Quarterly report pursuant to Section 13 or 15(d)

CXApp Acquisition

v3.21.2
CXApp Acquisition
6 Months Ended
Jun. 30, 2021
Business Combination And Asset Acquisition [Abstract]  
CXApp Acquisition CXApp Acquisition
On April 30, 2021, the Company acquired Design Reactor, Inc. (“CXApp”). In exchange for the aggregate purchase price of $32,500,000, the Company acquired all of the outstanding capital of the CXApp, incorporated in the State of California. The price was subject to certain post-closing adjustments based on actual working capital as of the closing as described in the stock purchase agreement. The goodwill of $17,165,938 arising from the Acquisition consists of an acquired workforce, as well as synergies and economies of scale expected from combined operations of Inpixon and the CXApp.

The following table represents the preliminary purchase price (in thousands).

Cash $ 22,500 
Stock (8,849,538 number of common stock shares)
10,000 
Total Purchase Price $ 32,500 
In relation to the cash payment, Inpixon retained $4,875,000 of Holdback Funds from the Purchase Price to secure the Seller's obligations under the stock purchase agreement, with any unused portion of the Holdback Funds to be released to the Seller on the date that is 18 months after the Closing Date. In addition, to the Holdback Funds, the Company is to pay various costs to third parties on the Seller's behalf. These costs consisted of Seller transaction expenses, option payouts, bonus payouts, and miscellaneous accrued expenses. The Company retained cash for these future payments and recorded these future payments in Acquisition Liability on the closing date of the Acquisition. The following represents the amounts that were recorded to Acquisition Liability (in thousands):

Acquisition Liability
Current
Option payout $ 296 
Bonus payout 34 
Seller transaction expenses 72 
Miscellaneous accrued expenses 174 
Total current $ 576 
Noncurrent
Option payout $ 493 
Bonus payout 57 
Holdback funds 4,875 
Total noncurrent 5,425 
6,001 
Less Payments made as of June 30, 2021 (136)
Total acquisition liability $ 5,865 

In connection with the Acquisition, the Company is to pay an additional amount up to $12,500,000 in contingent earnout payments subject to CXApp meeting certain revenue targets on the one year anniversary of the Acquisition date. (the "Earnout Payment"). The Earnout Payment is payable to select sellers of CXApp. The Earnout Payment is subject to and conditioned upon each individual select seller's continued active employment or service with the Company at the time of the earnout payment date. The Earnout Payment is treated as post-combination compensation expense. The Company recorded $2,058,536 of this expense for the three and six months ended June 30, 2021 which is included in the General and Administrative costs of the condensed consolidated statements of operations.

The Acquisition is being accounted for as a business combination in accordance with ASC 805 Business Combinations. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Acquisition. 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 Acquisition to the assets acquired and the liabilities
assumed as of the purchase date. The following table summarizes the preliminary purchase price allocations relating to the Acquisition (in thousands):
Fair Value Allocation
Assets acquired:
Cash and cash equivalents 1,312 
Trade and other receivables 1,626 
Prepaid expenses and other current assets 68 
Property, plant, and equipment
Tradename 2,170 
Proprietary technology 8,740 
Customer relationships 4,680 
Non-compete agreements 2,690 
Goodwill 17,166 
Total assets acquired 38,458 
Liabilities assumed:
Accounts payable 203 
Deferred revenue 1,106 
Accrued expenses and other liabilities 116 
Deferred tax liability 4,505 
Other tax liability, noncurrent 28 
Total liabilities assumed 5,958 
Estimated fair value of net assets acquired: 32,500 
The value of the intangibles and goodwill were calculated by a third party valuation firm based on projections and financial data provided by management of the Company. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is not tax deductible for tax purposes.
Total acquisition-related costs for the Acquisition incurred during the period ended June 30, 2021 ended was $474,928 and is included in acquisition-related costs in the Company’s Statements of Operations. The below table details the acquisition-related costs for the Acquisition (in thousands):
Accounting fees $ 115 
Legal fees 360 
Total acquisition costs $ 475