CXApp Inc

Previous wording

You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, with the audited condensed consolidated financial statements included in our Annual Report on 10-K filed with the Securities and Exchange Commission (“SEC”) on May 24, 2024 (the “Annual Report”). References in this report (the “Quarterly Report”) to “we”, “us” or the “Company” refer to CXApp Inc. References to our “management” or our “management team” refer to our officers and directors. The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three months ended March 31, 2024.

Current wording

You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, with the audited condensed consolidated financial statements included in our Annual Report on 10-K filed with the Securities and Exchange Commission (“SEC”) on May 24, 2024 (the “Annual Report”). References in this report (the “Quarterly Report”) to “we”, “us” or the “Company” refer to CXApp Inc. References to our “management” or our “management team” refer to our officers and directors. The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the period ended June 30, 2024.

Previous wording

Prior to the closing of the Business Combination, CXApp 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.

Current wording

Prior to the closing of the Business Combination, CXApp and subsidiaries were wholly-owned subsidiary of Inpixon (“Inpixon”) and the Company’s financial statements consist of CXApp US, CXApp Canada, and CXApp Philippines (collectively the “Company,” “we,” “us” or “our”), show the historical condensed consolidated financial position, results of operations, changes in stockholders’ equity and cash flows of the Company and should be read in conjunction with the accompanying notes thereto. The Company’s condensed consolidated 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.

Previous wording

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.

Current wording

The condensed consolidated 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 condensed consolidated financial statements are reasonable. Nevertheless, our condensed consolidated financial statements may not include all of the actual expenses that would have been incurred 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.

Previous wording

Our subscription-based revenue was 87% of the total revenue for the three months ended March 31, 2024 (Successor) and 74% for the three months ended March 31, 2023 (Successor), which is a 13% increase in the revenue mix.

Current wording

Our subscription-based revenue was 85% of the total revenue for the three months ended June 30, 2024 (Successor) and 79% for the three months ended June 30, 2023 (Successor), which is a 6% increase in the revenue mix.

Previous wording

Operating expenses consist primarily of research and development costs, sales and marketing costs, and general and administrative costs. These operating expenses were $5,078 thousand for the three months ended March 31, 2024 (Successor), compared to $742 thousand and $5,518 thousand for the period from March 15, 2023 to March 31, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. The decrease in operating expenses of $1,182 thousand for the same comparative quarter was attributable to decrease in general and administrative expenses of $852 thousand, amortization of intangibles of $239 thousand, and other operating expenses of approximately $91 thousand.

Current wording

Operating expenses consist primarily of research and development costs, sales and marketing costs, and general and administrative costs. These operating expenses were $5,063 thousand for the three months ended June 30, 2024 (Successor), compared to $5,118 thousand for the three months ended June 30, 2023 (Successor). The decrease in operating expenses of $55 thousand for the same comparative period was attributable to decrease in sales and marketing expenses of $303 thousand, acquisition related costs of $164 thousand, amortization of intangibles of $14 thousand and increase in stock based compensation of approximately $426 thousand.

Previous wording

Other income/expense was a $1,790 thousand expense, $1,685 thousand income, and $1 thousand income for the three months ended March 31, 2024 (Successor), for the period from March 15, 2023 to March 31, 2023 (Successor), and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. This decrease in other income was primarily attributable to changes in fair value of derivative warrant liabilities of $1,472 thousand during the three months ended March 31, 2024 (Successor).

Current wording

Other expense was a $1,765 thousand expense, and a $12,028 thousand expense for the three months ended June 30, 2024 (Successor) and the three months ended June 30, 2023 (Successor), respectively. This decrease of $10,263 thousand in other expense for the same comparative periods was attributable to the decrease in changes in fair value of derivative warrant liabilities of approximately $10,989 thousand and increase in interest expense of approximately $689 thousand and increase in foreign exchange loss of approximately $37 thousand.

Previous wording

There was an income tax benefit of approximately $207 thousand for the three months ended March 31, 2024 (Successor), compared to $1,560 thousand and $0 thousand for the period from March 15, 2023 to March 31, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. The income tax benefit for the three months ended March 31, 2023 (Successor) is primarily a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination recorded in the first quarter of 2023.

Current wording

There was an income tax benefit of approximately $159 thousand for the three months ended June 30, 2024 (Successor), compared to $981 thousand tax benefit for the three months ended June 30, 2023 (Successor). The income tax benefit for the three months ended June 30, 2024 (Successor) is primarily a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination recorded in the first quarter of 2023.

Previous wording

Comparison of the results of operations for the three months ended March 31, 2024 (Successor), for the period from March 15, 2023 to March 31, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor)

Current wording

Comparison of the results of operations for the six months ended June 30, 2024 (Successor), period ended June 30, 2023 (Successor), and period ended March 14, 2023 (Predecessor)

Previous wording

The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business. Revenue was $1,818 thousand for the three months ended March 31, 2024 (Successor), compared to $342 thousand and $1,620 thousand for the period from March 15, 2023 to March 31, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. The decrease in revenue of $144 thousand, for the comparative quarters ended March 31, 2024 and March 31, 2023, was due to a decline in Professional Services revenue. Professional services are related to integration works and other services that may be requested by the customer and as such the decline in revenue is attributable to the professional services revenue because the Company has moved to a full SaaS model versus one-time professional fees.

Current wording

The Company derives revenue from subscription software as a service (SaaS), design, deployment and implementation services for its enterprise apps business. Revenue was $3,584 thousand for the six months ended June 30, 2024 (Successor), compared to $2,257 thousand and $1,620 thousand for the period ended June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively. The decrease in revenue of $293 thousand, for the comparative periods ended June 30, 2024 and June 30, 2023, was due to a decline in Professional Services revenue. Professional services are related to integration works and other services that may be requested by the customer and as such the decline in revenue is attributable to the professional services revenue because the Company has moved to a full SaaS model versus one-time professional fees.

Previous wording

Cost of revenues includes the direct costs to deliver the services including labor and overhead. Cost of revenues were $327 thousand for the three months ended March 31, 2024 (Successor), compared to $87 thousand and $483 thousand for the period from March 15, 2023 to March 31, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. The gross profit margin was 82% for the three months ended March 31, 2024 (Successor), compared to 75% and 70% for the period from March 15, 2023 to March 31, 2023 (Successor) and the period from January 1, 2023 to March 14, 2023 (Predecessor), respectively. This decrease in cost of revenues of approximately $243 thousand, or approximately 43%, for the comparative periods ended March 31, 2024 and March 31, 2023, was attributable to the decrease in professional services revenue related costs.

Current wording

Cost of revenues includes the direct costs to deliver the services including labor and overhead. Cost of revenues was $680 thousand for the six months ended June 30, 2024 (Successor), compared to $567 thousand and $483 thousand for the period ended June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor), respectively. The gross profit margin was 81% for the six months ended June 30, 2024 (Successor), compared to 75% and 70% for the period ended June 30, 2023 (Successor) and the period ended March 14, 2023 (Predecessor). This decrease in cost of revenues of approximately $370 thousand, or approximately 35%, for the comparative periods ended June 30, 2024 and June 30, 2023, was attributable to the decrease in professional services revenue related costs.

Previous wording

As of May 15, 2024, the Company owed approximately $3,885 thousand in principal and accrued interest payable of $165 thousand payable within the next nine months. The interest rate is 10%. See Note 10 of the Notes to Unaudited Condensed Consolidated Financial Statements.

Current wording

As of August 10, 2024, the Company owed approximately $3,885 thousand in principal and accrued interest payable of $261 thousand payable within the next six months. The interest rate is 10%. See Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements.

Previous wording

Net cash used in operating activities during the three months ended March 31, 2024 (Successor) of $650 thousand consists of net loss of $5,170 thousand offset by non-cash adjustments of approximately $3,051 thousand and net cash changes in operating assets and liabilities of approximately $1,469 thousand. We entered into an equity line financing agreement on May 22, 2024 for up to $10,000 thousand, with an initial draw of $2,500 thousand in the second quarter of 2024. Given our current cash balances and budgeted cash flow requirements, the Company believes such funds are sufficient to satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements. The Company may continue to pursue strategic transactions and may raise additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each acquisition.

Current wording

Net cash used in operating activities during the six months ended June 30, 2024 (Successor) of $2,560 thousand consists of net loss of $10,426 thousand offset by non-cash adjustments of approximately $6,351 thousand and net cash changes in operating assets and liabilities of approximately $1,515 thousand. On May 22, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with Streeterville Capital, LLC (“Lender”), pursuant to which the Lender desires to purchase up to $10,000 thousand in shares of the Company’s Common Stock, par value $0.0001. Pursuant to the SPA, the Company issued an unsecured convertible Pre-Paid Purchase to Lender. The convertible Pre-Paid Purchase has the original principal amount of $2,650 thousand. On June 3, 2024, the Company received net proceeds of $2,480 thousand, reflecting original issue discount of $125 thousand and Lender’s transaction cost of $20 thousand. Given our current cash balances and budgeted cash flow requirements, the Company believes such funds are sufficient to satisfy its working capital needs, capital asset purchases, debt repayments and other liquidity requirements associated with its existing operations for the next 12 months from the issuance date of the financial statements. The Company may continue to pursue strategic transactions and may raise additional capital as needed, using our equity securities and/or cash and debt financings in combinations appropriate for each acquisition.

Previous wording

As of March 31, 2024 (Successor), the Company has a working capital deficiency of approximately $5,280 thousand and cash of approximately $5,603 thousand. For the three months ended March 31, 2024 (Successor), the Company incurred net loss of approximately $5,170 thousand and used approximately $650 thousand of cash for operating activities.

Current wording

As of June 30, 2024 (Successor), the Company has a working capital deficiency of approximately $6,807 thousand and cash of approximately $6,160 thousand. For the period ended June 30, 2024 (Successor), the Company incurred net loss of approximately $10,426 thousand and used approximately $2,560 thousand of cash for operating activities.

Previous wording

The Management believes that the current liquidity position, including the cash raised under the promissory note of $3,000 thousand payable by December 2024, and the equity line financing agreement we entered into on May 22, 2024 for up to $10,000 thousand, with an initial draw of $2,500 thousand in the second quarter of 2024, has the ability to mitigate any going concern indicators for a period of at least one year from the date these financial statements are issued.

Current wording

The Management believes that the current liquidity position, including the cash raised under the promissory note of $3,000 thousand payable by December 2024, and the Securities Purchase Agreement (the “SPA”), pursuant to which the Lender desires to purchase up to $10,000 thousand in shares of the Company’s Common Stock, par value $0.0001, has the ability to mitigate any going concern indicators for a period of at least one year from the date these financial statements are issued.

Previous wording

Operating Activities for the three months ended March 31, 2024 (Successor), for the period from March 15, 2023 to March 31, 2023 (Successor), and the period from January 1, 2023 to March 14, 2023 (Predecessor)

Current wording

Operating Activities for the six months ended June 30, 2024 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), and the period from January 1, 2023 to March 14, 2023 (Predecessor)

Previous wording

Cash Flows from Investing Activities for the three months ended March 31, 2024 (Successor), for the period from March 15, 2023 to March 31, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor)

Current wording

Cash Flows from Investing Activities for the six months ended June 30, 2024 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor)

Previous wording

Net cash flows used in investing activities during the three months ended March 31, 2024 (Successor) was approximately $18 thousand compared to net cash flows used in and provided in investing activities for the period from March 15, 2023 to March 31, 2023 (Successor) and during the period from January 1, 2023 to March 14, 2023 (Predecessor) of approximately thousand $9,980 and $54 thousand, respectively. Cash flows related to investing activities during the three months ended March 31, 2024 (Successor) include $18 thousand for the purchase of property and equipment. Cash flows related to investing activities during the period from March 15, 2023 to March 31, 2023 (Successor) include $23 thousand for the purchase of property and equipment, and $10,003 thousand as cash acquired in connection with Business Combination. Cash flows related to investing activities during the period from January 1, 2023 to March 14, 2023 (Predecessor) include $9 thousand for the purchase of property and equipment, and $45 thousand for the investment in capitalized software.

Current wording

Net cash flows used in investing activities during the six months ended June 30, 2024 (Successor) was approximately $26 thousand compared to net cash flows provided in and used in investing activities for the period from March 15, 2023 to June 30, 2023 (Successor) and during the period from January 1, 2023 to March 14, 2023 (Predecessor) of approximately $9,977 thousand and $54 thousand, respectively. Cash flows related to investing activities during the six months ended June 30, 2024 (Successor) include $26 thousand for the purchase of property and equipment. Cash flows related to investing activities during the period from March 15, 2023 to June 30, 2023 (Successor) include $26 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 from January 1, 2023 to March 14, 2023 (Predecessor) include $9 thousand for the purchase of property and equipment, and $45 thousand for the investment in capitalized software.

Previous wording

Cash Flows from Financing Activities for the three months ended March 31, 2024 (Successor), for the period from March 15, 2023 to March 31, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor)

Current wording

Cash Flows from Financing Activities for the six months ended June 30, 2024 (Successor), for the period from March 15, 2023 to June 30, 2023 (Successor), and for the period from January 1, 2023 to March 14, 2023 (Predecessor)

Previous wording

There is no cash flow provided by or used in financing activities during three months ended March 31, 2024 (Successor) compared to net cash flows provided by and used in financing activities for the period from March 15, 2023 to March 31, 2024 (Successor) and during the period from January 1, 2023 to March 14, 2023 (Predecessor) of approximately $328 thousand and $8,892 thousand, respectively. During the period from March 15, 2023 to March 31, 2023 (Successor), the Company paid $328 thousand in cash outflows for repayment of related party note. During the period from January 1, 2023 to 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.

Current wording

Net cash flows provided by financing activities during the six months ended June 30, 2024 (Successor) was approximately $2,480 thousand compared to net cash flows used in and provided by financing activities for the period from March 15, 2023 to June 30, 2023 (Successor) and during the period from January 1, 2023 to March 14, 2023 (Predecessor) of approximately $328 thousand and $8,892 thousand, respectively. On May 22, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with Streeterville Capital, LLC (“Lender”), pursuant to which the Lender desires to purchase up to $10,000 thousand in shares of the Company’s Common Stock, par value $0.0001. Pursuant to the SPA, the Company issued an unsecured convertible Pre-Paid Purchase to Lender. The convertible Pre-Paid Purchase has the original principal amount of $2,650 thousand. On June 3, 2024, the Company received net proceeds of $2,480 thousand, reflecting original issue discount of $125 thousand and Lender’s transaction cost of $20 thousand. During the period from March 15, 2023 to June 30, 2023 (Successor), the Company paid $328 thousand in cash outflows from a repayment of a related party promissory note. During the period from January 1, 2023 to 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.

Previous wording

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 consist of operating lease liabilities that are included in our balance sheet. As of March 31, 2024 (Successor), the total obligation for operating leases is approximately $391 thousand, of which approximately $231 thousand is expected to be paid in the next twelve months.

Current wording

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 consist of operating lease liabilities that are included in our balance sheet. As of June 30, 2024 (Successor), the total obligation for operating leases is approximately $677 thousand, of which approximately $389 thousand is expected to be paid in the next twelve months.

Previous wording

The Management believes there have been no significant changes during the three month period ended March 31, 2024, to the items disclosed as critical accounting estimates in management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on May 24, 2024.

Current wording

The Management believes there have been no significant changes during the six months ended June 30, 2024, to the items disclosed as critical accounting estimates in management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on May 24, 2024.