| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to L&F Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and
references to the “Sponsor” refer to JAR Sponsor, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained
elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not
historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without
limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations,
are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements
relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events,
performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the
Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in the Cayman Islands on August 20, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or
other similar business combination with one or more businesses. We intend to effectuate our business combination using cash derived from the proceeds of the initial public offering and the sale of the private placement warrants, our shares, debt or
a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful.
The Business Combination
The Business Combination Agreement provides for, among other things, the following transactions on the date of Closing: (i) the ZF Merger, with ZeroFox being the surviving company in the ZF Merger and, after giving
effect to such merger, continuing as a wholly-owned subsidiary of L&F Holdings, (ii) the IDX Merger, with IDX being the Transitional IDX Entity and, after giving effect to such merger, continuing as a wholly-owned subsidiary of L&F
Holdings, and (iii) the IDX Forward Merger, with IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and, after giving effect to such merger, continuing as a wholly-owned subsidiary of L&F Holdings (the “Mergers”).
Business Combination Consideration
In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective times of the Mergers, among other things, (i) each outstanding share of common stock (including
shares of common stock issued upon the mandatory conversion of shares of preferred stock) of ZeroFox, other than ZF Dissenting Shares (as defined in the Business Combination Agreement) and ZF Cancelled Shares (as defined in the Business Combination
Agreement), will be automatically cancelled and converted into a right to receive a fraction of a share of LNFA Common Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of
$866,250,000 and a price of $10.00 per share of LNFA Common Stock and (ii) each outstanding share of common stock and preferred stock of IDX, other than IDX Dissenting Shares (as defined in the Business Combination Agreement) and IDX Cancelled
Shares (as defined in the Business Combination Agreement), will be automatically cancelled and converted into a right to receive (x) for common stock and series a-1 and series a-2 preferred stock, a fraction of a share of LNFA Common Stock, (y) for
common stock and series a-1 and series a-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of liquidation preferences, as provided in
the Business Combination Agreement), and (z) for series a-1, series a-2 and series b preferred stock, a liquidation preference amount of $0.361, in each case, in accordance with the Business Combination Agreement and on the basis of a pre-money
enterprise value of IDX of $338,750,000 and a price of $10.00 per share of LNFA Common Stock.
Common Equity Investment
Concurrently with the execution of the Business Combination Agreement, LNFA entered into the Common Equity Subscription Agreements with the ZF Investors, and the IDX Investors. Pursuant to the Common Equity
Subscription Agreements, the investors agreed to the Common Equity PIPE Financing.
In addition, on December 16, 2021, the ZF PIK Promissory Notes for an aggregate purchase price of $5,000,000. Such ZF PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum. If the
Closing occurs, the repayment of the original principal amount of the ZF PIK Promissory Notes may be offset against amounts owed by the ZF investors under their Common Equity Subscription Agreements.
In addition, if the Closing occurs, any portion of closing cash consideration to which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the
subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common Equity Subscription Agreements.
The closing of the Common Equity PIPE Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that
LNFA will grant the investors in the Common Equity PIPE Financing certain customary registration rights.
The foregoing description of the Common Equity Subscription Agreements and the Common Equity PIPE Financing is subject to and qualified in its entirety by reference to the full text of the form of Common Equity
Subscription Agreement, a copy of which is attached as Exhibit 10.8 hereto and the terms of which are incorporated herein by reference.
Convertible Notes Investment
In connection with signing the Business Combination Agreement, LNFA entered into the Convertible Note Subscription Agreements with affiliates of the Note Investors, in respect of the Convertible Notes Financing. The
principal terms of the Notes are set forth in the Indenture attached as an exhibit to the Convertible Note Subscription Agreements, which shall be entered into by LNFA, the guarantors party thereto and the indenture trustee and the form of global
note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at 8.75% per annum, and the Notes will be convertible at an initial conversion
price of $11.50, subject to customary anti-dilution adjustments, including with respect to the “Conversion Price, and shall mature on the date that is three years following the closing of the Convertible Notes Financing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities from inception through June 30, 2022, were organizational activities and those necessary to prepare for the
initial public offering, described below and identifying a target company for a business combination, and activities in connection with the Business Combination with the Target Companies. We do not expect to generate any operating revenues until
after the completion of our initial business combination. We generate non-operating income in the form of interest income on marketable investments held in trust account after the initial public offering. We expect that we will 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 in connection with searching for, and completing, a business combination.
For the three months ended June 30, 2022, we had a net income of $3,704,759, which consists of change in fair value of warrant liabilities of $5,714,437 and interest earned on marketable investments held in Trust
Account of $83,368, partially offset by operating costs of $2,093,046.
For the six months ended June 30, 2022, we had a net income of $10,682,774, which consists of change in fair value of warrant liabilities of $14,439,162 and interest earned on marketable investments held in Trust
Account of $100,017, partially offset by operating costs of $3,856,405.
For the three months ended June 30, 2021, we had a net loss of $2,655,288, which consists of change in fair value of warrant liabilities of
$2,460,419 and operating costs of $201,223, partially offset by interest earned on marketable investments held in Trust Account of $6,354.
For the six months ended June 30, 2021, we had a net income of $7,931,054 which consists of change in fair value of warrant liabilities of $8,365,226
and interest earned on marketable investments held in Trust Account of $14,546, partially offset by operating costs of $448,718.
For the six months ended June 30, 2021, we had a net income of $7,931,054 which consists of change in fair value of warrant liabilities of $8,365,226 and interest earned on marketable investments held in Trust
Account of $14,546, offset by operating costs of $448,718.
Liquidity, Capital Resources and Going Concern
On November 23, 2020, we consummated the initial public offering of 15,000,000 units, at a price of $10.00 per unit, generating gross proceeds of $150,000,000. Simultaneously with the closing of the initial public
offering, we consummated the sale of 6,859,505 private placement warrants to the Sponsor and Jefferies LLC at a price of $1.00 per private placement warrant and approximately $1.21 per private placement warrant, respectively, generating gross
proceeds of approximately $7,250,002.
On November 25, 2020, the company sold an additional 2,250,000 Units for total gross proceeds of $22,500,000 in connection with the underwriters’ full exercise of their over-allotment option. Simultaneously with the
closing of the over-allotment option, we also consummated the sale of an additional 728,925 private placement warrants to the sponsor and Jefferies LLC at $1.00 per private placement warrant and approximately $1.21 per private placement warrant,
respectively, generating total proceeds of $787,500.
Following the initial public offering, the full exercise of the over-allotment option, and the sale of the private placement warrants, a total of $175,087,500 was placed in the trust account, and we had $1,480,035 of
cash held outside of the trust account, after payment of costs related to the initial public offering, and available for working capital purposes. We incurred $10,050,665 in transaction costs, including $3,450,000 of underwriting fees, $6,037,500
of deferred underwriting fees and $563,165 of other offering costs.
For the six months ended June 30, 2022, net cash used in operating activities was $418,629. Net income of $10,682,774 was affected by change in fair value of warrant liabilities of $14,439,162 and interest earned on
marketable investments held in trust account of $100,017. Changes in operating assets and liabilities provided $3,437,776 of cash from operating activities.
For the six months ended June 30, 2021, net cash used in operating activities was $186,124. Net income of $7,931,054 was affected by change in fair value of warrant liabilities of $8,365,226 and interest earned on
marketable investments held in trust account of $14,546. Changes in operating assets and liabilities provided $261,794 of cash from operating activities.
At June 30, 2022, we had cash and marketable securities held in the trust account of $34,831,528. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest
earned on the trust account, which interest shall be net of taxes payable and excluding deferred underwriting commissions, to complete our business combination. We may withdraw interest from the trust account to pay taxes, if any. To the extent
that our share capital or debt is used, in whole or in part, as consideration to complete a business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
At June 30, 2022, we had cash of $157,110 held outside of the trust account. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due
diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target
businesses, structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are
not obligated to, loan us funds as may be required. If we complete a business combination, we may repay such loaned amounts out of the proceeds of the trust account released to us. In the event that a business combination does not close, we may use
a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of
$1.00 per warrant, at the option of the lender. The warrants would be identical to the private placement warrants.
The Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or
third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s
working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but
not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially
acceptable terms, if at all.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting
Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until August 24, 2022, to consummate a business combination. It is uncertain that the Company will be able
to consummate a business combination by this time. If the Business Combination or a proposed alternative business combination is not consummated by August 24, 2022, there will be a mandatory liquidation and subsequent dissolution of the Company.
Management has determined that the mandatory liquidation, should the Business Combination or a proposed alternative business combination not occur, potential subsequent dissolution, and working capital deficit raises substantial doubt about the
Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 24, 2022.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2022. We do not participate in transactions that create relationships with unconsolidated
entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual
results could materially differ from those estimates. We have not identified any critical accounting policies.
Class A Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A Ordinary
shares subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that is either within the control of
the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares
feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption is presented as temporary equity, outside
of the shareholders’ equity section of our balance sheet.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in the FASB Accounting
Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other
conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or
modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value
of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of the Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”. Net income (loss) per ordinary share is computed by dividing
net income (loss) by the weighted average number of ordinary shares outstanding for the period. Accretion associated with the redeemable shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Accounting Standards Update No. 2021-08 Business Combinations (Topic 805) Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. As a result
of the amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial
statements. The standard is effective for the Company for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The Company elected to early adopt ASU No. 2021-08 for fiscal year 2023. There was no impact to
the Company's condensed consolidated financial statements for the three and six months ended June 30, 2022. The Company expects that the adoption of ASU No. 2021-08 will simplify the accounting for the anticipated merger transaction (see Note 6),
as it will permit the Company to record the contract assets and liabilities acquired from ZeroFox and/or IDX to be recorded at book value rather than an estimated fair value.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial
statements.
