CXApp Inc.
For the period ended Dec 31, 2024. Filed Apr 7, 2025.
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FY2024 · Filed Apr 7, 2025
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024. Based on this evaluation, management concluded that our disclosure controls and procedures werenot effective as of that date due to the material weaknesses in internal control over financial reporting described below.
Material Weaknesses Identified
During the year ended December 31, 2024, management identified the following material weaknesses:
| ● | Tax Accounting Controls: The Company did not maintain effective controls to ensure the completeness and accuracy of income tax accruals, particularly related to state tax liabilities. |
| ● | Expense Accrual Process: A significant year-end adjustment for legal fees revealed deficiencies in our period-end accrual processes and related management review controls. |
| ● | Fair Value Election for Financial Instruments: Managements lack of identification of the embedded derivatives requirement bifurcation and measurement at fair value. The Company did not appropriately assess or document the fair value option for a financial instrument, resulting in an adjustment to the financial statements |
As a result of these material weaknesses, the Company concluded that previously issued interim financial statements for the quarters ended June 30, 2024 and September 30, 2024 required restatement. These issues reflect deficiencies in internal control over financial reporting that impacted our disclosure controls and procedures. The material weakness as of December 31, 2023 related to the impairment of goodwill has been remediated.
Despite the identified weaknesses, management believes that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows in accordance with U.S. generally accepted accounting principles.
Remediation Plan
To address these material weaknesses, the Company has developed and implemented the following remediation initiatives:
| ● | Tax Provision Process: |
| ○ | Partnered with third-party tax advisors to assist with state and local income tax reporting and nexus evaluations. |
| ● | Legal Expense Accrual Process: |
| ○ | Introduced real-time legal invoice tracking with automated accrual calculations. |
| ○ | Added multi-level review of significant legal expenses during period-end close. |
| ● | Financial Instrument Accounting: |
| ○ | Appointed the CFO to oversee technical accounting for complex and judgmental transactions. |
| ○ | Engaged technical accounting support and engaged third-party valuation specialists for equity-linked instruments. |
| ● | Cross-functional Improvements: |
| ○ | Enhanced month-end close workflows, including standardized documentation, checklists, and approval protocols. |
| ○ | Engaged external advisors semiannually to review valuation, tax, equity-linked instruments, and disclosures. |
Management, under the oversight of the Audit Committee, is monitoring the effectiveness of these remediation efforts. We expect to complete testing of the remediated controls during fiscal year 2025.
Management’s Report on Internal Control Over Financial Reporting
As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP.
Internal control over financial reporting includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that accurately and fairly reflect transactions and dispositions of company assets. |
| 2. | Provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with GAAP, and receipts and expenditures are made only in accordance with management and director authorizations; and |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized use or disposition of assets that could have a material effect on the financial statements. |
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that internal control over financial reporting wasnot effectiveas of December 31, 2024.
Changes in Internal Control Over Financial Reporting
As the material weaknesses described above were identified subsequent to December 31, 2024, there were no changes in our internal control over financial reporting.
Limitations on Effectiveness of Controls
Our disclosure controls and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. Because of inherent limitations, internal controls may not prevent or detect all errors or fraud. Moreover, the design of any control system must consider the risk that controls may become inadequate due to changing conditions or that compliance with policies and procedures may deteriorate over time.
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