CXApp Acquisition

9 Months Ended

Sep. 30, 2021

Business Combination And Asset Acquisition [Abstract]

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 $17,431,697 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 during the three months ended June 30, 2021	(136)
Less payments made during the three months ended September 30, 2021	(104)
Total acquisition liability	$	5,761

In connection with the Acquisition, the Company is to pay an additional amount up to $12,500,000 to certain select sellers of CXApp shares (payable in shares of the Company’s common stock based on a per share price of $1.13, subject to stockholder approval) 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 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 $0.8 million and $2.9 million of this expense for the three and nine months ended September 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			6
Tradename			2,170
Proprietary technology			8,740
Customer relationships			4,680
Non-compete agreements			2,690
Goodwill			17,432
Total assets acquired			38,724

Liabilities assumed:
Accounts payable			203
Deferred revenue			1,372
Accrued expenses and other liabilities			116
Deferred tax liability			4,505
Other tax liability, noncurrent			28
Total liabilities assumed			6,224
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 September 30, 2021 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