, 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 and the acquired CXApp is as follows (in thousands):
| |
For the
Three Months Ended March 31,
2023 | | |
For the
Three Months Ended March 31,
2022 | |
Revenues | |
$ | 1,962 | | |
$ | 2,582 | |
Net income (loss) | |
$ | (6,365 | ) | |
$ | 6,197 | |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – Disaggregation of Revenue
The
Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from
software as a service, design and implementation services for its enterprise apps solutions systems, and professional services for work
performed in conjunction with its systems.
Revenues
consisted of the following (in thousands):
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | | |
Period from
January 1,
2023 to
March 14,
2023 | | |
Three months ended March 31,
2022 | |
Subscription revenue | |
| | | |
| | | |
| | |
Software | |
| 240 | | |
| 1,204 | | |
| 1,259 | |
Total
subscription revenue | |
$ | 240 | | |
$ | 1,204 | | |
$ | 1,259 | |
| |
| | | |
| | | |
| | |
Non-subscription
revenue | |
| | | |
| | | |
| | |
Professional
services | |
| 102 | | |
| 416 | | |
| 1,323 | |
Total
non-subscription revenue | |
$ | 102 | | |
$ | 416 | | |
$ | 1,323 | |
| |
| | | |
| | | |
| | |
Total
Revenue | |
$ | 342 | | |
$ | 1,620 | | |
$ | 2,582 | |
| |
Successor | | |
Predecessor | |
| |
Period from
March 15,
2023 to
March 31,
2023 | | |
Period from
January 1,
2023 to
March 14,
2023 | | |
Three months ended March 31,
2022 | |
Revenue
recognized over time(1)(2) | |
| 342 | | |
| 1,620 | | |
| 2,582 | |
Total | |
$ | 342 | | |
$ | 1,620 | | |
$ | 2,582 | |
| (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 overtime. |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – Property and Equipment, net
Property
and equipment consisted of the following (in thousands):
| |
Successor | | |
Predecessor | |
| |
March 31,
2023 | | |
December 31,
2022 | |
Computer and office equipment | |
$ | 139 | | |
$ | 992 | |
Furniture and fixtures | |
| 11 | | |
| 185 | |
Leasehold improvements | |
| 6 | | |
| 28 | |
Software | |
| 1 | | |
| 8 | |
Total | |
| 157 | | |
| 1,213 | |
Less: accumulated
depreciation and amortization | |
| (4 | ) | |
| (1,011 | ) |
Total
Property and Equipment, Net | |
$ | 153 | | |
$ | 202 | |
Depreciation
and amortization expense were approximately $4 thousand, $19 thousand and $36 thousand for the period ended March 31, 2023
(Successor), the period ended March 14, 2023 (Predecessor), and three months ended March 31, 2022 (Predecessor), respectively.
NOTE
6 – Software Development Costs, net
Capitalized
software development costs consisted of the following (in thousands):
| |
Successor | | |
Predecessor | |
| |
March 31,
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 and $113 thousand for the period ended March
14, 2023 (Predecessor) and the three months ended March 31, 2022 (Predecessor). There was no amortization expense for capitalized software
development costs for the period ended March 31, 2023 (Successor).
NOTE
7 – Goodwill and Intangible Assets
The
Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances
indicate the carrying value of goodwill may not be recoverable. The Company noted that the carrying amount of Goodwill for the period
ended March 31, 2023 (Successor) was $44,122 thousand, which was entirely due to the business combination noted in Note 3. The Company
did not have any goodwill for the period ended March 14, 2023 (Predecessor) and the year ended December 31, 2022 (Predecessor).
Goodwill
consisted of the following (in thousands):
Acquisition | |
Amount | |
Balance
as of March 14, 2023 | |
$ | - | |
Acquisition
of Legacy CXApp | |
| 44,122 | |
Balance
as of March 31, 2023 | |
$ | 44,122 | |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangible
assets consisted of the following (in thousands):
|
|
March 31, 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 |
|
7 years |
| |
$ | 3,294 | |
|
$ | (20 | ) |
$ |
3,274 |
|
|
$ |
2,183 |
| |
$ | (725 | ) | |
$ |
1,458 | |
Customer Relationships |
|
5 years |
| |
| 5,604 | |
|
| (47 | ) |
|
5,557 |
|
|
|
6,401 |
| |
| (1,765 | ) | |
|
4,636 | |
Developed Technology |
|
10 years |
| |
| 9,268 | |
|
| (38 | ) |
|
9,230 |
|
|
|
15,179 |
| |
| (3,398 | ) | |
|
11,781 | |
Non-compete Agreements |
|
| |
| | - |
|
| | - |
|
|
- |
|
|
|
3,150 | |
| | (1,736 | ) |
|
| 1,414 |
Patents and
Intellectual Property |
|
10 years |
| |
| 2,703 | |
|
| (11 | ) |
|
2,692 |
|
|
|
- |
| |
| - | | |
|
- | |
Totals |
|
|
| |
$ | 20,869 | |
|
$ | (116 | ) |
$ |
20,753 |
|
|
$ |
26,913 |
| |
$ | (7,624 | ) | |
$ |
19,289 | |
Aggregate
Amortization Expense:
Aggregate
amortization expense for the period ended March 31, 2023 (Successor), period ended March 14, 2023 (Predecessor) and three months ended
March 31, 2022 (Predecessor) was $116 thousand, $806 thousand and $975 thousand, respectively.
Future amortization expense on intangible assets
is anticipated to be as follows (in thousands):
For the Years Ending December 31, | |
Amount | |
2023 | |
$ | 2,091 | |
2024 | |
| 2,788 | |
2025 | |
| 2,788 | |
2026 | |
| 2,788 | |
2027 | |
| 2,788 | |
2028 and thereafter | |
| 7,510 | |
Total | |
$ | 20,753 | |
NOTE
8 – Deferred Revenue
Deferred
revenue consisted of the following (in thousands):
| |
Successor | | |
Predecessor | |
| |
March 31,
2023 | | |
December 31,
2022 | |
License agreements | |
$ | 2,388 | | |
$ | 1,937 | |
Professional
Service agreements | |
| 302 | | |
| 225 | |
Total
Deferred Revenue | |
$ | 2,690 | | |
$ | 2,162 | |
The
fair value of the deferred revenue approximates the services to be rendered.
NOTE
9 – Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
| |
Successor | | |
Predecessor | |
| |
March 31,
2023 | | |
December 31,
2022 | |
Insurance premiums and
accrued interest | |
$ | 538 | | |
$ | - | |
Related party promissory note | |
| 20 | | |
| - | |
Income tax payables | |
| 57 | | |
| - | |
Related party payable | |
| 1,155 | | |
| - | |
Accrued compensation and benefits | |
| 650 | | |
| 586 | |
Accrued bonus and commissions | |
| 192 | | |
| 422 | |
Accrued rent | |
| 3 | | |
| 559 | |
Accrued other | |
| 561 | | |
| 83 | |
Accrued sales
and other indirect taxes payable | |
| 6 | | |
| 86 | |
Accrued
liabilities | |
$ | 3,182 | | |
$ | 1,736 | |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 begin on April 14, 2023. The Company paid a down payment on the policy of
$134 thousand. As of March 31, 2023 (Successor) the Company currently owes $538 thousand on the D&O insurance policy.
Related
Party Liabilities
As of March 31, 2023, the Company’s related
party liabilities consisted of a promissory note payable to the KINS sponsor in the amount of $20 thousand for working capital. As of
March 31, 2023, accrued liabilities include an estimate of approximately $1,045 thousand due to Inpixon by CXApp resulting from an agreement
to reimburse Inpixon (subject to review and acceptance by the Company) for certain transaction related costs incurred by Inpixon on behalf
of KINS prior to March 14, 2023. This amount is subject to an ongoing review and evaluation by the Company. Additionally, as of March
31, 2023, accrued liabilities include (i) $30 thousand for estimated costs related to transition services provided by Inpixon to CXApp
and (ii) $80 thousand of reimbursable expenses incurred by Inpixon on behalf of CXApp during the period from March 15, 2023 to March
31, 2023.
In connection with a distribution of CXApp securities
by KINS Capital LLC, Inpixon is entitled to acquire 2,500,000 CXApp Private Placement Warrants, which reflects Inpixon’s existing
indirect interests in CXApp.
NOTE
10 - Warrant Liabilities
As
of March 31, 2023 (Successor) there were 13,800 thousand Public Warrants outstanding. Each whole warrant entitles the holder thereof
to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustments described in
the Company’s registration statement on Form S-1 (Registration No. 333-249177) filed in connection with its initial public offering.
Public
Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only
whole warrants will trade. The Public Warrants will become exercisable on the later of (a) 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 Combination or earlier upon redemption or liquidation.
The
Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation
to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class
A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying
its obligations with respect to registration. No warrant will be exercisable, and the Company will not be obligated to issue shares of
Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered,
qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has filed a registration statement
on Form S-1 (Registration No. 333-271340) under the Securities Act on April 19, 2023 covering the issuance of the shares of Class A common
stock issuable upon exercise of the warrants, and will use its commercially reasonable efforts to have it declared effective by the SEC
within 60 business days following a Business Combination. The Company will use its commercially reasonable efforts to maintain the effectiveness
of such registration statement and a current prospectus relating to those shares of Class A common stock until the warrants expire or
are redeemed. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national
securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities
Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis”
in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to
file or maintain in effect a registration statement, but we will be required to use our commercially reasonable efforts to register or
qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemptions
of warrants when the price of Class A common stock equals or exceeds $18.00 – Once the warrants become exercisable, the Company
may redeem the Public Warrants:
| ● | In
whole and not in part; |
| ● | At
a price of $0.01 per warrant; |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Upon
not less than 30 days’ prior written notice of redemption, or the 30-day redemption
period, to each warrant holder; and |
| ● | If,
and only if, the reported last sale price of the Company’s Class A common stock equals
or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations, and the like) for any 20 trading days within a 30-day trading period ending
on the third trading day prior to the date on which the Company sends the notice of redemption
to the warrant holders. |
If
and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register
or qualify the underlying securities for sale under all applicable state securities laws.
Redemption
of warrants when the price per share of Class A common stock equals or exceeds $10.00 – Once the warrants become exercisable,
the Company may redeem the outstanding warrants:
| ● | In
whole and not in part; |
| ● | At
a price of $0.10 per warrant provided that holders will be able to exercise their warrants
prior to redemption and receive that number of shares of Class A common stock determined
based on the redemption date and the “fair market value” of the Company’s
Class A common stock; |
| ● | upon
not less than 30 days’ prior written notice of redemption, or the 30-day redemption
period; |
| ● | if,
and only if, the last reported sale price of the Company’s Class A common stock equals
or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) on the trading day prior to the date on which the Company
sends the notice of redemption to the warrant holders; |
| ● | if,
and only if, there is an effective registration statement covering the issuance of the shares
of Class A common stock issuable upon exercise of the warrants and a current prospectus relating
thereto is available throughout the 30-day period after the written notice of redemption
is given. |
As
of March 31, 2023 (Successor), there were 10,280 thousand Private Placement Warrants outstanding. The Private Placement Warrants are
identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A common stock issuable upon the
exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business
Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis
and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees.
If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement
Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – Stock Option Plan and Stock-Based Compensation
To
calculate the stock-based compensation resulting from the issuance of options 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 CXApp Inc. 2023 Equity Incentive Plan
(the “Incentive Plan”). The Incentive Plan was previously approved, subject to stockholder approval, by KINS’ board
of directors. The Incentive Plan became effective immediately upon the closing of the Business Combination. Pursuant to the terms of
the Incentive Plan, there are 2,110,500 shares of CXApp Class A Common Stock available for issuance under the Incentive Plan, which is
equal to 15% of the aggregate number of shares of CXApp common stock issued and outstanding immediately after the closing (giving effect
to the redemptions).
Employee
Stock Options
During
the period ended March 31, 2023 (Successor), a total of 1,377 thousand of stock options for the purchase of the Company’s
common stock were granted to employees and directors of the Company. These options vest over a 2 year period, with 50% vested at the
end of year one and 50% vested at the end of year two. The options have a life of 5 to 7 years and an exercise price of $1.53 per share.
The stock options were valued using the Black-Scholes option valuation model and the fair value of the awards was determined to be approximately
$688 thousand. The fair value of the common stock as of the grant date was determined to be $1.53 per share.
During
the period ended March 31, 2023 (Successor), the Company recorded a charge of approximately $2 thousand for the amortization of
employee stock options, which is included in the general and administrative section of the condensed consolidated statement of operations.
As
of March 31, 2023 (Successor), the fair value of non-vested options totalled approximately $686 thousand, which will be amortized
to expense over the weighted average remaining term of 2.0 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 ended March 31, 2023 (Successor) were as follows:
Risk-free interest rate | |
3.62% – 3.67% | |
Expected life of option grants | |
5 – 7 years | |
Expected volatility of
underlying stock | |
37.35% | |
Dividends assumption | |
0% | |
NOTE 12 – Fair Value of Financial Instruments
The Company’s estimates of fair value for
financial assets and financial liabilities are based on the framework established in ASC 820. The Company noted that the only financial
asset or financial liability that is subject to the fair value framework established in ASC 820 are the Warrant Liabilities (Note 10).
The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires
that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based
on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate
is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs
that reflect the Company’s significant market assumptions. The Company classified the public placement warrants recorded at fair
value of on a recurring basis of $552 thousand as a level 1 investment, as the fair value was determined using quoted prices of the security
in active markets. The Company classified the private placement warrants liabilities recorded at fair value of $411 thousand as a level
2 investment, as the fair value was determined utilizing the observable market price for the public placement warrants as the private
placement warrants are not actively traded.
NOTE
13 – Income Taxes
The Company recorded an income tax benefit of
approximately $1,560 thousand for the period ended March 31, 2023 (Successor). The Company recorded an income tax expense of approximately
$0 thousand and $100 thousand for the period ended March 14, 2023 (Predecessor), and three months ended March 31, 2022 (Predecessor),
respectively.
The effective tax rate for period ended March
31, 2023 (Successor) was approximately (164.0%). The income tax benefit, and negative effective tax rate, for the period ended March
31, 2023 (Successor) is a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination.
The Company acquired approximately $4,337 thousand of deferred tax liability associated with the Business Combination. As a result of
the Company released its valuation allowance as deferred tax assets will become realizable.
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. 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 March 31, 2023 (Successor) and December 31, 2022 (Predecessor) was immaterial. The Company has
not experienced any losses and believes it is not exposed to any significant credit risk from cash.
NOTE
15 – Foreign Operations
The
Company’s operations are located primarily in the United States, Canada, and the Philippines. Revenues by geographic area are attributed
by country of domicile of the Company’s subsidiaries. The financial data by geographic area are as follows (in thousands):
| |
United States | | |
Canada | | |
India | | |
Philippines | | |
Eliminations | | |
Total | |
For the Period
Ended March 31, 2023 (Successor): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues by geographic
area | |
$ | 272 | | |
$ | 70 | | |
$ | - | | |
$ | 196 | | |
$ | (196 | ) | |
$ | 342 | |
Operating income (loss) by geographic
area | |
$ | (486 | ) | |
$ | (158 | ) | |
$ | - | | |
$ | 157 | | |
$ | - | | |
$ | (487 | ) |
Net income (loss) by geographic area | |
$ | 2,780 | | |
$ | (158 | ) | |
$ | - | | |
$ | 157 | | |
$ | (21 | ) | |
$ | 2,758 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
For the Period
Ended 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 March 31, 2022 (Predecessor): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues by geographic area | |
$ | 2,167 | | |
$ | 601 | | |
$ | 270 | | |
$ | - | | |
$ | (456 | ) | |
$ | 2,582 | |
Operating income (loss) by geographic
area | |
$ | (650 | ) | |
$ | (1,008 | ) | |
$ | 72 | | |
$ | - | | |
$ | 14 | | |
$ | (1,572 | ) |
Net income (loss) by geographic area | |
$ | (519 | ) | |
$ | (1,139 | ) | |
$ | (27 | ) | |
$ | - | | |
$ | 14 | | |
$ | (1,671 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As of March
31, 2023 (Successor) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Identifiable assets by geographic
area | |
$ | 75,059 | | |
$ | 991 | | |
$ | - | | |
$ | 405 | | |
$ | (71 | ) | |
$ | 76,384 | |
Long lived assets by geographic area | |
$ | 20,817 | | |
$ | 417 | | |
$ | - | | |
$ | 222 | | |
$ | - | | |
$ | 21,455 | |
Goodwill by geographic area | |
$ | 44,122 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 44,122 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
CXAPP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
16 – Leases
The
Company has operating leases for administrative offices in Canada and the Philippines. The Manila, Philippines office lease expires in
May 2025 and the Canada lease expires in June 2026. The Company entered into a 13-month lease for administrative offices in California
on April 1, 2023 with lease payments of approximately $19 thousand per month. The Company has no other operating or financing leases
with terms greater than 12 months.
Lease
expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum
lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses,
inclusive of short-term and variable lease expenses, recognized in the Company’s condensed consolidated statement of operations
for the period ended March 31, 2023 (Successor), period ended March 14, 2023 (Predecessor), and three months ended March 31, 2022 (Predecessor)
was approximately $9 thousand, $57 thousand and $97 thousand, respectively.
Operating
lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the
present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption
of ASC 842 “Leases” (“ASC 842”). As of March 31, 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 year ended December
31, 2022 (Predecessor), the weighted average remaining lease term is 2.8 years and the weighted average discount rate used to determine
the operating lease liabilities was 8.0%.
NOTE
17 – Commitments and Contingencies
Litigation
Certain
conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only
be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the
Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed.
There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position,
and results of operations or cash flows.
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