CXApp and Inpixon were excellent meme stocks – but always, always read the term sheets

CXApp (NASDAQ: CXAI) was quite the exciting stock last week, jumping from $1.33 to, at one point intraday, $50 or so. It fell off from that, obviously enough. Quite why the massive excitement no one is really quite sure. A recent Spac deal it does something with AI and perhaps that’s enough to get the market juices pumping. At one point there was a 325% rise in a day, followed by another 325% rise the next premarket. That’s really impressive – but also isn’t really quite our point.

Yes, super, meme stocks and AI

No one did predict this, no one is quite sure why it happened and there’s definite uncertainty about what happens next. We can take this next part as a way of how we investigate, check, what might happen next. Or, we can use this as an example of why it’s absolutely vital to go read the term sheets. That is, find out what the actual deal under discussion is. For details of that might make us – or at worst, save us – a great deal of money. 

While CXApp was a recent Spac deal it had also been a subsidiary of Inpixon (NASDAQ: INPX). Well, if the subsidiary goes up 325 and then 325% again surely the parent company will also rise? Which is what we did see in INPX. 100% in one day alone at least. But, well, Venning’s Law. The answer to any question containing the word “surely” is no.

But what actually is the deal here?

What matters is going and reading the term sheets. That’s the details of whatever deal has been undertaken. OK, so the Inpixon subsidiary CXApp merges with KINS Tech for the Spac deal. The shareholders of Inpixon own 50% of the Spac (ie, the now CXAI stock). OK, great, so INPX owns 50% of CXApp and therefore it should bounce. In fact, it would bounce vastly more than it has, great!

Except, no, no, read the actual term sheet. All of the CXAI stock was distributed direct to INPX shareholders, the company didn’t retain any of it at all. The people who owned Inpixon back on Match 6^th now own CXApp stock. The current stockholders of the former parent company own nothing of that stock, no indirect holding. Either you got the stock back in March or you have no interest at all. So, the run up in Inpixon was purely a result of assumptions being made and people not reading the deal details, that term sheet. The thing we learn from this? Always read the term sheet.

No, more details about the deal

We can and should go further than this though. For so far, we’ve only found out that perhaps the excitement in Inpixon was more than a little overdone and should, probably, reverse. If we pay attention to the details of that deal, then we can find out more. The 50% of the CXApp stock that went to INPX stockholders wasn’t, in fact, all in the form of the Class A stock. Actually, something over 70% of it (and thus 39% of the total issue) was in Class C. Which is not listed. It converts to Class A in 180 days. This is how they’ve done the issue of insiders not being able to sell their stock immediately after the IPO. Well, OK.

Except if the CXAI stock is above $12 for 20 out of 30 trading days then that Class C converts to Class A and is – as such – immediately saleable. The stock went from a dollar and change to near $50, right? If it stays up there then there’s that 39% of the total issue which converts and becomes an overhang. Now, of course, whether shareholders would actually sell out after conversion, well. That sorta depends upon ideas about what’s inside CXApp. If it’s one of those meme stock things, where everyone gets excited by the “AI” in the ticker well, what would you do? The stock’s up 50 times above what you were just willing to Spac it at. Or maybe 10 times, whatever.

The future is uncertain, obviously

Now, we can’t prove anything about this – only time will tell and all that. But we’d probably think that this puts something of a cap upon the medium-term stock price. For the higher it stays – that 20 days above $12 – then the vastly more of it becomes available. Higher supply does usually mean a lower price. 

The point we really want to make here is that sure, terribly exciting things happen in stock markets at times. But there are always contracts, deals, details, behind what’s going on. So, what finally, ultimately happens will always be guided by what those details say. So, read the damn term sheets, find out what the deal is.

Tim Worstall

Editor

Tim Worstall is a freelance journalist who also used to be the world's leading scandium wholesalers (one of the rare earths). His Wikipedia entry gives a flavour.

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