Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
All statements other than
statements of historical fact included in this Report including, without limitation, statements in this section regarding our financial
position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used
in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend”
and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual
results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our
filings with the SEC. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are
qualified in their entirety by this paragraph.
24
The following discussion and
analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements
and the notes thereto contained elsewhere in this Report.
Overview
We are a blank check company
incorporated in Delaware on July 8, 2020 for the purpose of effecting an initial business combination. Our sponsor is CFAC Holdings VIII,
LLC.
Although we are not limited
in our search for target businesses to a particular industry or sector for the purpose of consummating an initial business combination,
we have focused 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.
The Registration Statement
for our initial public offering became effective on March 11, 2021. On March 16, 2021, we consummated the initial public offering of 25,000,000
units, including 3,000,000 units sold upon the partial exercise of the underwriters’ 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 our initial public offering, we consummated the sale of 540,000 units at a price of $10.00 per private placement unit to the sponsor
in the private placement, generating gross proceeds of $5,400,000.
Following the closing of the
initial public offering and sale of 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
located in the United States at J.P. Morgan Chase Bank, N.A., with Continental 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, 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 First Extension. In connection with the First Extension, the sponsor loaned us the First Extension Loan in an aggregate amount
of $4,424,015 ($0.20 for each public share that was not redeemed in connection with the First Extension). The proceeds of the First
Extension Loan were deposited in the trust account on March 9, 2022. The First Extension Loan does not bear interest and is repayable
by us to the sponsor or its designees upon consummation of our 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.
On September 27, 2022, at a special meeting of our stockholders, our
stockholders approved the Second Extension. In connection with the Second Extension, the sponsor loaned us the Second Extension Loan in
an aggregate amount of $976,832 ($0.33 for each public share that was not redeemed in connection with the Second Extension). The proceeds
of the Second Extension Loan were deposited in the trust account on September 30, 2022. The Second Extension Loan does not bear interest
and is repayable by us to the sponsor or its designees upon consummation of our initial business combination. In connection with the stockholder
vote to approve the Second Extension, 19,159,975 public shares were redeemed at approximately $10.24 a share, resulting in a reduction
of $196,121,351 in the amount held in the trust account.
On March 6, 2023, we issued
5,000,000 shares of Class A common stock to the sponsor upon the conversion of 5,000,000 shares of Class B common stock held by the sponsor
(the “Conversion”). The 5,000,000 shares of Class A common stock issued in connection with the Conversion are subject to the
same restrictions as applied to the Class B common stock prior to the Conversion, including, among other things, certain transfer restrictions,
waiver of redemption rights and the obligation to vote in favor of an initial business combination as described in the prospectus for
the Company’s initial public offering. Following the Conversion, there were 8,500,098 shares of Class A common stock issued and
outstanding and 1,250,000 shares of Class B common stock issued and outstanding.
On March 14, 2023, at a special meeting of our stockholders, our stockholders
approved the Third Extension. In connection with the Third Extension, the sponsor loaned us the Third Extension Loan in an aggregate amount
of up to $344,781 ($0.04 per share per month, or up to $0.24 per share if all six months of the Third Extension are utilized, for each
public share that was not redeemed in connection with the Third Extension). The Third Extension Loan does not bear interest and is repayable
by us to the sponsor or its designees upon consummation of our initial business combination. The proceeds of the Third Extension
Loan will be deposited in the trust account in six equal installments for each month (or portion thereof) that is needed by the Company
to complete an initial business combination. In connection with the stockholder vote to approve the Third Extension, 1,523,509 public
shares were redeemed at approximately $10.69 a share, resulting in a reduction of $16,290,945 in the amount held in the trust account.
25
Pursuant to the terms and
conditions of the XBP Europe Business Combination, in connection with the consummation of the XBP Europe Business Combination, all amounts
outstanding under each of the First Extension Loan, the Second Extension Loan and the Third Extension Loan will be converted into shares
of Class A common stock in accordance with, and subject to the exceptions set forth in, the Merger Agreement.
We have until the end of the
Combination Period to consummate an initial business combination. 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.
XBP Europe Business Combination
On October 9, 2022, the Company
entered into the Merger Agreement with, among other parties, XBP Europe. Pursuant to the Merger Agreement, subject to the terms and conditions
set forth therein, Merger Sub will merge with and into XBP Europe in the Merger whereby the separate existence of Merger Sub will cease
and XBP Europe will be the surviving corporation of the Merger and become a wholly owned subsidiary of the Company. As a result of the
Merger, (i) each share of capital stock of Merger Sub shall automatically be converted into an equal number of shares of common stock
of XBP Europe, (ii) each share of stock of XBP Europe will be cancelled and exchanged for the right to receive a number of shares of Class
A common stock equal to (a) the quotient of (1) (A) the sum of $220,000,000 minus (B) the Company Closing Indebtedness of
XBP Europe (as contemplated by the Merger Agreement) divided by (2) $10.00 plus (b) 1,330,650, and (iii) the
Company will amend the Charter to, among other matters, change its name to XBP Europe Holdings, Inc.
For a full description of
the Merger Agreement and the proposed XBP Europe Business Combination, please see “Item 1. Business.”
Liquidity and Capital Resources
As of December 31, 2022 and 2021, we had approximately $41,200 and
$25,000, respectively, of cash in our operating account. As of December 31, 2022 and 2021, we had a working capital deficit of approximately
$9,209,000 and $2,634,000, respectively. As of December 31, 2022 and 2021, we had approximately $276,000 and $18,000, respectively, of
interest income from the trust account available to pay taxes.
Our liquidity needs through
December 31, 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 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, the First Working Capital Loan and the Second Working Capital Loan.
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, pursuant to the Sponsor Loan, the sponsor loaned us $1,750,000 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
an initial business combination, 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 Working
Capital Loans.
26
On June 30, 2022, we entered
into the First Working Capital Loan with the sponsor in the amount of up to $1,000,000 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 the Second Working Capital Loan with the sponsor in the amount of up to $750,000 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.
On March 15, 2023, we borrowed
up to $344,781 ($0.04 per share per month, or up to $0.24 per share if all six months of the Third Extension are utilized, for each public
share that was not redeemed in connection with the Third Extension) from the sponsor in connection with the first drawdown under the Third
Extension Loan. The initial drawdown of $57,464 was deposited in the trust account on such date and additional amounts of $57,464 will
be drawn down under the Third Extension Loan for each additional month that we extend our time to consummate a business combination thereafter.
As of December 31, 2022 and 2021, the carrying amounts of the loans payable by us to the Sponsor were approximately $8,200,000
and $734,000, respectively. As of December 31, 2022 and 2021, the face amounts of these loans were approximately $8,500,000 and $734,000,
respectively. 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 an initial business combination, including the XBP Europe Business Combination.
Results of Operations
Our entire activity from inception
through December 31, 2022 related to our formation, the preparation for the initial public offering, and since the closing of the initial
public offering, to 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.
27
For the year ended December 31, 2022, we had net income of approximately
$2,394,000, which consisted of approximately $5,122,000 of gain from the change in fair value of warrant liability, approximately $1,241,000
of interest income on investments held in the trust account and approximately $579,000 of other income, partially offset by approximately
$2,602,000 of general and administrative expenses, approximately $1,055,000 of interest expense on sponsor loans and mandatorily redeemable
Class A common stock, approximately $498,000 of loss from the change in fair value of FPS liability, approximately $111,000 of income
tax expense, approximately $162,000 of franchise tax expense, and $120,000 of administrative expenses paid to sponsor.
For the year ended December
31, 2021, we had a net loss of approximately $1,708,000, which consisted of approximately $2,440,000 of general and administrative expenses,
approximately $2,007,000 of loss from the change in fair value of FPS liability, approximately $201,000 of franchise tax expense, and
approximately $95,000 of administrative expenses paid to the sponsor, partially offset by approximately $3,017,000 of gain from the change
in fair value of warrant liability and approximately $18,000 of interest income on investments held in the trust account.
Contractual Obligations
Business Combination Marketing Agreement
We engaged CF&Co., an
affiliate of the sponsor, pursuant to the BCMA 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 the initial business combination. We will pay CF&Co. the Marketing Fee upon the consummation of our initial business
combination; provided that, in connection with the XBP Europe Business Combination, CF&Co. has agreed to waive the Marketing Fee.
If an initial business combination other than the XBP Europe Business Combination is consummated, CF&Co. would be entitled to receive
the business combination marketing fee that will be released from the trust account only upon completion of such an initial business combination.
Engagement Letter
We have engaged CF&Co.
as a financial advisor in connection with the XBP Europe Business Combination but CF&Co. has agreed not to receive an advisory fee
for such services other than to receive reimbursement of actual expenses incurred and to be indemnified against certain liabilities arising
out of its engagement.
28
Related Party Loans
In order to finance transaction
costs in connection with an intended initial business combination, the sponsor loaned us $1,750,000 pursuant to the Sponsor Loan 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 our initial business combination, which Sponsor Loan 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 does not bear interest and is repayable by us
to the sponsor or its designees upon consummation of our 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 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 does not bear interest and is repayable
by us to the sponsor or its designees upon consummation of our initial business combination.
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.
On March 15, 2023, we borrowed up
to $344,781 ($0.04 per share per month, or up to $0.24 per share if all six months of the Third Extension are utilized, for each public
share that was not redeemed in connection with the Third Extension) from the sponsor in connection with the first drawdown under the Third
Extension Loan. The initial draw down of $57,464 was deposited in the trust account on such date and additional amounts of $57,464 will
be drawn down under the Third Extension Loan for each additional month that we extend our time to consummate a business combination thereafter.
The Third Extension Loan does not bear interest and is repayable by us to the sponsor or its designees upon consummation of our initial
business combination.
Pursuant to the terms and
conditions of the XBP Europe Business Combination, in connection with the consummation of the XBP Europe Business Combination, all amounts
outstanding under each of the First Working Capital Loan, the Second Working Capital Loan, the First Extension Loan, the Second Extension
Loan and the Third Extension Loan will be converted into shares of Class A common stock in accordance with, and subject to the exceptions
set forth in, the Merger Agreement.
As of December 31, 2022 and 2021, the carrying amounts of the loans
payable by the Company to the Sponsor were approximately $8,200,000 and $734,000, respectively. As of December 31, 2022 and 2021, the
face amounts of these loans were approximately $8,500,000 and $734,000, respectively.
The sponsor pays expenses
on our behalf and we reimburse the sponsor for such expenses paid on our behalf. As of December 31, 2022 and 2021, we had accounts payable
outstanding to the sponsor for such expenses paid on our behalf of $0 and approximately $571,000, respectively.
29
Critical Accounting Policies and Estimates
The preparation of our consolidated
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 consolidated
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 consolidated balance sheets, consolidated statements of operations,
consolidated statements of stockholders’ equity (deficit) and consolidated statements of cash flows could be materially affected.
We believe that the following accounting policies involve a higher degree of judgment and complexity.
Going Concern
In connection with our going
concern considerations in accordance with guidance in ASC 205-40, Presentation of Financial Statements – Going Concern , we
have until September 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 consolidated 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 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 Securities Act registration statement 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 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 consolidated statements of operations
in the period of change.
30
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 December 31, 2022 and 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 consolidated
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. Accretion associated with the redeemable shares of Class A common stock
is excluded from earnings per share as the redemption value approximates fair value.
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 consolidated financial statements in Part IV, Item 15 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, including the XBP Europe 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 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, including
the XBP Europe Business Combination.
Recent Developments
On March 16, 2023, we instructed
Continental to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an
interest-bearing demand deposit account at Citibank, N.A., with Continental continuing to act as trustee, until the earlier of the consummation
of our initial business combination or our liquidation. As a result, following the liquidation of investments in the trust account,
the remaining proceeds from the initial public offering and private placement are no longer invested in U.S. government debt securities
or money market funds that invest in U.S. government debt securities.
Item 7A. 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.
Item 8. Financial Statements and Supplementary
Data.
Reference is made to pages
F-1 through F-26 comprising a portion of this Report, which are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
31
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.