General

9 Months Ended

Sep. 30, 2023

General

General

1.     General

These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended December 31, 2022 included in the Exela Technologies, Inc. (the “Company,” “Exela,” “we,” “our” or “us”) annual report on Form 10-K for such period (as amended, the “2022 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on April 3, 2023 and May 1, 2023 and available at the SEC’s website at http://www.sec.gov.

The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”), as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

The condensed consolidated financial statements are unaudited, but in our opinion include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.

On May 12, 2023, we effected a one-for-two hundred reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of common stock, par value $0.0001 per share (“Common Stock”). As a result of the Reverse Stock Split, every two hundred (200) shares of Common Stock issued and outstanding were automatically combined into one (1) share of issued and outstanding Common Stock, without any change in the par value per share. All information related to Common Stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.

Going Concern

In accordance with ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year after the date that the financial statements are issued. As required under ASC 205-40, management’s evaluation should initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

In performing this evaluation, the Company concluded that under the standards of ASC 205-40 the following conditions raised substantial doubt about its ability to continue as a going concern:

● history of net losses, including net losses of $99.4 million for the nine months ended September 30, 2023;

● net operating cash outflow of $29.2 million for the nine months ended September 30, 2023;

● working capital deficit of $195.4 million as of September 30, 2023; and

● an accumulated deficit of $2,058.4 million as of September 30, 2023.

The Company has undertaken and/or completed the following plans and actions to improve its available cash balances, liquidity or cash generated from operations:

● identified and in the process of executing on significant cost savings for fiscal year 2024;

● issued approximately $764.8 million aggregate principal amount of New Notes (as defined in Note 5 – Long-Term Debt and Credit Facilities) in exchange for $956.0 million aggregate principal amount of existing 2026 Notes that provide flexibility to pay up to 50% of the interest payments in 2024 in New Notes.

● executed a $40.0 million financing agreement with certain lenders with Blue Torch Finance LLC acting as an administrative agent and used proceeds to repay existing debt;

● fully discharged $48.4 million of outstanding principal amount of 2023 Term Loans by issuing $3.0 million aggregate principal amount of New Notes and making cash payment of $44.8 million resulting in a debt extinguishment gain of $0.6 million;

● fully repaid $9.0 million of outstanding principal amount of 2023 Notes in cash (see Note 5 – Long-Term Debt and Credit Facilities); and

● completed the merger of its European business with CFFE on November 29, 2023 (see Note 14 – Subsequent Events for further details).

In addition to these actions, management has reviewed the Company's operational plans which include executing on price increases, projected growth of margins and cost containment activities. The Company will have to continue to restore positive operating cash flows and profitability over the next twelve months and otherwise execute its business plan. The Company believes that the effective execution of management’s plans, as described above, will provide sufficient liquidity to meet its financial obligations and allievate substantial doubt. However, there can be no assurance that it will be successful in continuing to restore positive cash flows, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company. These factors and the execution risk currently raise substantial doubt about our ability to continue as a going concern for at least twelve months from the date that the financial statements were issued.

The Company’s plans to further enhance liquidity include the potential sale of certain non-core assets that are not central to the Company’s long-term strategic vision, and any potential action with respect to these operations would be intended to allow the Company to better focus on its core businesses. The Company has retained financial advisors to assist with the sale of select assets. The Company expects to use the potential net proceeds from this initiative for the pay down of debt. These plans are subject to inherent risks and uncertainties and subject to several factors, including market and economic conditions that are outside of the Company’s control. Accordingly, there can be no assurance that these plans can be effectively implemented and, therefore, that the conditions can be effectively mitigated.

Net Loss per Share

Earnings per share (“EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, using the more dilutive of the two-class method and the if-converted method in the period of earnings. The two class method is an earnings allocation method that determines earnings per share (when there are earnings) for common stock and participating securities. The if-converted method assumes all convertible securities are converted into common stock. Diluted EPS excludes all dilutive potential shares of common stock if their effect is anti-dilutive.

As the Company experienced net losses for the periods presented, the impact of the Company’s Series A Perpetual Convertible Preferred Stock (“Series A Preferred Stock”) and Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”), was calculated using the if-converted method. As of September 30, 2023, the outstanding shares of the Company’s Series A Preferred Stock and Series B Preferred Stock, if converted would have resulted in an additional 393 shares and 16,079 shares of our Common Stock outstanding, respectively, however, they were not included in the computation of diluted loss per share as their effects were anti-dilutive (i.e., if included, would reduce the net loss per share).

Similarly, the Company also did not include the effect of 2,433 shares of Common Stock issuable upon exercise of 9,731,819 warrants sold in a private placement of securities on March 18, 2021 or the effect of the aggregate number

of shares issuable pursuant to outstanding restricted stock units, performance units and options (2,471 and 2,486 as of September 30, 2023 and 2022, respectively) in the calculation of diluted loss per share for the three and nine months ended September 30, 2023 and 2022, because their effects were also anti-dilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss attributable to common stockholders (A)	$	(25,298)	$	(87,326)	$	(105,865)	$	(226,613)
Weighted average common shares outstanding – basic and diluted (B)		6,365,353		315,725		5,854,840		176,875
Loss Per Share:
Basic and diluted (A/B)	$	(3.97)	$	(276.59)	$	(18.08)	$	(1,281.20)

Merger Agreement

On October 9, 2022, the Company entered into a definitive merger agreement to merge its European business with CF Acquisition Corp. VIII (“CFFE”), a special purpose acquisition company, to form a new publicly-traded company which will be called XBP Europe, Inc. (“XBP Europe”). Following the closing of the transaction, which occurred on November 29, 2023, the Company indirectly owns a majority of the outstanding capital stock of XBP Europe. The effects of these transactions are not reflected in these condensed consolidated financial statements (see Note 14 – Subsequent Events for further details).

Sale of Non-core Assets

On June 8, 2023, the Company completed the sale of its high-speed scanner business, which was a part of its ITPS segment (as defined in Note 3 – Significant Accounting Policies), for a purchase price of approximately $30.1 million, subject to final working capital adjustments. The sale of the high-speed scanner business does not represent a strategic shift that will have a major effect on the Company’s operations and financial results. As a result of this transaction, the Company disposed of $16.5 million of goodwill based on the relative fair value of the high-speed scanner business to the total fair value of the ITPS reporting unit. This transaction resulted in a total pre-tax gain of $7.2 million included in selling, general and administrative expenses (exclusive of depreciation and amortization) in the condensed consolidated statements of operations for the nine months ended September 30, 2023. Per the terms of the sales agreement, the Company may receive additional cash consideration (“Contingent Consideration”) upon the future occurrence of certain earn out events described in the sales agreement. The Contingent Consideration, if any, will be recognized in the period the earn out event occurs, and the Contingent Consideration is realizable.