CXApp Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act) were not effective because of the material weakness in internal control over financial reporting described below. After giving full consideration to the material weaknesses identified and additional analysis performed to ensure our consolidated financial statements included in this Form 10-K were prepared in accordance with U.S. GAAP, the Management has concluded that the material weakness did not result in a material misstatement in our annual or interim consolidated financial statements and our consolidated financial statements present fairly, in all material respects, our financial position, results of operations, and cash flows for the year ended December 31, 2023. Material Weakness and Remediation Activities During the quarter ended December 31, 2023, we identified a material weakness in the design and operating effectiveness of controls primarily associated with the Company’s valuation and goodwill impairment testing. The material weakness we identified associated with the valuation process arises primarily from a lack of focus on detailed analysis and enhanced documentation procedures. With the oversight of the Management and our Audit Committee, we have initiated steps to address the material weakness. In the second quarter of 2024, the Management hired a third-party valuator with the requisite skills and expertise on goodwill impairment testing. In 2024, the Management plans to hire qualified personnel to oversee technical accounting matters. Further, the Company intends to add additional and more robust management review controls to provide more focus on detailed analysis and enhanced documentation procedures. Management’s Report on Internal Controls Over Financial Reporting As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our 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 our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company, 51 (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2023. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we did not maintain effective internal control over financial reporting as of December 31, 2023 for the reasons described above. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the material weakness noted above and the ongoing remediation measures that the Company is implementing in response to the material weakness. Item 9B. Other Information. Insider Trading Arrangements and Policies During the three months ended December 31, 2023, no director or officer of CXApp notified CXApp of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Securities Purchase Agreement On May 22, 2024, CXApp entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Streeterville Capital, LLC (the “Investor”), pursuant to which CXApp agreed to issue and sell to the Investor (i) one or more pre-paid purchases in the aggregate purchase amount of up to $10,000 thousand for the purchase of Common Stock and (ii) 40 thousand Common Shares. With respect to the initial pre-paid purchase, the Investor paid $2,500 thousand to CXApp, and in exchange, CXApp agreed to pay $2,625 thousand (including any interest, fees, charges and late fees accrued) and to pay interest on the outstanding balance at the rate of five percent (5%) per annum. The initial pre-paid purchase amount includes an original issue discount of $125 thousand and an additional $20 thousand to cover the Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction expenses. The investor has the right, but not the obligation, to purchase from CXApp Common Stock not exceeding (i) the outstanding balance and (ii) 9.99% beneficial ownership of the outstanding Common Stock, at a price equal to the lower of (i) $3.996 or (ii) 91% of the lowest daily VWAP during the ten consecutive trading days immediately prior to the purchase notice date, but not lower than $0.666. From May 22, 2024, until the earlier of (i) May 22, 2027 or (ii) when CXApp has sold $10,000 thousand in pre-paid purchases, CXApp may request additional pre-paid purchases in amounts that are (i) less than $2,500 thousand less the outstanding pre-paid purchase balance and (ii) greater than $250 thousand. Future pre-paid purchases will include an original issue discount of 5%, with no additional transaction expense amounts. The investor also has the right, but not the obligation, to purchase from CXApp Common Stock not exceeding (i) the outstanding balance and (ii) 9.99% beneficial ownership of the outstanding Common Stock, at the price equal to the lower of (i) one hundred twenty percent (120%) of the lower of (a) the closing trade price, or (b) the average closing trade price of five (5) trading days, immediately preceding the pre-paid purchase date or (ii) 91% of the lowest daily VWAP during the ten consecutive trading days immediately prior to the purchase notice date, but not lower than (a) twenty percent (20%) of the lower of the closing trade price, or (b) average closing trade price of 5 trading days, immediately preceding the pre-paid purchase date. Except as described above, terms of such additional pre-paid purchases will be substantially the same as the initial pre-paid purchase. The securities purchase agreement has customary representations, warranties, covenants and indemnifications of CXApp and Investor. The foregoing description of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by the full text of the Securities Purchase Agreement, a copy of which is attached hereto as Exhibit 10.8 and is incorporated herein by reference. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. Not applicable. 52 PART III. Item 10. Directors, Executive Officers and Corporate Governance. Our officers and directors are as follows: Name Age Title Khurram Sheikh 53 Chairman, Chief Executive Officer and Director Di-Ann Eisnor 52 Director Camillo Martino 62 Director George Mathai 57 Director Shanti Priya 54 Director Mr. Khurram 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 our board because of his extensive experience advising boards of directors of public and private companies and his extensive professional experience. 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. 53 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. 54 Director Independence Our board consists of five (5) members. Our directors, 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 our employees and that neither the director nor any of his, her or their family members has engaged in various types of business dealings with us. There are no family relationships among any of our directors or executive officers. Classified Board of Directors Our 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 are 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; ● the Class II directors will be Camillo Martino and Shanti Priya, and their terms will expire at our second annual meeting of stockholders 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. The Charter provides that the authorized number of directors may be changed only by resolution of our 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 our board into three classes with staggered three-year terms may delay or prevent a change of our board or a change in control of us. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock then entitled to vote in an election of directors. Board Leadership Structure Our 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 our best interests and the best interests of our stockholders, including the composition, skills and experience of our board and its members, specific challenges faced by us or the industry in which it operates, and governance efficiency. We elected Mr. Sheikh as Chairman of the Board because of Mr. Sheikh’s strategic vision for the business, his in depth knowledge of our operations, and his experience in capital markets make him well qualified to serve as both Chairman of the board and Chief Executive Officer. Combining the roles of Chairman and Chief Executive Officer will help provide strong and consistent leadership for the management team and our board. However, our 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. If our 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. Our board may also consider appointing a lead independent director if the circumstances warrant it. Committees of the Board of Directors Our board of directors has three standing committees: an audit committee, a compensation committee and a nominating and corporate governance. 55 Role of Board in Risk Oversight Process Our board has responsibility for the oversight of our risk management processes and, either as a whole or through its committees, will regularly discuss with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process will include receiving regular reports from board committees and members of senior management to enable our board to understand our 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 our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our 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 our 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 our 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 board will be regularly informed through committee reports about such risks. Matters of significant strategic risk will be considered by our board as a whole. Audit Committee The audit committee’s main function is to oversee our accounting and financial reporting processes and the audits of our financial statements. This committee’s responsibilities are set forth in a charter that 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; 56 ● 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 our audit committee are Shanti Priya, Camillo Martino and Di-Ann Eisnor. Shanti Priya serves as the chair of the committee. All members of our 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. Compensation Committee The compensation committee’s main function is to oversee our policies relating to compensation and benefits of our officers and employees. This committee’s responsibilities are set forth in a charter that 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 our compensation committee are Camillo Martino, Di-Ann Eisnor, and George Mathai. Di-Ann Eisnor serves as the chair of the committee. 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. 57 Nominating and Corporate Governance Committee The nominating and corporate governance committee is responsible for assisting our 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 our 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 our board and any committees thereof. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance policies, reporting and making recommendations to our board concerning governance matters and oversight of the evaluation of our 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 our 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 our nominating and corporate governance committee are independent directors under the applicable Nasdaq listing standards. Compensation Committee Interlocks and Insider Participation No member of the compensation committee serves or served during the fiscal year ended December 31, 2023, as a member of our 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 Our nominating and corporate governance committee is responsible for reviewing with our board, on an annual basis, the appropriate characteristics, skills and experience required for our 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 our board 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. Our 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. 58 Nasdaq Board Diversity Matrix The following Board Diversity Matrix presents our board diversity statistics in accordance with Nasdaq Rule 5606, as self-disclosed by the directors. Board Diversity Matrix (As of May 20, 2024) 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 Ethics We have 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. Our code of business conduct and ethics will be available under the Corporate Governance section of our website at www.cxapp.com. In addition, we intend 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 our 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 Annual Report. 59 Item 11. Executive 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 executive officers. Overview The form and amount of the compensation to be paid to each of our directors and executive officers were determined by our board. Each executive officers’ compensation were established by our compensation committee which is comprised solely of independent directors in accordance with Nasdaq listing standards. The following tables disclose compensation received by our executive officers. Summary Compensation Table The following table provides certain information regarding the compensation earned by the named executive officers from their services to CXApp, as applicable, during the fiscal years ended December 31, 2023 and 2022. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) All Other Compensation ($) Total ($) Khurram P. Sheikh 2023 $ 267,917 $ 97,500 $ - $ - $ - $ 365,417 Chief Executive Officer 2022 $ - $ - $ - $ - $ - $ - Leon Papkoff 2023 $ 289,776 $ 70,000 $ - $ - $ - $ 359,776 Chief Product Officer 2022 $ 250,000 $ 100,000 $ - $ - $ - $ 350,000 Narrative Disclosure to the Summary Compensation Table Khurram P. Sheikh, our chief executive officer, received (i) a salary of $267,917 and a bonus of $97,500 as compensation for his services to CXApp during the fiscal year ended December 31, 2023, and did not receive any compensation for his services during the fiscal year ended December 31, 2022; and Leon Papkoff, former chief product officer, received (i) a salary of $289,776 and a bonus of $70,000 as compensation for his services during the fiscal year ended December 31, 2023; and (ii) a salary of $250,000 and a bonus of $100,000 as compensation for his services to Inpixon during the fiscal year ended December 31, 2022. 60 Outstanding Equity Awards at Fiscal Year-End Other than as set forth below, there were no outstanding unexercised options, unvested stock, and/or equity incentive plan awards issued to our Named Executive Officers as of December 31, 2023. Option Awards Stock Awards Name Grant Date Expiration Date Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity Incentive plan awards: number of securities underlying unexercised unearned options (#) Option exercise price ($) Number of shares of restricted stock (#) Market value of shares of restricted stock ($) Khurram P. Sheikh Mar 29, 2023 Mar 29, 2033 - 844,200 (1) - 1,291,626 - - Aug 14, 2023 Aug 14, 2033 - - - - 57,233 350,838 (1) This option vests in two years with 50% of it vesting in the first year of anniversary. Executive Compensation Arrangements 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 10.4 and also is incorporated herein by reference. We have entered into an employment agreement with Khurram Sheikh serves as our Chief Executive Officer for a term commencing on the consummation of the Business Combination and will continue until terminated by us or the employee or in accordance with the terms of the employment agreement. Mr. Sheikh will be paid an annualized base salary of $325,000, as revised periodically by us, as well as an annual bonus with a target amount of $325,000 for each complete calendar year. The employment agreement contains provisions regarding non-solicitation, confidentiality of information and arbitration of disputes. Mr. Sheikh may terminate his employment by giving advance written notice to us. We 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. We have entered into an employment agreement with Leon Papkoff serves as our Chief Product Officer for a term commencing on the consummation of the Business Combination and will continue until terminated by us or the employee or in accordance with the terms of the employment agreement. Mr. Papkoff will be paid an annualized base salary of $300,000, as revised periodically by us, as well as an annual bonus with a target amount of $150,000 for each complete calendar year. The employment agreement contains provisions regarding non-solicitation, confidentiality of information and arbitration of disputes. Mr. Papkoff may terminate his employment by giving advance written notice to us. We may also terminate the employment agreement for cause, as defined in the employment agreement, a copy of which is attached hereto as Exhibit 10.6 and is also incorporated herein by reference. 61 2023 Equity Incentive Plan At the special meeting held on March 10, 2023, the KINS stockholders considered and approved, among other things, the CXApp Inc. 2023 Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan was previously approved, subject to stockholder approval, by KINS’ board of directors. The Incentive Plan became effective immediately upon the Closing. Pursuant to the terms of the Incentive Plan, there are 2,110,500 shares of CXApp Class A common stock available for issuance under the Incentive Plan, which is equal to 15% of the aggregate number of shares of CXApp common stock issued and outstanding immediately after the Closing (giving effect to the redemptions). This description is qualified in its entirety by reference to the text of the Incentive Plan, a copy of which is attached hereto as Exhibit 10.7 and also is incorporated herein by reference. Director Compensation The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Directors in the year ended December 31, 2023 except Khurram Sheikh whose aggregate compensation information has been disclosed above. Name Fees Earned or paid in cash ($) Option Awards ($) Restricted Stock Units ($) (1) Non-equity Incentive plan compensation ($) Nonqualified deferred compensation earnings $ All Other Compensation ($) Total ($) Camillo Martino $ 25,000 $ - $ 350,838 $ - $ - $ - $ 375,838 Di-Ann Eisnor $ 25,000 $ - $ 350,838 $ - $ - $ - $ 375,838 Shanti Priya $ 25,000 $ - $ 350,838 $ - $ - $ - $ 375,838 George Mathai $ 25,000 $ - $ 350,838 $ - $ - $ - $ 375,838 Directors are entitled to reimbursement of ordinary and reasonable expenses incurred in exercising their responsibilities and duties as a director. On August 7, 2023, the Board approved the following compensation plan for the member of Board of Directors: $25,000 per year for their services rendered on the Board and awarded each director an aggregate of 57 thousand of restricted stock units. (1) The fair value of director restricted stock unit granted are valued using the closing price of the Company’s common stock on the date of grant. 62 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth the beneficial ownership of our common stock as of May 20, 2024 by the following persons: ● each person who is known to be the beneficial owner of more than 5% of shares of our common stock; ● each of our current named executive officers and directors; and ● all our current executive officers and directors as a group. Except as indicated in the footnotes to the following table, subject to applicable community property laws, each stockholder named in the table has sole voting and investment power. Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of March 15, 2024, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder. The information provided in the following table is based on our records, information filed with the SEC, and information furnished by our stockholders. Name of Beneficial Owner Amount and nature of beneficial owner % (1) Khurram P. Sheikh 1,764,120 11.56 % Camillo Martino 171,968 1.13 % Di-Ann Eisnor 79,120 * Shanti Priya George Mathai All directors and executive officers as a group (7 individuals) 2,020,191 13.24 % * Represents beneficial ownership of less than 1% (1) Based on 15,254,389 shares outstanding as of May 20, 2024. 63 Item 13. Certain Relationships and Related Transactions, and Director Independence. 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 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. 64 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 1,000 thousand 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. 65 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. Director Independence For information on director independence, see Item 10. Directors, Executive Officers and Corporate Governance . 66 Item 14. Principal Accountant Fees and Services. The firms of WithumSmith+Brown, PC (“Withum”) and Marcum LLP (“Marcum”), act as our independent registered public accounting firms. Withum acted as the public accounting firm for the period from March 15, 2023 to December 31, 2023 (Successor) and Marcum acted as the public financial accounting firm for the year ended December 31, 2022 (Predecessor) and for the period from January 1, 2023 to March 14, 2023 (Predecessor). Audit Fees. For the period from March 15, 2023 to December 31, 2023 (Successor), period from January 1, 2023 to March 14, 2023 (Predecessor), and year ended December 31, 2022 (Predecessor), fees for our independent registered public accounting firm were approximately $235,000, $0, and $130,000, respectively, for the services Withum and Marcum performed in connection with the audit of our December 31, 2023 consolidated financial statements included in this Annual Report on Form 10-K. Audit-Related Fees For the period from March 15, 2023 to December 31, 2023 (Successor), period from January 1, 2023 to March 14, 2023 (Predecessor), and year ended December 31, 2022 (Predecessor), our independent registered public accounting firms did not render assurance and related services related to the performance of the audit or review of consolidated financial statements. Tax Fees. For the period from March 15, 2023 to December 31, 2023 (Successor), period from January 1, 2023 to March 14, 2023 (Predecessor), and year ended December 31, 2022 (Predecessor), fees for our independent registered public accounting firm were approximately $9,000, $0, and $8,100, respectively, for the services performed related to tax compliance, tax advice and tax planning. All Other Fees. For the year ended December 31, 2023 and 2022, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above. Pre-Approval Policy Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee pre-approves all audit and permitted non-audit services provided by any independent registered public accounting firm prior to each engagement. 67 PART IV. Item 15. Exhibits, Financial Statement Schedule s The following documents are filed as part of this Form 10-K: (1) Consolidated Financial Statements: Page Reports of Independent Registered Public Accounting Firms F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Income (Loss) F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 to F-35 (2) Financial Statement Schedules: None. (3) Exhibits We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. 68 CXAPP INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms F-2 Consolidated Financial Statements: Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Income (Loss) F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 to F-35 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of CXApp Inc. and Subsidiaries: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of CXApp Inc. and Subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statement of operations and comprehensive income (loss), consolidated statement of stockholders’ equity, and consolidated statement of cash flows for the period from March 15, 2023 to December 31, 2023 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 CXApp Inc. as of December 31, 2023, and the results of its operations and its cash flows for the period from March 15, 2023 to December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the entity’s consolidated 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. CXApp Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit 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 entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit 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 audit 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 audit provides a reasonable basis for our opinion. /s/ WithumSmith+Brown, PC We have served as the Company’s auditors since 2020. Philadelphia, PA May 23, 2024 PCAOB ID Number 100 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of CXApp Holdings Corp. (f/k/a Design Reactor Inc and Subsidiaries) Opinion on the Financial Statements We have audited the accompanying combined carve-out balance sheet of CXApp Holdings Corp. (f/k/a Design Reactor, Inc. and Subsidiaries) (Predecessor) as of December 31, 2022, the related combined carve-out statements of operations and comprehensive loss, and the combined carve-out statement of changes in parent’s net investment and cash flows for the period January 1, 2023 to March 14, 2023 and the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 14, 2023 and December 31, 2022 and the results of its operations and its cash flows for the period ended March 14, 2023 and year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying combined carve-out financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The combined carve-out 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 combined carve-out financial statements based on our audits. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined carve-out 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2012. 688 New York, NY May 23, 2024 F- 3 CXAPP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) Successor Predecessor December 31, 2023 December 31, 2022 Assets Current Assets Cash and cash equivalents $ 6,275 $ 6,308 Accounts receivable, net of allowance for credit losses of $ 2 and $ 5 , respectively 1,956 1,338 Notes and other receivables 211 273 Prepaid expenses and other current assets 587 650 Total current assets 9,029 8,569 Property and equipment, net 115 202 Intangible assets, net 18,136 19,289 Operating lease right-of-use asset, net 486 681 Software development costs, net - 487 Goodwill 8,737 - Other assets 78 52 Total Assets $ 36,581 $ 29,280 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 975 $ 1,054 Accrued liabilities 1,452 1,736 Deferred revenue 2,878 2,162 Acquisition liability - 197 Warrant liability 1,683 - Operating lease obligation, current 275 266 Note payable, net of debt discount of $ 834 , unamortized financing costs of $ 14 , and interest payable of $ 16 as of December 31, 2023 3,053 - Total current liabilities 10,316 5,415 Operating lease obligation, noncurrent 230 444 Other noncurrent liabilities - 30 Deferred tax liability 637 - Total Liabilities 11,183 5,889 Stockholders’ Equity Class A Common Stock, $ 0.0001 par value; 200,000,000 shares authorized; 15,254,389 shares issued and outstanding as of December 31, 2023, no shares issued or outstanding as of December 31, 2022 2 - Class C Common Stock, $ 0.0001 par value; 10,000,000 shares authorized, no shares issued or outstanding as of December 31, 2023 and December 31, 2022 - - Additional paid-in capital 83,282 - Accumulated deficit ( 57,801 ) - Accumulated other comprehensive income (loss) ( 85 ) 1,155 Net parent investment - 22,236 Total Stockholders’ Equity 25,398 23,391 Total Liabilities and Stockholders’ Equity $ 36,581 $ 29,280 The accompanying notes are an integral part of these consolidated financial statements. F- 4 CXAPP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except share and per share data) Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year Ended December 31, 2022 Revenues $ 5,746 $ 1,620 $ 8,470 Cost of Revenues 1,268 483 2,064 Gross Profit 4,478 1,137 6,406 Operating Expenses Research and development 5,309 1,455 9,323 Sales and marketing 3,242 964 5,096 General and administrative 5,374 2,293 11,571 Acquisition related costs 543 - 16 Amortization of intangible assets 2,162 806 3,885 Impairment of goodwill 36,056 - 5,540 Total Operating Expenses 52,686 5,518 35,431 Loss from Operations ( 48,208 ) ( 4,381 ) ( 29,025 ) Other Income (Expense) Interest income (expense), net 65 1 4 Change in fair value of derivative liability ( 4,714 ) - - Other Expense 47 - ( 1 ) Total Other Income (Expense) ( 4,602 ) 1 3 Net Loss, before tax ( 52,810 ) ( 4,380 ) ( 29,022 ) Income tax benefit/(expense) 3,572 - ( 153 ) Net Loss $ ( 49,238 ) $ ( 4,380 ) $ ( 29,175 ) Unrealized foreign exchange gain/(loss) from cumulative translation adjustments ( 85 ) ( 28 ) 1,155 Comprehensive Loss $ ( 49,323 ) $ ( 4,408 ) $ ( 28,020 ) Basic and diluted weighted average shares outstanding, Class A common stock 11,403,393 Basic and dilutive net loss per share, Class A common stock $ ( 4.32 ) Basic and diluted weighted average shares outstanding, Class C common stock - Basic and dilutive net loss per share, Class C common stock $ - The accompanying notes are an integral part of these consolidated financial statements. F- 5 CXAPP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Predecessor Net parent investment Accumulated other comprehensive income (loss) Total Shareholders’ Equity Balance at January 1, 2022 $ 20,155 $ 56 $ 20,211 Net Loss ( 29,175 ) - ( 29,175 ) Stock-based compensation allocated from parent 1,640 - 1,640 Parents’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 investment from parent 26,023 - 26,023 Cumulative translation adjustment - 1,099 1,099 Balance at December 31, 2022 $ 22,236 $ 1,155 $ 23,391 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 investment 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 Income Total Stockholders’ Shares Amount Shares Amount Capital Deficit (Loss) Deficit Balance at March 15, 2023 7,034,999 $ 1 - $ - $ 1,607 $ ( 8,563 ) $ - $ ( 6,955 ) Shares issued in connection with Business Combination 1,547,700 - 5,487,300 1 69,927 - - 69,928 Net loss - - - - ( 49,238 ) - ( 49,238 ) Stock-based compensation - - - - 925 - - 925 Warrant exchange and exercise 1,035,000 - - - 10,134 - - 10,134 Warrant exercise – cashless 49,608 - - - 548 - - 548 Mandatory conversion from Class C common stock to Class A common stock 5,487,300 1 ( 5,487,300 ) ( 1 ) - - - - Common stock issuance – non-cash compensation 99,782 - - - 195 - - 195 Stock issuance cost - ( 54 ) ( 54 ) Cumulative translation adjustment - - - - - - ( 85 ) ( 85 ) Balance at December 31, 2023 15,254,389 $ 2 - $ - $ 83,282 $ ( 57,801 ) $ ( 85 ) $ 25,398 The accompanying notes are an integral part of these consolidated financial statements. F- 6 CXAPP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year Ended December 31, 2022 Operating activities Net loss $ ( 49,238 ) $ ( 4,380 ) $ ( 29,175 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 75 228 646 Amortization of intangible assets 2,162 806 3,885 Amortization of right of use asset 298 40 266 Amortization of debt discount and deferred financing cost 37 - - Accrued interest expense on promissory note 16 - - Deferred income taxes ( 3,570 ) - - Provision for credit loss expense ( 11 ) - 5 Stock-based compensation expense 1,080 158 1,640 Gain on change in fair value of earnout payable - - ( 2,827 ) (Gain) loss on foreign currency transactions ( 44 ) ( 32 ) - Change in fair value of derivative liability 4,714 - Impairment of goodwill 36,056 - 5,540 Unrealized loss on note - - 1,478 Others - - ( 500 ) Change in operating assets and liabilities: Accounts receivable and other receivables 300 ( 857 ) 109 Prepaid expenses and other current assets 719 ( 20 ) 109 Inventory - - 117 Other assets ( 37 ) - 18 Accounts payable 499 ( 796 ) 400 Accrued liabilities ( 5,876 ) ( 787 ) 1,096 Income tax liabilities - - ( 513 ) Operating lease liabilities ( 306 ) ( 38 ) ( 257 ) Deferred revenue 360 534 ( 932 ) Net cash used in operating activities ( 12,766 ) ( 5,144 ) ( 18,895 ) Investing activities Purchases of property and equipment ( 57 ) ( 9 ) ( 88 ) Investment in capitalized software - ( 45 ) ( 394 ) Cash acquired in connection with Business Combination 10,003 - - Net cash provided by (used in) investing activities 9,946 ( 54 ) ( 482 ) Financing activities Net equity investment from parent - 9,089 25,967 Taxes paid related to stock based compensation - - ( 104 ) Repayment of CXApp acquisition liability - ( 197 ) ( 5,135 ) Net proceeds from issuance of promissory note 3,000 - - Repayment of related party promissory note ( 328 ) - - Warrant exercise - net 4,948 - - Net cash provided by financing activities 7,620 8,892 20,728 Effect of exchange rate changes on cash and cash equivalents ( 28 ) 1 ( 71 ) Net increase in cash and cash equivalents 4,772 3,695 1,280 Cash and cash equivalents, beginning of period 1,503 6,308 5,028 Cash and cash equivalents, end of period $ 6,275 $ 10,003 $ 6,308 Supplemental disclosures of cash flow information Cash paid for taxes $ 4 $ - $ 119 Cash paid for interest $ 18 $ - $ 1 Supplemental schedule of noncash investing and financing activities Right of use asset obtained in exchange for lease liability $ 230 $ - $ 284 Parent’s net equity issued for CXApp earnout $ - $ - $ 3,697 Noncash investment from parent $ - $ 409 $ - Class A Common Stock and Class C Common Stock issued in connection with Business Combination $ 69,928 $ - $ - Financing of Director and Officer Insurance $ 671 $ - $ - Warrant exercise – cashless $ 549 $ - $ - Warrant exchange to Class A common stock $ 4,914 $ - $ - The accompanying notes are an integral part of these consolidated financial statements. F- 7 NOTE 1 – Organization, Nature of Business and Basis of Presentation CXApp Inc. and its subsidiaries (“CXApp” or the “Company”) is in the business of delivering intelligent enterprise workplace experiences. The CXApp SaaS platform is anchored on the intersection of customer experience (CX) and artificial intelligence (AI) providing digital transformation for the physical workplace for enhanced experiences across people, places and things. The CXApp SaaS platform offers a suite of leading-edge technology workplace experience solutions including an enterprise employee application, indoor mapping, on-device positioning, augmented reality technologies, generative AI applications and an AI-based analytics platform, targeting the emerging hybrid workplace market. CXApp creates a connected workplace by reducing app overload, data fragmentation, and complex workflows and streamlines all capabilities through The Workplace SuperApp. All features, services and integrations are housed in one easy-to-access platform allowing businesses to deliver a more holistic employee experience in a hybrid workplace. On September 25, 2022, an Agreement and Plan of Merger (the “Merger Agreement”) was entered into by and among Inpixon, KINS, CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS acquired Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (“Legacy CXApp”) in exchange for the issuance of shares of KINS capital stock (the “Business Combination”). As a result of the Business Combination, KINS changed their name to CXApp Inc. (“CXApp”). The shares are now trading on the Nasdaq using the ticker CXAI. The transaction closed on March 14, 2023. See Note 3 for more details. Unless the context otherwise requires, “we,” “us,” “our,” “CXApp” and the “Company” refer to CXApp Inc., a Delaware corporation, and its consolidated subsidiaries following the Business Combination (as defined below). Unless the context otherwise requires, references to “KINS” refer to KINS Technology Group Inc., a Delaware corporation (“KINS”), prior to the Business Combination. All references herein to the “Board” refer to the board of directors of the Company. “Legacy CXApp” refers to CXApp Holding Corp., a Delaware corporation and a wholly owned subsidiary of the Company, which the Company acquired through the Business Combination. Prior to the Separation (as defined below), Legacy CXApp was a wholly owned subsidiary of Inpixon, a Nevada corporation (“Inpixon”). The Business Combination was accounted for using the acquisition method (as a forward merger), with goodwill and other identifiable intangible assets recorded in accordance with GAAP, as applicable. Under this method of accounting, the “Enterprise Apps Business” (formerly known as CXApp) is treated as the “acquired” company for financial reporting purposes. KINS (now known as CXApp Inc.) has been determined to be the accounting acquirer because KINS maintains control of the Board of Directors and management of the combined company. F- 8 NOTE 2 – Summary of Significant Accounting Policies Liquidity As of December 31, 2023 (Successor), the Company had a working capital deficit of approximately $ 1,287 thousand and cash and cash equivalents of approximately $ 6,275 thousand. For the period from March 15, 2023 to December 31, 2023 (Successor), the Company incurred $ 49,238 thousand of net loss. For the period from March 15, 2023 to December 31, 2023 (Successor), the Company used approximately $ 12,766 thousand of cash for operating activities, of which $ 5,876 thousand was from a reduction in accrued liabilities, primarily paying merger related transaction liabilities. The Company cannot assure that it will ever earn revenues sufficient to support their operations, or that it will ever achieve profitable operations. The Company’s recurring losses and utilization of cash in its operations are indicators of substantial doubt that the entity can continue as a going concern however, with the Company’s current liquidity position, the Company has taken steps to reduce operating expenses resulting in a more efficient cost structure. The Company discussed plans to finance its future working capital requirements and capital expenditures from cash generated from operating activities, cash raised under the equity line financing agreement for up to $10,000 thousand, with an initial draw of $2,500 thousand in the second quarter of 2024, and cash raised under the promissory note of $3,000 thousand dollars payable by December 2024. Management believes that these actions, when implemented, will result in operational efficiencies, cost savings to the company, and access to funds when and if needed. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect for the twelve months from the issuance of these 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 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 consolidated 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 (“U.S. 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. Basis of Presentation The accompanying consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with generally accepted accounting principles 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”). F- 9 Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances have been eliminated in consolidation. 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. 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 December 31, 2023 (Successor), the Company had cash equivalents of approximately $5,584 thousand of certificates of deposit held by a number of banks limited to $250 thousand per bank with a duration of 90 days or less. As of December 31, 2022 (Predecessor), the Company had no cash equivalents. Accounts Receivable, net and Allowance for Credit Losses Accounts receivables are stated at the amount the Company expects to collect. The Company recognizes an allowance for credit loss to ensure accounts receivable are not overstated due to uncollectability. Allowance for credit losses is 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 allowance for credit losses is recorded for individual accounts 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 adopted ASU 2016-13 in the first quarter of fiscal 2023, March 31, 2023, and the impact of the adoption was not material. The allowance for credit losses as of December 31, 2023 (Successor) is approximately $ 2 thousand. Property and Equipment, net Property and equipment are recorded at cost, less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 5 to 10 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the economic life, are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized. Depreciation expense related to property and equipment is not included as part of cost of revenues, but as part of operating expenses. F- 10 Intangible Assets Intangible assets primarily consist of developed technology, customer lists/relationships, non-compete agreements, intellectual property agreements, export licenses and trade names/trademarks. They are amortized ratably over a range of 5 to 10 years, which approximates customer attrition rate and technology obsolescence. The Company assesses the carrying value of its intangible assets for impairment annually, or more frequently if an event or other circumstances indicates that the Company may not be able to recover the carrying amount of the assets. Based on its assessments, the Company did not incur any impairment charges for the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), or for the year ended December 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 determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these judgments, potentially decreasing the fair value of our reporting unit. Any resulting impairment charges could have a material impact on our results of operations. The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations. Based on its assessments, the Company incurred an impairment charge of $ 36,056 thousand for the period from March 15, 2023 to December 31, 2023 (Successor) and did not incur impairment for the period from January 1, 2023 to March 14, 2023 (Predecessor). The Company incurred an impairment charge of approximately $ 5,540 thousand for the year ended December 31, 2022 (Predecessor). Leases and Right-of-Use Assets and Liabilities The Company determines if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company generally uses their incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use assets related to the Company’s operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. The Company’s lease terms that are used in determining their operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that the Company will exercise such options. The Company amortizes their right-of-use assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. The Company does not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year. Income Taxes The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in 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. F- 11 Comprehensive Income (Loss) and Foreign Currency Translation The Company reports comprehensive income (loss) and its components in its 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 other income (expense) in the 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 from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the year ended December 31, 2022 (Predecessor). Debt Issuance Cost The costs related to the issuance of debt are capitalized and amortized to interest expense over the life of the related debt using the effective interest method. The amendments to FASB ASC 835-30 require that debt issuance costs be presented in the Consolidated Balance Sheet as a direct deduction from the carrying amount of debt, consistent with debt discounts or premiums. Revenue Recognition The Company recognizes revenue, in accordance with ASC 606, when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from its software as a service for cloud based software, as well as design, implementation and other professional services for work performed in conjunction with its cloud based software. The Company enters into contracts with its customers whereby it grants a non-exclusive cloud-based license for the use of its proprietary software and for professional services. The contracts may also provide for on-going services for a specified price, which may include maintenance services, designated support, and enhancements, upgrades and improvements to the software, depending on the contract. Licenses for cloud software provide the customer with a right to use the software as it exists when made available to the customer. All software provides customers with the same functionality and differs mainly in the duration over which the customer benefits from the software. CXApp has done an analysis of its revenue recognition process and found that the same steps taken by the Company agrees with ASC 606 – Revenue from Contracts with Customers. The standard’s core principle is that an entity will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new standard is a principles-based standard intended to better match the accounting for the transaction with the economics of the transaction. This requires entities to use more judgment and make more estimates than under previous revenue standards. The standard introduces a five-step model for revenue recognition that replaces the four criteria for revenue recognition under previous GAAP. The five steps are shown below: 1. Identify the contract with a customer, 2. Identify the performance obligations in the contract, 3. Determine the transaction price, 4. Allocate the transaction price to performance obligations, and 5. Recognize revenue when (or as) the entity satisfies a performance obligation F- 12 License Subscription Revenue Recognition (Software As A Service) With respect to sales of the Company’s license agreements, customers generally pay fixed annual fees in advance in exchange for the Company’s software service provided via electronic means, which are generally recognized ratably over the license term. Some agreements allow the customer to terminate their subscription contracts before the end of the applicable term, and in such cases the customer is generally entitled to a refund pro-rata but only for the elapsed time remaining at the point of termination, which would approximate the deferred revenue at such time. The Company’s performance obligation is satisfied over time as the electronic services are provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing continuous access to its service. The Company’s customers generally pay within 30 to 60 days from the receipt of a customer approved invoice. The timing of the Company’s revenue recognition related to the licensing revenue stream is dependent on whether the software licensing agreement entered into represents a service. Software that relies on an entity’s IP and is delivered only through a hosting arrangement, where the customer cannot take possession of the software, is a service. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Renewals or extensions of licenses are evaluated as distinct licenses and revenue attributed to the distinct service is not recognized until (1) the entity provides the distinct license (or makes the license available) to the customer and (2) the customer is able to use and benefit from the distinct license. Renewal contracts are not combined with original contracts, and, as a result, the renewal right is evaluated in the same manner as all other additional rights granted after the initial contract. The revenue is not recognized until the customer can begin to use and benefit from the license, which is typically at the beginning of the license renewal period. The Company recognizes revenue resulting from renewal of licensed software over time. Professional Services Revenue Recognition The Company provides integration and software customization professional services to its customers. 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 from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and year ended December 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 $2,878 thousand and $2,162 thousand as of December 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 which is generally twelve months following the commencement of the license. The Company recognized revenue in the reporting period of $ 2,163 thousand, $ 865 thousand, and $ 2,820 thousand, that was included in the deferred revenue at the beginning of the period, for the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the year ended December 31, 2022 (Predecessor), respectively. F- 13 Costs to Obtain a Contract The Company recognizes eligible sales commissions as an asset within prepaid expenses and other current assets as the commissions are an incremental cost of obtaining a contract with the customer and the Company expects to recover these costs. The capitalized costs are amortized over the expected contract term. Cost to Fulfill a Contrac t The Company incurs costs to fulfill their obligations under a contract once it has obtained the contract. These costs are generally not significant and are recorded to expense as incurred. Multiple Performance Obligations The Company enters into contracts with customers for its technology that include multiple performance obligations. Each distinct performance obligation was determined by whether the customer could benefit from the good or service on its own or together with readily available resources. The Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company’s process for determining standalone selling price considers multiple factors including the Company’s internal pricing model and market trends that may vary depending upon the facts and circumstances related to each performance obligation. Sales and Use Taxes The Company presents transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis. Shipping and Handling Costs Shipping and handling costs are expensed as incurred as part of cost of revenues. These costs were deemed to be de minimis during each of the reporting periods. Research and Development Research and development (“R&D”) costs are expensed when incurred. R&D expenses consist primarily of personnel and related headcount costs, costs of professional services associated with the ongoing development of the Company’s technology, and allocated overhead. 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. F- 14 Segments The Company and its Chief Executive Officer (“CEO”), acting as the Chief Operating Decision Maker (“CODM”) determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. Stock-Based Compensation The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The Company has issued stock-based compensation awards in the form of options and restricted stock units. Fair value for options and restricted stock units are valued using the closing price of the Company’s common stock on the date of grant. The grant date fair value is recognized over the requisite service period during which an employee and non-employee is required to provide service in exchange for the award. The grant date fair value of options is estimated using the Black-Scholes option pricing model based on the average of the high and low stock prices at the grant date for awards under the CXApp Inc. 2023 Equity Incentive Plan (the “Incentive Plan”). The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected dividend yield is assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The Company uses the simplified method to estimate the expected term. The Company estimates forfeitures at the time of grant and revises these estimates in subsequent periods if actual forfeitures differ from those estimates. Derivative Warrant Liabilities The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. The Company currently has two sets of warrants outstanding, known as the Private Placement Warrants and the Public Warrants, which are both classified as a liability. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance or modification. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance as a warrant liability, and adjusted to the then fair value in each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations and amounted to approximately $ 4,714 thousand of a loss for the period from March 15, 2023 to December 31, 2023 (Successor). The Company utilized the Public Warrant quoted market price as the fair value of the Warrants as of each relevant date. F- 15 Earnings Per Share The Company computes basic and diluted earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. For the year ended December 31, 2023, basic and dilutive net income (loss) per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options, warrants, and vesting of restricted units in the calculation of diluted net loss per common shares would have been anti-dilutive. The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the year ended December 31, 2023. Schedule of antidilutive shares Successor (in thousands) Year Ended December 31, 2023 Stock options 985 Restricted stock units 821 Warrants 21,032 Total 22,838 No calculation for Earnings Per Share was made for the year ended 2022 because CXApp only commenced operations in March 15, 2023. Fair Value Measurements FASB ASC 820, “Fair Value Measurements” (“ASC 820”), provides guidance on the development and disclosure of fair value measurements. The Company follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories: ● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. ● Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. ● Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management. The fair value of the warrants has been measured based on the listed market price of such warrants, a Level 1 measurement. For the period ended March 15, 2023 to December 31, 2023 (Successor), the Company recognized an unrealized loss in the Statements of Operations and Comprehensive Income of $4,714 thousand which is presented as change in fair value of derivative liability. The Company accounts for its public and private warrants as a derivative liability initially measured at its fair values and remeasured in the consolidated statements of operations at the end of each reporting period. When the warrants are exercised, the corresponding derivative liability is de-recognized at the underlying fair value of the Class A common stock that is issued to the warrant holder less any cash paid in accordance with the warrant agreement. Upon either cash or cashless exercise, the de-recognized derivative liability results in an increase in additional paid in capital equal to the difference between the fair value of the underlying Class A common stock and its par value. A cashless exercise results in the warrant holder surrendering Class A common stock equal to the stated warrant exercise price based on the contractual terms in the warrant agreement that governs the cashless conversion. F- 16 The following table shows the changes in fair value of the liabilities during the period ended December 31, 2023: Schedule of changes in fair value of the liabilities Balance at March 15, 2023 $ 2,649 Change in FV of derivative instruments ( 1,686 ) Balance at March 31, 2023 963 Change in FV of derivative instruments 12,040 Balance at June 30, 2023 $ 13,003 Change in FV of derivative instruments ( 5,220 ) FV of Warrants cash exercised and exchanged for Class A common stock (see Note 11 - Warrants ) ( 1,237 ) Loss on warrant extinguishment ( 3,894 ) FV of Warrants cashless exercised for Class A common stock (see Note 11 - Warrants ) ( 549 ) Balance at September 30, 2023 $ 2,103 Change in FV of derivative instruments ( 420 ) Balance at December 31, 2023 $ 1,683 Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, notes and other receivables and accounts payable. The Company determines the estimated fair value of such financial instruments presented in the financial statements is equal to its carrying value due to their short-term nature. Carrying Value, Recoverability and Impairment of Long-Lived Assets The Company follows FASB ASC 360 “Property, Plant, and Equipment” (“ASC 360”) for its long-lived assets. Pursuant to ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC 360-10-35-20, if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited. Pursuant to ASC 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. Based on its assessments, the Company recorded no impairment charges on long-lived assets for the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and year ended December 31, 2022 (Predecessor). F- 17 New Accounting Pronouncements Adopted in 2023 In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Credit Losses” (“ASU 2016-13”), which requires a reporting entity to determine the allowance for credit losses for an instrument based on the amortized cost of the financial asset. The expected credit loss model aims to provide stakeholders with more transparent and timely information regarding an entity’s credit risk exposures. At the same time, it provides processes and procedures in determining a doubtful account. ASU 2016-13 is effective for interim and annual periods beginning after March 14, 2023 on a prospective basis, with early adoption permitted. The Company adopted ASU 2016-13 in the first quarter of fiscal 2023, March 31, 2023, and the impact of the adoption was not material. Recently Issued Accounting Standards Not Yet Adopted In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)”, which updates codification on how an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The effective date of this update is for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this ASU will have on the Company’s consolidated financial position and results of operations. In October 2023, the FASB issued ASU 2023-06 “Disclosure Improvements”, which amends the codification in response to the SEC’s Disclosure Update and Simplification Initiative. The effective date of this update is for fiscal years beginning after June 30, 2027, including interim periods within those fiscal years. The Company is currently assessing potential impacts of ASU 2023-06 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures. In the fourth quarter of 2023, the FASB issued three ASU’s: No. 2023-07 “Segment Reporting (Topic 280)”, No. 2023-08 “Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60), and No. 2023-09 “Income Taxes (Topic 740)”. The Management sees the Company as one single unit, instead of as segments, leading to a more in-depth consideration should FASB ASU No. 2023-07 be considered. FASB ASU No. 2023-07 is effective after fiscal year ended December 15, 2023. The effects of ASU 2023-08 and ASU 2023-09 are both being considered and assessed for their potential effects, but the Company does not expect any material impact on the financial statements and disclosures. Both FASB ASU 2023-08 and 2023-09 are effective after fiscal year ended December 15, 2024. NOTE 3 – Business Combination On March 14, 2023, the Company completed the Agreement and Plan of Merger (the “Merger Agreement”), by and among KINS, Inpixon, CXApp, and KINS Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of KINS (“Merger Sub”), pursuant to which KINS combined with Legacy CXApp, Inpixon’s enterprise apps business (including its workplace experience technologies, indoor mapping, events platform, augmented reality and related business solutions) (the “Enterprise Apps Business”). In exchange for the aggregate purchase price of approximately $ 69,928 thousand, the Company acquired all of the related assets and liabilities of Legacy CXApp. The consideration transferred in connection with the Business Combination consisted of 1,547,700 shares of the Company’s Class A Common Stock and 5,487,300 shares of the Company’s Class C Common Stock valued at a price of $ 9.94 per share. The preliminary estimated goodwill of approximately $ 44,122 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 180 th day following the closing of the Merger which has expired and (ii) the day that the last reported sale price of New CXApp Class A common stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period following the closing of the Merger. F- 18 The Business Combination is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Business Combination. These values are subject to change as we perform additional reviews of our assumptions utilized. The Company has made a provisional allocation of the purchase price of the Business Combination to the assets acquired and the liabilities assumed as of the closing date. The following table summarizes the preliminary purchase price allocations relating to the Business Combination (in thousands): Schedule of assets acquired Description Fair Value Weighted Average Useful Life (in years) Purchase Price $ 69,928 Assets acquired: Cash and cash equivalents $ 10,003 Accounts receivable 2,226 Notes and other receivables 209 Prepaid assets and other current assets 588 Operating lease right of use asset 557 Property and equipment, net 133 Other assets 42 Developed technology 9,268 10 years Patents 2,703 10 years Customer relationships 5,604 5 years Tradenames and trademarks 3,294 7 years Total assets acquired $ 34,627 Liabilities assumed: Accounts payable $ 461 Accrued liabilities 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 were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. Goodwill represents the excess fair value after allocation to the intangible assets. The calculated goodwill is not deductible for tax purposes. Total acquisition-related costs for the Business Combination were approximately $3,543 thousand. Of the total acquisition-related costs, approximately $ 3,000 thousand were incurred by KINS prior to the close of the Business Combination. These costs are included in the opening retained earnings of the Company on March 15, 2023. The remaining $ 543 thousand of acquisition-related costs were recorded as expense in the successor period and are included in acquisition related costs on the statements of operations for the year ended December 31, 2023. F- 19 Measurement Period The preliminary purchase price allocations for the acquisitions described above are based on initial estimates and provisional amounts. In accordance with ASC 805-10-25-13, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The Company continues to refine its inputs and estimates inherent in (i) the valuation of intangible assets, (ii) deferred income taxes, (iii) realization of tangible assets and (iv) the accuracy and completeness of liabilities. For the year ended December 31, 2023, the Company recognized a measurement period adjustment, which decreased prepaid assets and other current assets, developed technology, accounts payable and deferred tax liability by approximately $180 thousand, $571 thousand, $18 thousand and $137 thousand, respectively and increased accrued liabilities and goodwill by approximately $58 thousand and $671 thousand, respectively. CXApp Pro Forma Financial Information The following pro forma financial information presents the consolidated balance sheet and results of operations of the Company for the years ended December 31, 2023 and 2022 as if the acquisition had occurred as of the beginning of the first period presented (January 1, 2022). The pro forma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods. CXAPP INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) Schedule of proforma financial information As of December 31, 2023 2022 Assets Current assets $ 9,029 $ 8,798 Noncurrent assets 27,552 24,635 Total assets $ 36,581 $ 33,433 Liabilities Current liabilities $ 10,316 $ 8,645 Noncurrent liabilities 867 1,197 Total liabilities $ 11,183 $ 9,842 Stockholders’ equity $ 25,398 $ 23,591 Total stockholders’ equity $ 25,398 $ 23,591 Total liabilities and equity $ 36,581 $ 33,433 CXAPP INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands) As of December 31, 2023 2022 Revenues $ 7,366 $ 8,470 Net loss $ ( 57,904 ) $ ( 20,828 ) F- 20 NOTE 4 – Disaggregation of Revenue The Company recognizes revenue when control is transferred of the promised products or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company derives revenue from software as a service, design and implementation services for its enterprise apps solutions systems, and professional services for work performed in conjunction with its systems. Revenues consisted of the following (in thousands): Schedule of disaggregation of revenue Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year ended December 31, 2022 Subscription revenue Software $ 4,560 $ 1,204 $ 5,476 Total subscription revenue $ 4,560 $ 1,204 $ 5,476 Non-subscription revenue Professional services $ 1,186 $ 416 $ 2,994 Total non-subscription revenue $ 1,186 $ 416 $ 2,994 Total revenue $ 5,746 $ 1,620 $ 8,470 Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year ended December 31, 2022 Revenue recognized over time (1)(2) $ 5,746 $ 1,620 $ 8,470 Total $ 5,746 $ 1,620 $ 8,470 (1) Professional services are also contracted on the fixed fee and time and materials basis. Fixed fees are paid monthly, in phases, or upon acceptance of deliverables. The Company has generally elected the practical expedient to recognize revenue for the right to invoice because the Company’s right to consideration corresponds directly with the value to the customer of the performance completed to date, in which revenue is recognized over time. (2) Software As A Service Subscription Revenue’s performance obligation is satisfied evenly over the service period using a time-based measure because the Company is providing continuous access to its service and service is recognized over time. F- 21 NOTE 5 – Property and Equipment, net Property and equipment consisted of the following (in thousands): Schedule of property and equipment Successor Predecessor December 31, 2023 December 31, 2022 Computer and office equipment $ 179 $ 992 Furniture and fixtures 12 185 Leasehold improvements 6 28 Software 1 8 Total 198 1,213 Less: accumulated depreciation and amortization ( 83 ) ( 1,011 ) Total Property and Equipment, Net $ 115 $ 202 Depreciation and amortization expense were approximately $ 75 thousand, $ 19 thousand, and $ 119 thousand for the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the year ended December 31, 2022 (Predecessor), respectively. NOTE 6 – Software Development Costs, net Capitalized software development costs consisted of the following (in thousands): Schedule of capitalized software development Successor Predecessor December 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 $ 527 thousand for the period from January 1, 2023 to March 14, 2023 (Predecessor) and for the year ended December 31, 2022 (Predecessor), respectively. There was no amortization expense for capitalized software development costs for the period from March 15, 2023 to December 31, 2023 (Successor). NOTE 7 – Goodwill and Intangible Assets, net The Company reviews goodwill for impairment on a reporting unit basis on December 31 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company noted that the carrying amount of Goodwill as of December 31, 2023 was $ 8,737 thousand, which was entirely due to the business combination noted in Note 3. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in industry and market considerations, technological advancements, and the Company’s financial performance. F- 22 We completed our annual goodwill impairment evaluation as of December 31, 2023. As a result, the Company incurred an impairment loss of $ 36,056 thousand. Goodwill consisted of the following (in thousands): Acquisition Amount Balance as of March 15, 2023 $ - Acquisition of Legacy CXApp 44,122 Measurement Period Adjustments 671 Impairment ( 36,056 ) Balance as of December 31, 2023 $ 8,737 Intangible assets consisted of the following (in thousands): Schedule of intangible assets December 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 6.17 $ 3,294 $ ( 373 ) $ 2,921 $ 2,183 $ ( 725 ) $ 1,458 Customer Relationships 4.17 5,604 ( 887 ) 4,717 6,401 ( 1,765 ) 4,636 Developed Technology 9.17 8,697 ( 688 ) 8,009 15,179 ( 3,398 ) 11,781 Non-compete Agreements - - - - 3,150 ( 1,736 ) 1,414 Patents and Intellectual Property 9.17 2,703 ( 214 ) 2,489 - - - Totals $ 20,298 $ ( 2,162 ) $ 18,136 $ 26,913 $ ( 7,624 ) $ 19,289 Future amortization expense on intangible assets as of December 31, 2023 is anticipated to be as follows (in thousands): Schedule of future amortization expense For the Years Ending December 31, Amount 2024 $ 2,731 2025 2,731 2026 2,731 2027 2,731 2028 1,844 2029 and thereafter 5,368 Total $ 18,136 F- 23 NOTE 8 – Deferred Revenue Deferred revenue consisted of the following (in thousands): Schedule of deferred revenue Successor License Agreements Professional Service Agreements Total Deferred Revenue - March 15, 2023 $ 2,148 $ 386 $ 2,534 Revenue recognized ( 4,560 ) ( 1,186 ) ( 5,746 ) Revenue deferred 4,816 1,274 6,090 Deferred Revenue - December 31, 2023 $ 2,404 $ 474 $ 2,878 Predecessor License Agreements Professional Service Agreements Total Deferred Revenue - January 1, 2022 $ 2,524 $ 622 $ 3,146 Revenue recognized ( 5,476 ) ( 2,994 ) ( 8,470 ) Revenue deferred 4,883 2,603 7,486 Deferred Revenue - December 31, 2022 $ 1,931 $ 231 $ 2,162 Deferred revenues were approximately $ 2,878 thousand, $ 2,534 thousand, and $ 2,162 thousand at December 31, 2023 (Successor), March 14, 2023 (Predecessor), and December 31, 2022 (Predecessor), respectively. The fair value of the deferred revenue approximates the services to be rendered given the short term period over which it is expected to be recognized. NOTE 9 – Accrued Liabilities Accrued liabilities consisted of the following (in thousands): Schedule of accrued Liabilities Successor Predecessor December 31, 2023 December 31, 2022 Accrued compensation and benefits $ 387 $ 586 Accrued bonus and commissions 108 422 Income tax payables 74 - Accrued rent - 559 Accrued transaction costs 13 - Accrued sales and other indirect taxes payable 12 86 Accrued other 858 83 Accrued liabilities $ 1,452 $ 1,736 F- 24 NOTE 10 – Promissory Note Note payable as of December 31, 2023 consisted of the following: (In thousands) Principal amount $ 3,885 Less: Unamortized original issue discount 834 Unamortized debt issuance cost 14 $ 3,037 Add: Accrued interest payable 16 $ 3,053 On December 15, 2023, we entered into a note purchase agreement with Streeterville Capital, LLC (the “Lender”), pursuant to which we agreed to issue and sell to the Lender an unsecured promissory note (the “Note”) in an aggregate initial principal amount of $ 3,885 thousand, which is payable on or before the date that is 12 months from the issuance date. The initial principal amount includes an original issue discount of $870 thousand and $15 thousand that we agreed to pay to the Lender to cover the Lender’s legal fees, accounting costs, due diligence, monitoring and other transaction costs. The net proceeds of the Note is $ 3,000 thousand. Interest on the Note accrues at a rate of 10% per annum and is payable on the maturity date. A monitoring fee of 10% of the outstanding balance will be charged starting six (6) months from the issuance of the Note to cover Lender’s accounting, legal and other costs incurred in monitoring. The foregoing fee shall automatically be added to the outstanding balance on the applicable date without any further action by either party. The Lender shall have the right to redeem up to an aggregate of 1/6th of the initial principal balance of the Note plus any interest accrued thereunder each month by providing written notice delivered to us; provided, however, that if the Lender does not exercise any monthly redemption amount in its corresponding month then such monthly redemption amount shall be available for the Lender to redeem in any further month in addition to such future month’s monthly redemption amount. Upon receipt of any monthly redemption notice, we shall pay the applicable monthly redemption amount in cash to the Lender within five (5) business days of the Company’s receipt of such monthly redemption notice. The Note includes customary event of default provisions, subject to certain cure periods, and provides for a default interest rate of 22%. Upon the occurrence of an event of default, interest would accrue on the outstanding balance beginning on the date the applicable event of default occurred at an interest rate equal to the lesser of twenty-two percent (22%) or the maximum rate permitted under applicable law. As of May 15, 2024, there is an aggregate outstanding principal and interest balance of approximately $ 4,050 thousand underlying the December 2023 Note. During the period from March 15, 2023 to December 31, 2023, interest expense recognized on the consolidated statement of operations and comprehensive loss is approximately $ 53 thousand. F- 25 NOTE 11 – Warrants Public Warrants As of December 31, 2023, there were 10,752 thousand Public Warrants outstanding, and none as of December 31, 2022. 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. The Public Warrants is exercisable and will expire on March 15, 2028 or earlier upon redemption or liquidation. 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 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. On July 13, 2023, warrant holders exercised 435 thousand public warrants at an exercise price of $ 11.50 , for a total of $ 5,002 thousand of cash proceeds to the Company. On July 14, 2023, the Company entered into a Warrant Exchange Agreement (the “Agreement”) with third party investor (the “Warrant Holder”) with respect to warrants to purchase an aggregate of 2,000 thousand shares of its common stock, par value $ 0.0001 per share (the “Common Stock”) initially issued by the Company in its initial public offering on December 15, 2020 (the “Public Warrants”). Pursuant to the Agreement, the Company issued an aggregate of 600 thousand shares of Common Stock to the Warrant Holder in exchange for the surrender and cancellation of the Public Warrants held by such holder. This resulted in an additional paid in capital of $ 4,914 thousand in a non-cash transaction and resulted in a $ 3,900 thousand loss on the warrant conversion, which is included in change in fair value of derivative liability in the statement of operations. For the quarter ended September 30, 2023, about 613 thousand public warrants to purchase Class A common stock were exercised on a cashless basis for approximately 50 thousand shares of common stock and are no longer outstanding. Private Warrants As of December 31, 2023, there were 10,280 thousand Private Placement Warrants outstanding and none as of December 31, 2022. 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. Public and private warrant exercise activity and underlying Common Stock issued or surrendered for the year ended December 31, 2023, is: Schedule of public and private warrant exercise activity Public Warrants Private Warrants Total January 1, 2023 13,800,000 10,280,000 24,080,000 Warrants exchanged and exercised – cash ( 2,435,000 ) - ( 2,435,000 ) Warrants exercised – cashless ( 613,138 ) - ( 613,138 ) December 31, 2023 10,751,862 10,280,000 21,031,862 F- 26 NOTE 12 – Stock Option Plan and Stock-Based Compensation To calculate the stock-based compensation resulting from the issuance of options, the Company uses the Black-Scholes option pricing model, which is affected by the Company’s fair value of its stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. 2023 Equity Incentive Plan At the special meeting held on March 10, 2023, the KINS stockholders considered and approved, among other things, the Incentive Plan. The Incentive Plan was previously approved, subject to stockholder approval, by KINS’ board of directors. The Incentive Plan became effective immediately upon the closing of the Business Combination. Pursuant to the terms of the Incentive Plan, there are 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 of the Business Combination (giving effect to the redemptions). Employee Stock Options During the year ended December 31, 2023, a total of 1,377,172 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 10 years and an exercise price of $1.53 per option. The stock options were valued using the Black-Scholes option valuation model and the weighted average fair value of the awards granted during the period was determined to be $ 0.90 per option on the grant date. The fair value of the common stock as of the grant date utilized in the Black-Scholes option valuation model was $ 1.53 per share. See below for a summary of the stock options granted under the Incentive Plan: Schedule of stock options Number of Options Weighted- average exercise price Weighted average remaining contractual term (years) Weighted- Average Fair Value at Grant Date Options outstanding at January 1, 2023 - $ - - $ - Granted 1,377,172 1.53 Forfeited ( 392,272 ) 1.53 Options outstanding at December 31, 2023 984,900 $ 1.53 9.25 $ 0.90 Options exercisable at December 31, 2023 - $ - - - The Company incurred stock-based compensation expenses associated with options of approximately $ 239 thousand and $ 1,640 thousand for the years ended December 31, 2023 (Successor) and December 31, 2022 (Predecessor), respectively, which is included in general and administrative expenses of the consolidated statement of operations. As of December 31, 2023 (Successor), the remaining unrecognized stock compensation expense totaled approximately $ 394 thousand. This amount will be recognized as expense over the weighted average remaining term of 1.24 years. F- 27 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 year ended December 31, 2023 (Successor) were as follows: Schedule of assumptions used Risk-free interest rate 3.67 % Expected life of option grants 5.75 years Expected volatility of underlying stock 61.65 % Dividends assumption $ - Restricted Stock Units During the period from March 15, 2023 to December 31, 2023 (Successor), a total of 526,165 restricted stock units of the Company’s common stock were granted to employees and nonemployees of the Company under the Incentive Plan at various dates. The fair value of the common stock as of the various grant dates was determined to be $ 6.13 to $ 11.80 per restricted stock unit, for a weighted average fair value of $ 7.80 per restricted stock unit. There were 40,000 forfeited restricted stock units during the year ended December 31, 2023 (Successor). Restricted stock unit compensation expense was $ 686 thousand for the period March 15, 2023 to December 31, 2023 (Successor), which is included in general and administrative expenses of the consolidated statement of operations. As of December 31, 2023 (Successor), the Company has approximately $ 1,796 thousand of unrecognized restricted stock unit compensation to be expensed over a weighted average period of 1.42 years. NOTE 13 – Common Stock In March 2023, the Company issued 100,000 shares of Class A Common Stock as a compensation to BTIG, LLC (BTIG) for a one-year strategic and capital markets advisory services to be provided to the Company effective on the business day following the Business Combination. During the period March 15, 2023 to December 31, 2023, the Company recorded compensation amounted to $155 thousand which is included in the general and administrative expenses of the consolidated statements of operations and comprehensive loss and in the consolidated statements of cash flows as stock-based compensation. Following the Business Combination, the Company’s Class C Common Stock is subject to transfer restrictions and will automatically convert into the 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 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. On September 10, 2023, the Company’s 5,487,300 shares of Class C Common Stock were automatically converted into an aggregate of 5,487,300 shares of the Company’s Class A Common Stock, par value $ 0.0001 per share. F- 28 NOTE 14 – Income Tax The Company’s net deferred tax assets/(liabilities) consisted of the effects of temporary differences attributable to the following: Schedule of company’s net deferred tax assets Successor Predecessor (In thousands) December 31, 2023 December 31, 2022 Organizational costs/startup expenses $ 1,031 $ - Deferred revenue 41 - Section 174 - software development cost 1,097 - Stock based compensation 164 549 Research credits - 123 Other accruals 50 49 Fixed assets - 22 Other - 1,328 Net operating loss carryforward 2,202 17,038 Total deferred tax asset 4,585 19,109 Less: Valuation allowance ( 871 ) ( 14,403 ) Deferred tax asset, net of valuation allowance $ 3,714 $ 4,706 Successor Predecessor December 31, 2023 December 31, 2022 Intangibles $ ( 4,338 ) $ ( 4,386 ) Property, plant & equipment ( 13 ) ( 13 ) Other - ( 177 ) Capitalized research - ( 127 ) Total deferred tax liabilities ( 4,351 ) ( 4,703 ) Net Deferred Tax Asset (Liability) $ ( 637 ) $ 3 F- 29 The income tax provision consists of the following for the years ended December 31, 2023 and 2022: Schedule of income tax provision Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year ended December 31, 2022 Foreign Current $ - $ - $ 152 Deferred - 4,054 ( 1,533 ) Federal Current ( 7 ) - - Deferred ( 2,154 ) ( 637 ) ( 2,697 ) State and Local Current 19 - 3 Deferred ( 506 ) ( 273 ) ( 743 ) Total ( 2,648 ) 3,144 ( 4,818 ) Change in valuation allowance ( 924 ) ( 3,144 ) 4,971 Income tax expense/(benefit) $ ( 3,572 ) $ - $ 153 As of December 31, 2023, the Company has U.S. federal and state net operating loss carryover of approximately $ 4,973 thousand and $ 4,776 thousand respectively. The federal NOLs generated till 2017-18 which if unutilized will expire by the year 2037 and the federal NOLs generated after 2018-19 will be carried forward indefinitely whereas the state NOLs if unutilized will expire based on the state statutes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or 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. Deferred income tax is presented under noncurrent liabilities and in other assets in the consolidated balance sheet as of December 31, 2023 and 2022, respectively. In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all 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 the information available, management believes that it is more likely that the deferred tax assets will be realized in foreseeable future and has therefore recognized the entire opening valuation allowance of $924 thousand. For the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the year ended December 31, 2022 (Predecessor), the change in valuation allowance was ($ 924 ) thousand, ($ 3,144 ) thousand, and $ 4,971 thousand, respectively. F- 30 The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of income tax expense. There were no amounts accrued for interest or penalties for the years ended December 31, 2023 and 2022. Management does not expect any material changes in its unrecognized tax benefits in the next year. A reconciliation of the federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2023 and 2022 are as follows: Schedule of reconciliation of the federal income tax rate to the Company’s effective tax rate Successor Predecessor Period from March 15, 2023 to December 31, 2023 Period from January 1, 2023 to March 14, 2023 Year ended December 31, 2022 Statutory federal income tax rate 21.00 % 21.00 % 21.00 % Incentive stock options - % ( 0.30 )% ( 0.16 )% Change in fair value of derivative warrant liabilities ( 2.18 )% - % - % Goodwill impairment loss ( 14.34 )% - % ( 4.00 )% US-Foreign income tax rate difference - % 1.30 % 1.02 % Permanent difference 0.22 % 0.07 % ( 1.01 )% Cancellation of debt income - % ( 101.38 )% - % Rate differential on foreign earnings 0.24 % - % - % State taxes, net of federal tax benefit 0.93 % 3.49 % 2.01 % Current federal tax true-up 0.01 % - % - % Provision to return adjustments - % - % ( 1.29 )% Deferred only adjustment - % 4.80 % ( 0.91 )% Other - % ( 0.35 )% ( 0.06 )% Valuation allowance 0.88 % 71.31 % ( 17.13 )% Income tax provision 6.76 % - % ( 0.53 )% The Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions as well as in foreign jurisdictions and is subject to examination by the various taxing authorities. The Company recorded an income tax benefit of approximately $ 3,572 thousand for the period from March 15, 2023, to December 31, 2023 (Successor). The Company recorded an income tax expense of approximately $ 153 thousand for the year ended December 31, 2022 (Predecessor) and none for the period from January 1, 2023 to March 14, 2023 (Predecessor). The effective tax rate for the year ended December 31, 2023 (Successor) was 6.76 % . The income tax benefit for the year ended December 31, 2023 (Successor) is a result of the release of valuation allowance attributable to acquired intangible assets from the Business Combination. The effective tax rate differs from the U.S. Federal statutory rate primarily due to reversal of a valuation allowance on deferred tax assets, impairment of goodwill, and changes in fair value of warrant liabilities. The Company generated approximately $ 4,217 thousand of deferred tax liability associated with the Business Combination. As a result, the Company released its valuation allowance to the extent of such DTL (being source of taxable in future). F- 31 NOTE 15 – Credit Risk and Concentrations Financial instruments that subject the Company to credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for credit losses and, consequently, believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company maintains cash deposits with financial institutions, which, from time to time, may exceed federally insured limits. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. Cash is also maintained at foreign financial institutions for its Canadian and Philippines subsidiaries. Cash in foreign financial institutions as of December 31, 2023 (Successor) was $300 thousand. Cash in foreign financial institutions as of December 31, 2022 (Predecessor) was not significant. The Company has not experienced any losses and believes it is not exposed to any significant credit risk from cash. However, any loss incurred or lack of access to such funds could have a significant impact on the Company’s financial condition, results of operations, and cash flows. Our top three customers accounted for approximately 22 % and 27 % of our gross revenue during the years ended December 31, 2023 and 2022, respectively. One customer accounted for 12 % of our gross revenue in 2023, and a separate customer accounted for 11 % of our gross revenue in 2022; however, each of these customers may or may not continue to be a significant contributor to revenue in 2024. 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. NOTE 16 – Foreign Operations The Company’s operations are located primarily in the United States, Canada, and the Philippines. Revenues by geographic area are attributed by country of domicile of the Company’s subsidiaries. The financial data by geographic area are as follows (in thousands): Schedule of financial data by geographic area United States Canada India Philippines Eliminations Total For the Period from March 15, 2023 to December 31, 2023 (Successor) : Revenues by geographic area $ 4,838 $ 908 $ - $ 884 $ ( 884 ) $ 5,746 Operating income (loss) by geographic area $ ( 46,018 ) $ ( 2,380 ) $ - $ 190 $ - $ ( 48,208 ) Net income (loss) by geographic area $ ( 47,073 ) $ ( 2,332 ) $ - $ 188 $ ( 21 ) $ ( 49,238 ) For the Period from January 1, 2023 to March 14, 2023 (Predecessor) : Revenues by geographic area $ 1,395 $ 285 $ - $ 160 $ ( 220 ) $ 1,620 Operating income (loss) by geographic area $ ( 3,479 ) $ ( 905 ) $ - $ 3 $ - $ ( 4,381 ) Net income (loss) by geographic area $ ( 3,342 ) $ ( 1,041 ) $ - $ 3 $ - $ ( 4,380 ) For the Year Ended December 31, 2022 (Predecessor) : Revenues by geographic area $ 7,011 $ 2,061 $ 1,345 $ 166 $ ( 2,113 ) $ 8,470 Operating income (loss) by geographic area $ ( 22,358 ) $ ( 7,163 ) $ 569 $ ( 96 ) $ 23 $ ( 29,025 ) Net income (loss) by geographic area $ ( 21,774 ) $ ( 7,769 ) $ 467 $ ( 99 ) $ - $ ( 29,175 ) As of December 31, 2023 (Successor) Identifiable assets by geographic area $ 38,143 $ 627 $ - $ 434 $ ( 2,623 ) $ 36,581 Long lived assets by geographic area $ 18,269 $ 320 $ - $ 148 $ - $ 18,737 Goodwill by geographic area $ 8,737 $ - $ - $ - $ - $ 8,737 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 $ - $ - $ - $ - $ - $ - F- 32 NOTE 17 – Leases The Company has operating leases for administrative offices in Canada, the Philippines, and the United States. The Manila, Philippines office lease expires in May 2025, the Canada lease expires in May 2026, and the United States office lease expires in April 2024. The Company has no other operating or financing leases with terms greater than 12 months. Lease expense for operating leases recorded on the balance sheet is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in the Company’s consolidated statement of operations for the period from March 15, 2023 to December 31, 2023 (Successor), for the period from January 1, 2023 to March 14, 2023 (Predecessor), and for the year ended December 31, 2022 (Predecessor) was approximately $ 345 thousand, $ 57 thousand, and $ 681 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 December 31, 2023, the weighted average remaining lease term is 1.4 years and the weighted average discount rate used to determine the operating lease liabilities was 8.0 % . As of December 31, 2022, the weighted average remaining lease term is 2.82 years and the weighted average discount rate used to determine the operating lease liabilities was 8.0 % . Schedule of operating leases (in thousand) Operating Leases Year 2024 $ 315 Year 2025 177 Year 2026 60 Total lease payments 552 Less: Imputed interest ( 47 ) Present value of lease liabilities $ 505 NOTE 18 – 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 value of the Company’s securities. 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 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 and results of its operations, 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. F- 33 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. NOTE 19 – Supplementary Financial Information Quarterly Financial Information (unaudited)—The quarterly results for the years ended December 31, 2023 and 2022 are summarized below (in thousands, except per share amounts): Schedule of supplementary financial information Successor Predecessor 2023 Fourth Quarter Third Quarter Second Quarter Period from March 15, 2023 to March 31, 2023 Period from January 1, 2023 to March 14, 2023 Total Net Revenue 1,719 1,770 1,915 342 1,620 7,366 Gross Profit 1,376 1,412 1,435 255 1,137 5,615 Net Income / (Loss) ( 38,707 ) 1,441 ( 14,730 ) 2,758 ( 4,380 ) ( 42,580 ) Basic and diluted weighted average shares outstanding, Class A common stock 15,254,389 10,818,459 8,582,699 8,582,699 - - Basic and diluted net income (loss) per share, Class A common stock ( 2.54 ) 0.13 ( 1.05 ) 0.20 - - Basic and diluted weighted average shares outstanding, Class C common stock - - 5,487,300 5,487,300 - - Basic and diluted net income (loss) per share, Class C common stock - - ( 1.05 ) 0.20 - - Predecessor 2022 Fourth Quarter Third Quarter Second Quarter First Quarter Total Net Revenue 1,997 1,742 2,149 2,582 8,470 Gross Profit 1,561 1,243 1,609 1,993 6,406 Net Income / (Loss) ( 5,541 ) ( 10,929 ) ( 11,034 ) ( 1,671 ) ( 29,175 ) F- 34 NOTE 20 – Subsequent Events The Company evaluated subsequent events and transactions that occurred after December 31, 2023 up to the date that the consolidated financial statements were issued. On January 3, 2024, the Company decided to streamline operations with a reorganization to drive efficiency using advanced technologies and a regional product and engineering support model. The Company is fully committed to all of its existing products and customers as well as its roadmap of AI based analytics and applications. As a result of this realignment, the Company expects operational efficiencies in excess of 25% as well as enhanced customer experiences moving forward. In connection with the realignment described above, on January 3, 2024, it was determined that Leon Papkoff, Chief Product Officer, will separate from the Company effective January 4, 2024. The decision was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Mr. Papkoff’s separation from employment will be treated per his employment agreement with the Company dated March 29, 2023. On April 18, 2024, the Company received a notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the Company is delinquent in filing its 2023 Form 10-K, the Company no longer complies with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires companies with securities listed on Nasdaq to timely file all required periodic reports with the SEC. In accordance with Nasdaq’s listing rules, the Company has 60 calendar days after the Notice to submit a plan of compliance (the “Plan”) to Nasdaq addressing how the Company intends to regain compliance with Nasdaq’s listing rules, and Nasdaq has the discretion to grant the Company up to 180 calendar days from the due date of the 2023 Form 10-K, or October 14, 2024, to regain compliance. The Company intends to submit the Plan and take the necessary steps to regain compliance with Nasdaq’s listing rules as soon as practicable. On May 22, 2024, the Company entered into an equity line financing agreement for up to $10,000 thousand, with an initial draw of $2,500 thousand in the second quarter of 2024. F- 35 (b) Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. 2.1 (1) Agreement and Plan of Merger, dated as of September 25, 2022, by and among KINS Technology Group Inc., Inpixon, CXApp Holding Corp. and KINS Merger Sub Inc. 2.2 (1) Separation and Distribution Agreement, dated as of September 25, 2022, by and among KINS Technology Group Inc., Inpixon, CXApp Holding Corp. and Design Reactor, Inc. 2.3 (1) Sponsor Support Agreement, dated as of September 25, 2022, by and among KINS Capital LLC, KINS Technology Group Inc., Inpixon and CXApp Holding Corp. 3.1 (2) Amended and Restated Certificate of Incorporation of the Company. 3.2 (2) Amended and Restated Bylaws of the Company. 4.1 Warrant Agreement, dated as of December 14, 2020, by and between KINS and Continental Stock Transfer & Trust Company, as warrant agent (incorporated herein by reference from Exhibit 4.1 on KINS’ Form 8-K, filed December 21, 2020). 4.2 (2) Specimen CXApp Inc. Class A Common Stock Certificate. 4.3 (2) Specimen CXApp Inc. Class C Common Stock Certificate. 4.4 (2) Specimen Warrant Certificate of the Company. 4.5 (*) Description of the Company’s securities. 10.1 (2)(#) Employee Matters Agreement, dated March 14, 2023, by and among KINS, KINS Merger Sub Inc., Inpixon, and Legacy CXApp. 10.2 (2) Tax Matters Agreement, dated March 14, 2023, by and among KINS, Inpixon, and Legacy CXApp. 10.3 (2) Transition Services Agreement, dated March 14, 2023, by and between Inpixon and Legacy CXApp. 10.4 (2)(#) Consulting Agreement, dated March 14, 2023, by and between Design Reactor, Inc. and 3AM, LLC. 10.5 (#) Employment Agreement, dated as of January 9, 2023, by and between Design Reactor, Inc. and Khurram Sheikh. (incorporated by reference to the Company’s Current Report on Form 8-K filed on March 31, 2023) 10.6 (#) Employment Agreement, dated as of March 29, 2023, by and between Leon Papkoff and CXApp Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on March 31, 2023). 10.7 (2)(#) CXApp Inc. 2023 Equity Incentive Plan. 10.8 (*)(***) Securities Purchase Agreement, dated as of May 22, 2024, by and between CXApp Inc. and Streeterville Capital, LLC. 14.01 (2) Code of Ethics and Business Conduct of CXApp Inc. 23.1 (*) Consent of Marcum LLP 23.2 (*) Consent of WithumSmith+Brown, PC 31.1 (*) Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 (*) Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 (**) Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 (**) Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 (*) Clawback Policy 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Labels Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith. ** Furnished herewith. *** Annexes, Exhibits, and Schedules have been omitted. (1) Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 26, 2022. (2) Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 20, 2023. # Indicates a management contract or compensatory plan. 69 Item 16. Form 10-K Summary. None. 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CXAPP INC. Date: May 24, 2024 /s/ Khurram Sheikh By: Khurram Sheikh Interim Chief Financial Officer Chairman, Chief Executive Officer, Interim Chief Financial Officer and Director (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Khurram Sheikh Name: Khurram Sheikh Title: Chairman, Chief Executive Officer and Director Date: May 24, 2024 /s/ Di-Ann Eisnor Name: Di-Ann Eisnor Title: Director Date: May 24, 2024 /s/ Camillo Martino Name: Camillo Martino Title: Director Date: May 24, 2024 /s/ George Mathai Name: George Mathai Title: Director Date: May 24, 2024 /s/ Shanti Priya Name: Shanti Priya Title: Director Date: May 24, 2024 71