XBP Global Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. References to the “Company,” “our,” “us” or “we” refer to CF Acquisition Corp. VIII. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. Overview We are a blank check company incorporated in Delaware on July 8, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). Our sponsor is CFAC Holdings VIII, LLC (the “Sponsor”). Although we are not limited in our search for target businesses to a particular industry or sector for the purpose of consummating the Initial Business Combination, we are focusing our search on companies operating in the financial services, healthcare, real estate services, technology and software industries. We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies. Our registration statements for our initial public offering (the “Initial Public Offering”) became effective on March 11, 2021. On March 16, 2021, we consummated the Initial Public Offering of 25,000,000 units (each, a “Unit” and with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), including 3,000,000 Units sold upon the partial exercise of the underwriter’s over-allotment option, at a purchase price of $10.00 per Unit, generating gross proceeds of $250,000,000. Each Unit consists of one share of Class A common stock and one-fourth of one redeemable warrant. Each whole warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50. Each warrant will become exercisable 30 days after the completion of the Initial Business Combination and will expire 5 years after the completion of the Initial Business Combination, or earlier upon redemption or liquidation. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 540,000 Units (the “Private Placement Units”) at a price of $10.00 per Private Placement Unit to the Sponsor in a private placement (the “Private Placement”), generating gross proceeds of $5,400,000. Following the closing of the Initial Public Offering and sale of the Private Placement Units on March 16, 2021, an amount of $250,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in a trust account (the “Trust Account”) located in the United States at J.P. Morgan Chase Bank, N.A., with Continental Stock Transfer & Trust Company acting as trustee, which may be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by us meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by us, until the earlier of: (i) the completion of an Initial Business Combination and (ii) the distribution of the Trust Account, as described below. On March 8, 2022, at a special meeting of our stockholders, our stockholders approved the extension of our term to complete our Initial Business Combination from March 16, 2022 to September 30, 2022 (the “First Extension”). In connection with the First Extension, the Sponsor loaned us an aggregate amount of $4,424,015 ($0.20 for each Public Share that was not redeemed in connection with the First Extension) (the “First Extension Loan”). The proceeds of the First Extension Loan were deposited in the Trust Account on March 9, 2022. The First Extension Loan will not bear interest and will be repayable by us to the Sponsor or its designees upon consummation of an Initial Business Combination. In connection with the stockholder vote to approve the First Extension, 2,879,927 Public Shares were redeemed at $10.00 a share, resulting in a reduction of $28,799,270 in the amount held in the Trust Account. As a result of the approval of the First Extension and the First Extension Loan, the amount in the Trust Account was increased to approximately $10.20 per Public Share. 22 On September 27, 2022, at a special meeting of our stockholders, our stockholders approved the extension of our term to complete our Initial Business Combination from September 30, 2022 to March 16, 2023 (the “Second Extension”). In connection with the Second Extension, the Sponsor loaned us an aggregate amount of $976,832 ($0.33 for each Public Share that was not redeemed in connection with the Second Extension) (the “Second Extension Loan”). The proceeds of the Second Extension Loan were deposited in the Trust Account on September 30, 2022. The Second Extension Loan will not bear interest and will be repayable by us to the Sponsor or its designees upon consummation of an Initial Business Combination. In connection with the stockholder vote to approve the Second Extension, 19,159,975 Public Shares were redeemed at approximately $10.23 a share, resulting in a reduction of $196,121,351 in the amount held in the Trust Account. As a result of the approval of the Second Extension and the Second Extension Loan, the amount in the Trust Account was increased to approximately $10.53 per Public Share. We have until March 16, 2023 or a later date approved by our stockholders in accordance with the Amended and Restated Certificate of Incorporation, to consummate an Initial Business Combination (the “Combination Period”). If we are unable to complete an Initial Business Combination by the end of the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete an Initial Business Combination within the Combination Period. Liquidity and Capital Resources As of both September 30, 2022 and December 31, 2021, we had approximately $265,000 and $25,000 of cash in our operating account. As of September 30, 2022 and December 31, 2021, we had a working capital deficit of approximately $8,825,000 and $2,634,000, respectively. As of September 30, 2022 and December 31, 2021, we had approximately $21,000 and $18,000, respectively, of interest income from the Trust Account available to pay taxes (less up to $100,000 of interest to pay dissolution expenses). Our liquidity needs through September 30, 2022 have been satisfied through a contribution of $25,000 from the Sponsor in exchange for the issuance of the founder shares, a loan of approximately $79,000 from the Sponsor pursuant to a promissory note (the “Pre-IPO Note”), the proceeds from the consummation of the Private Placement with the Sponsor not held in the Trust Account, the Sponsor Loan (as defined below) and the First Working Capital Loan (as defined below). We fully repaid the Pre-IPO Note upon completion of the Initial Public Offering. In addition, in order to finance transaction costs in connection with an Initial Business Combination, the Sponsor has committed up to $1,750,000 to be provided to us to fund our expenses relating to investigating and selecting a target business and other working capital requirements after the Initial Public Offering and prior to our Initial Business Combination (the “Sponsor Loan”), which Sponsor Loan has been fully drawn by us. If the Sponsor Loan is insufficient, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, provide us additional loans (“Working Capital Loans”). On June 30, 2022, we entered into a Working Capital Loan with the Sponsor in the amount of up to $1,000,000 (the “First Working Capital Loan”) in connection with advances the Sponsor will make to us for working capital expenses, which First Working Capital Loan has been fully drawn by us. On October 14, 2022, we entered into a second Working Capital Loan with the Sponsor in the amount of up to $750,000 (the “Second Working Capital Loan”) in connection with advances the Sponsor will make to us for working capital expenses. On March 9, 2022, we borrowed $4,424,015 ($0.20 for each Public Share that was not redeemed in connection with the First Extension) from the Sponsor pursuant to the First Extension Loan, which was deposited in the Trust Account. On September 30, 2022, we borrowed $976,832 ($0.33 for each Public Share that was not redeemed in connection with the Second Extension) from the Sponsor pursuant to the Second Extension Loan, which was deposited in the Trust Account. As of September 30, 2022 and December 31, 2021, approximately $8,151,000 and $734,000, respectively, was outstanding under the loans payable by us to the Sponsor. As of September 30, 2022 and December 31, 2021, these amounts included $1,750,000 and approximately $734,000, respectively, outstanding under the Sponsor Loan, $4,424,015 and $0, respectively, outstanding under the First Extension Loan, $976,832 and $0, respectively, outstanding under the Second Extension Loan, and $1,000,000 and $0, respectively, outstanding under the First Working Capital Loan. See “Related Party Loans” below for additional information. Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity from the Sponsor to meet our needs through the earlier of the consummation of an Initial Business Combination or one year from the date of this report. Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective target businesses, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Initial Business Combination. 23 Results of Operations Our entire activity from inception through September 30, 2022 related to our formation, the Initial Public Offering, and, to our efforts towards locating and completing a suitable Initial Business Combination. We have neither engaged in any operations nor generated any revenues to date. We will not generate any operating revenues until after completion of our Initial Business Combination. We will generate non-operating income in the form of interest income on investments held in the Trust Account. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the three months ended September 30, 2022, we had a net loss of approximately $811,000 which consisted of approximately $1,109,000 of general and administrative expenses, approximately $690,000 of interest expense due to the redemption of Class A common stock, approximately $456,000 of loss from the change in fair value of FPS liability, approximately $98,000 of income tax expense, $50,000 of franchise tax expense, and $30,000 of administrative expenses paid to the Sponsor, partially offset by approximately $1,103,000 of gain from the change in fair value of warrant liability and approximately $519,000 of interest income on investments held in the Trust Account. For the nine months ended September 30, 2022, we had net income of approximately $3,566,000 which consisted of approximately $4,726,000 of gain from the change in fair value of warrant liability, approximately $957,000 of interest income on investments held in the Trust Account, approximately $579,000 of other income and approximately $249,000 of gain from the change in fair value of FPS liability, partially offset by approximately $1,913,000 of general and administrative expenses, approximately $690,000 of interest expense due to the redemption of Class A common stock, approximately $139,000 of income tax expense, approximately $113,000 of franchise tax expense and $90,000 of administrative expenses paid to the Sponsor. For the three months ended September 30, 2021, we had a net loss of approximately $1,055,000, which consisted of approximately $1,137,000 in general and administrative expenses, $60,000 of franchise tax expense and $30,000 in administrative expenses paid to the Sponsor, which were partially offset by approximately $102,000 of gain from change in fair value of the FPS liability, approximately $64,000 of gain from the change in fair value of the warrant liability, and approximately $6,000 in interest income on investments held in Trust Account. For the nine months ended September 30, 2021, we had a net loss of approximately $2,441,000, which consisted of approximately $2,001,000 of loss from the change in fair value of the FPS liability, approximately $1,539,000 in general and administrative expenses, approximately $141,000 of franchise tax expense, and approximately $65,000 in administrative expenses paid to the Sponsor, which were partially offset by approximately $1,294,000 of gain from the change in fair value of warrants liability and approximately $11,000 in interest income on investments held in the Trust Account. Contractual Obligations Business Combination Marketing Agreement We engaged Cantor Fitzgerald & Co. (“CF&Co.”), an affiliate of the Sponsor, as an advisor in connection with the Initial Business Combination to assist us in holding meetings with our stockholders to discuss any potential Initial Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities and assist us with our press releases and public filings in connection with any Initial Business Combination. We will pay CF&Co. a cash fee for such services upon the consummation of the Initial Business Combination in an amount of $9,350,000 (the “Marketing Fee”), which is equal to, in the aggregate, 3.5% of the gross proceeds of the base offering in the Initial Public Offering and 5.5% of the gross proceeds from the partial exercise of the underwriters’ over-allotment option; provided, however, in connection with the proposed business combination between us and XBP Europe, Inc. (“XBP Europe”), as described in Note 9 – “Subsequent events” to our unaudited condensed financial statements in Part I, Item 1 of this report, subject to and conditioned upon the closing of such business combination, CF&Co. agreed to waive the Marketing Fee. In addition, we engaged CF&Co. as our exclusive financial advisor for the proposed business combination with XBP Europe, but CF&Co. is not entitled to any fee with respect to such engagement. 24 Related Party Loans In order to finance transaction costs in connection with an intended Initial Business Combination, the Sponsor committed up to $1,750,000 in the Sponsor Loan to be provided to us to fund expenses relating to investigating and selecting a target business and other working capital requirements, including $10,000 per month for office space, administrative and shared personnel support services that will be paid to the Sponsor, after the Initial Public Offering and prior to the Initial Business Combination, which has been fully drawn by us. On March 9, 2022, we borrowed $4,424,015 ($0.20 for each Public Share that was not redeemed in connection with the First Extension) from the Sponsor pursuant to the First Extension Loan, which was deposited in the Trust Account. The First Extension Loan will not bear interest and will be repayable by us to the Sponsor or its designees upon consummation of an Initial Business Combination. On September 30, 2022, we borrowed $976,832 ($0.33 for each Public Share that was not redeemed in connection with the Second Extension) from the Sponsor pursuant to the Second Extension Loan, which was deposited in the Trust Account. The Second Extension Loan will not bear interest and will be repayable by us to the Sponsor or its designees upon consummation of an Initial Business Combination. On June 30, 2022, we entered into the First Working Capital Loan, which has been fully drawn by us. The First Working Capital Loan bears no interest and is due and payable on the date on which we consummate our Initial Business Combination. The principal balance of the First Working Capital Loan may be prepaid at any time. On October 14, 2022, we entered into the Second Working Capital Loan. The Second Working Capital Loan bears no interest and is due and payable on the date on which we consummate our Initial Business Combination. The principal balance of the Second Working Capital Loan may be prepaid at any time. As of September 30, 2022 and December 31, 2021, approximately $8,151,000 and $734,000, respectively, was outstanding under the loans payable by us to the Sponsor. As of September 30, 2022 and December 31, 2021, these amounts included $1,750,000 and approximately $734,000, respectively, outstanding under the Sponsor Loan, $4,424,015 and $0, respectively, outstanding under the First Extension Loan, $976,832 and $0, respectively, outstanding under the Second Extension Loan, and $1,000,000 and $0, respectively, outstanding under the First Working Capital Loan. The Sponsor pays expenses on our behalf and we reimburse the Sponsor for such expenses paid on our behalf. As of September 30, 2022 and December 31, 2021, we had accounts payable outstanding to the Sponsor for such expenses paid on our behalf of approximately $78,000 and $571,000, respectively. Further, in connection with the proposed business combination with XBP Europe, subject to and conditioned upon the closing of such business combination, the Sponsor agreed that all amounts outstanding under loans from the Sponsor to us shall be automatically converted into shares of Class A common stock in accordance with, and subject to the exceptions set forth in, the Agreement and Plan of Merger, dated October 9, 2022, among us, XBP Europe and the other parties thereto. Critical Accounting Policies and Estimates We have identified the following as our critical accounting polices: Use of Estimates The preparation of our unaudited condensed financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed financial statements. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments, and we evaluate these estimates on an ongoing basis. To the extent actual experience differs from the assumptions used, our unaudited condensed balance sheets, unaudited condensed statements of operations, unaudited condensed statements of stockholders’ deficit and unaudited condensed statements of cash flows could be materially affected. We believe that the following accounting policies involve a higher degree of judgment and complexity. 25 Going Concern In connection with our going concern considerations in accordance with guidance in the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements – Going Concern , we have until March 16, 2023 to consummate an Initial Business Combination. Our mandatory liquidation date, if an Initial Business Combination is not consummated, raises substantial doubt about our ability to continue as a going concern. Our unaudited condensed financial statements included in this Report do not include any adjustments related to the recovery of the recorded assets or the classification of the liabilities should we be unable to continue as a going concern. In the event of a mandatory liquidation, within ten business days, we will redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares. Emerging Growth Company Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (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 registration statement under the Securities Act of 1933, as amended (the “Securities Act”) 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. We have 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, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. Warrant and FPS Liability We account for our outstanding public warrants and private placement warrants and the securities underlying the forward purchase agreement with the Sponsor (the “FPA” and such securities, the “FPS”) in accordance with guidance in ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity , under which the warrants and the FPS do not meet the criteria for equity classification and must be recorded as liabilities. As both the public and private placement warrants and the FPS meet the definition of a derivative under ASC 815, Derivatives and Hedging , they are measured at fair value at inception and at each reporting date in accordance with the guidance in ASC 820, Fair Value Measurement , with any subsequent changes in fair value recognized in the statement of operations in the period of change. Class A Common Stock Subject to Possible Redemption We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity . Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and measured at fair value. Shares of conditionally redeemable Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as stockholders’ equity. All of the Public Shares feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, as of September 30, 2022 and December 31, 2021, 2,960,098 and 25,000,000 shares of Class A common stock subject to possible redemption, respectively, are presented as temporary equity outside of the stockholders’ deficit section of our balance sheets. We recognize any subsequent changes in redemption value immediately as they occur and adjust the carrying value of redeemable shares of Class A common stock to the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, we recognized the accretion from initial book value to redemption amount value of redeemable Class A common stock. This method would view the end of the reporting period as if it were also the redemption date for the security. The change in the carrying value of redeemable shares of Class A common stock also resulted in charges against Additional paid-in capital and Accumulated deficit. Net Income (Loss) Per Share of Common Stock We comply with the accounting and disclosure requirements of ASC 260, Earnings Per Share . Net income (loss) per share of common stock is computed by dividing net income (loss) applicable to stockholders by the weighted average number of shares of common stock outstanding for the applicable periods. We apply the two-class method in calculating earnings per share and allocate net income (loss) pro-rata to shares of Class A common stock subject to possible redemption, nonredeemable shares of Class A common stock and shares of Class B common stock. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value. 26 We have not considered the effect of the warrants to purchase an aggregate of 6,385,000 shares of Class A common stock sold in the Initial Public Offering and the concurrent Private Placement in the calculation of diluted earnings per share, because their exercise is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted earnings per share of common stock is the same as basic earnings per share of common stock for the periods presented. See Note 2— “Summary of Significant Accounting Policies” to our unaudited condensed financial statements in Part I, Item 1 of this report for additional information regarding these critical accounting policies and other significant accounting policies. Factors That May Adversely Affect Our Results of Operations Our results of operations and our ability to complete an Initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an Initial Business Combination. Off-Balance Sheet Arrangements and Contractual Obligations As of September 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.