Business Context and Reporting Period
CXApp Inc. filed a Form 8-K dated April 19, 2023 under Item 4.02 to disclose that previously issued financial statements should no longer be relied upon. The affected periods include the year ended December 31, 2022, and unaudited quarters ended June 30, 2022 and September 30, 2022.
Financial and Accounting Impact
The issue relates to the accounting for a contingent underwriter commission liability arising from the company’s December 2020 initial public offering. The underwriter waived the liability in June 2022.
- Management initially recorded the waiver as a non-operating gain in 2022.
- Management subsequently concluded that the extinguishment should have been recorded using the same relative allocation applied at the initial public offering.
- Offering costs allocated to Class A common shares are expected to be reversed against Class A common shares.
- Offering costs allocated to derivative warrant liabilities are expected to be reversed through the statement of operations.
- The filing does not provide clear revised amounts for revenue, net income, cash flow, margins, debt, liquidity, or earnings per share.
- The company stated that the correction will not affect previously reported cash, investments held in the trust account, operating expenses, liquidity, or total cash flows from operations for the affected period.
Material Changes Versus Prior Reporting
The company determined that its 2022 Annual Report and the specified 2022 Quarterly Reports should no longer be relied upon and announced that it will restate the affected financial statements in a Form 10-K/A. The filing does not identify a quantified effect on total assets, liabilities, equity, net income, or other financial statement line items.
Controls, Outlook, and Risks
- Management and the Audit Committee concluded that a material weakness exists in internal control over financial reporting.
- The company also concluded that its disclosure controls and procedures were not effective.
- Further details regarding the control deficiencies and remediation plan were deferred to the restatement filing.
- Management provided no specific financial guidance or quantified outlook in this Form 8-K.
- Key risks include delays or additional adjustments in completing the restatement, discovery of other accounting errors, additional charges, regulatory penalties, delayed periodic filings, and loss of investor confidence.
- The company also cited risks related to future control effectiveness, accounting and tax changes, tax-rate volatility, deferred tax asset realization, and retention of key personnel.
Important Facts for Investors to Verify
- Review the Form 10-K/A for the corrected financial statements and quantified restatement impact.
- Confirm whether any additional accounting issues or subsequent events were identified before the restatement filing.
- Assess the material weakness description and the company’s remediation plan and timeline.
- Verify whether the restatement affected share capital, warrant liabilities, net income, earnings per share, or other non-cash measures beyond those described in this 8-K.
- Monitor the timing and completeness of subsequent SEC filings.