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.
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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.
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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.
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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.
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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.
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