References in this Quarterly Report on Form 10-Q (the "Quarterly Report") to
"we," "us" or the "Company" refer to Cartesian Growth Corporation II. References
to our "management" or our "management team" refer to our officers and
directors, and references to the "Sponsor" refer to CGC II 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 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
completion of an initial Business Combination (as defined below), 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, including that the conditions of the Proposed
Business Combination are not satisfied. 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 final prospectus for its Initial Public Offering filed
with the U.S. Securities and Exchange Commission (the "SEC"), on May 9, 2022.
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 October 13,
2021 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or engaging in any other similar
business combination with one or more businesses or entities (the "Business
Combination").
We may pursue our initial Business Combination in any business industry or
sector, however, we have focused on seeking high-growth businesses with proven
or potential transnational operations or outlooks in order to capitalize on the
experience, reputation, and network of our management team. Furthermore, we seek
target businesses where we believe we will have an opportunity to drive ongoing
value creation after our initial Business Combination is completed.
We intend to effectuate our initial Business Combination using cash from the net
proceeds of our initial public offering (the "Initial Public Offering"), the
sale of the Private Placement Warrants, the Sponsor Loan, our share capital or a
combination of cash, share capital and debt.
We expect to incur significant costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to complete an initial Business Combination
will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through September 30, 2022 were
organizational activities and those necessary to prepare for our Initial Public
Offering, and since our Initial Public Offering, our activity has been limited
to identifying a target company for a Business Combination. 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 cash and marketable securities held in the trust account (the "Trust
Account") with Continental Stock Transfer & Trust Company acting as trustee,
located in the United States, established for the benefit of our public
shareholders. We incur 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, our
initial Business Combination.
For the three months ended September 30, 2022, we had net income of $5,883,047
which consists of a change in the fair value of warrant liabilities of
$4,284,045, a change in the fair value of the convertible promissory note -
related party of $817,163, and interest earned on cash and marketable securities
held in the Trust Account of $1,037,897, offset by operating and formation costs
of $256,058.
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For the nine months ended September 30, 2022, we had net income of $5,497,655
which consists of a change in the fair value of warrant liabilities of
$3,871,253, a change in the fair value of the convertible promissory note -
related party of $1,251,614, and interest earned on cash and marketable
securities held in the Trust Account of $1,052,221, offset by operating and
formation costs of $481,449 and transaction costs of $195,984.
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase of Class B ordinary shares, par value $0.0001
per share by the Sponsor and loans from the Sponsor.
On May 10, 2022, we consummated the Initial Public Offering of 23,000,000 Units,
including the full exercise by underwriters of their over-allotment option, at a
purchase price of $10.00 per Unit, generating total gross proceeds of
$230,000,000. Simultaneously with the closing of the Initial Public Offering, we
consummated the sale of 8,900,000 Private Placement Warrants, each exercisable
to purchase one Class A Ordinary Share at a price of $11.50 per share, at a
price of $1.00 per Private Placement Warrant in a private placement to the
Sponsor, Cantor Fitzgerald & Co. and/or their respective designees, generating
gross proceeds of $8,900,000.
Simultaneously with the consummation of the Initial Public Offering, the Sponsor
loaned us $4,600,000 at no interest (the "Sponsor Loan"). The Sponsor Loan will
be repaid or converted into sponsor loan warrants (the "Sponsor Loan Warrants")
at a conversion price of $1.00 per Sponsor Loan Warrant, at the Sponsor's
discretion. The Sponsor Loan Warrants will be identical to the Private Placement
Warrants. If we do not complete a Business Combination, we will not repay the
Sponsor Loan from amounts held in the Trust Account, and the proceeds held in
the Trust Account will be distributed to the holders of the Class A Ordinary
Shares.
A total of $236,900,000 ($10.30 per Unit) of the net proceeds from the Initial
Public Offering, including the full exercise of the over-allotment option, the
sale of the Private Placement Warrants and the Sponsor Loan, was placed in the
Trust Account. Transaction costs of the Initial Public Offering amounted to
$16,804,728, consisting of $4,600,000 of underwriting commissions, $11,500,000
of deferred underwriting commissions and $704,728 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $730,994. Net income of $5,497,655 was affected by interest earned on cash
and marketable securities held in the Trust Account of $1,052,221, a change in
the fair value of a convertible promissory note of $1,251,614, a change in the
fair value of warrant liabilities of $3,871,253 and transactions costs allocated
to warrant liabilities of $195,984. Changes in operating assets and liabilities
was affected by $249,545 of cash used for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the
Trust Account of $237,952,221 (including approximately $1,052,221 of interest
income consisting of U.S. Treasury Bills with a maturity of 185 days or less).
We may withdraw interest from the Trust Account to pay taxes, if any. We intend
to use substantially all of the funds held in the Trust Account, including any
amounts representing interest earned on the Trust Account (less any taxes
payable), to complete our initial Business Combination. To the extent that our
share capital or debt is used, in whole or in part, as consideration to complete
our initial 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.
As of September 30, 2022, we had cash held outside of the Trust Account of
$660,551 available for working capital needs. 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 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, and to pay for directors and officers liability insurance
premiums.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required (the "Working Capital Loans"). If we complete a Business
Combination, we would repay such loaned amounts. In the event that a Business
Combination does not close, we may use a portion of the funds held outside the
Trust Account to repay such loaned amounts but no proceeds from the Trust
Account would be used for such repayment. Up to $1,500,000 of the Working
Capital Loans may be converted into warrants at a price of $1.00 per warrant at
the option of the lender. The warrants will be identical to the Private
Placement Warrants, including, as to exercise price, exercisability and exercise
period. As of September 30, 2022 and December 31, 2021, the Company had no
borrowings under any Working Capital Loans.
Going Concern
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standard Board's ("FASB") Accounting Standards
Codification ("ASC") Subtopic 205-40, "Presentation of Financial Statements -
Going Concern," management has determined that our liquidity condition raises
substantial doubt about our ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after November 10, 2023.
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As of September 30, 2022, we had $660,551 in our operating bank accounts,
$237,952,221 in marketable securities held in the Trust Account to be used for
the completion of a Business Combination and/or for the redemption of the public
shares if we are unable to complete a Business Combination by November 10, 2023
(subject to applicable law), and working capital of $804,830.
Until the consummation of a Business Combination or our liquidation, we will 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 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, and to pay for
directors and officers liability insurance premiums. In addition, in order to
finance transaction costs in connection with a Business Combination, the Sponsor
or an affiliate of the Sponsor, or certain of the Company's officers and
directors may, but are not obligated to, loan the Company Working Capital Loans.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022 and December 31, 2021.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations or other long-term liabilities, other than an
agreement to pay the Sponsor a sum of $10,000 per month for office space,
utilities, secretarial support and administrative services. We began incurring
these fees on May 5, 2022 and will continue to incur these fees on a monthly
basis until the earlier of the completion of an initial Business Combination and
our liquidation.
The underwriters of our Initial Public Offering are entitled to a deferred
underwriting commission of $0.50 per Unit, or $11,500,000 in the aggregate.
Subject to the terms of the underwriting agreement for our Initial Public
Offering, (i) the deferred underwriting commission was placed in the Trust
Account and will be released to the underwriters only upon the consummation of
our initial Business Combination and (ii) the deferred underwriting commission
will be waived by the underwriters in the event that we do not complete a
Business Combination.
Critical Accounting Policies
The preparation of unaudited condensed 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 financial statements, and
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following critical
accounting policies:
Warrant Liabilities
We account for the warrants issued in connection with the Initial Public
Offering, which are discussed in Note 3, Note 4 and Note 9 to the unaudited
condensed financial statements included elsewhere in this Quarterly Report, in
accordance with FASB ASC Topic 815-40, "Derivatives and Hedging, Contracts in
Entity's Own Equity." Such guidance provides that because the warrants do not
meet the criteria for equity treatment thereunder, each warrant must be recorded
as a liability. Accordingly, we classify each warrant as a liability at its fair
value. This liability is subject to re-measurement at each balance sheet date.
With each such re-measurement, the warrant liability will be adjusted to fair
value, with the change in fair value recognized in our statement of operations.
Ordinary Shares Subject to Possible Redemption
In accordance with FASB ASC 480-10-S99, redemption provisions not solely within
our control require ordinary shares subject to redemption to be classified
outside of permanent equity. Ordinary liquidation events, which involve the
redemption and liquidation of all of the entity's equity instruments, are
excluded from the provisions of FASB ASC 480-10-S99. All of the 23,000,000
Class A Ordinary Shares contain a redemption feature which allows for the
redemption of such public shares in connection with our liquidation, if there is
a shareholder vote or tender offer in connection with an initial Business
Combination and in connection with certain amendments to our amended and
restated memorandum and articles of association. Accordingly, at September 30,
2022, all Class A Ordinary Shares subject to possible redemption are presented
at redemption value as temporary equity, outside of shareholders' deficit on the
balance sheets.
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We recognize changes in redemption value immediately as they occur and adjust
the carrying value of redeemable ordinary shares to equal the redemption value
at the end of each reporting period. Increases or decreases in the carrying
amount of redeemable ordinary shares are affected by charges against additional
paid in capital and accumulated deficit.
Net Income (Loss) Per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share," pursuant to which net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of ordinary shares
outstanding during the period. We have two classes of shares, Class A Ordinary
Shares and Class B ordinary shares. Earnings and losses are shared pro rata
between the two classes of shares. Accretion associated with the redeemable
Class A Ordinary Shares is excluded from income (loss) per ordinary share as the
redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board issued Accounting
Standards Update 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic
815-40)" ("ASU 2020-06") to simplify accounting for certain financial
instruments. ASU 2020-06 eliminates the models that require separation of
beneficial conversion and cash conversion features from convertible instruments
and simplifies the derivative scope exception guidance pertaining to equity
classification of contracts in an entity's own equity. ASU 2020-06 also
introduces additional disclosures for convertible debt and freestanding
instruments that are indexed to and settled in an entity's own equity. ASU
2020-06 amends the diluted earnings per share guidance, including the
requirement to use the if-converted method for all convertible instruments. ASU
2020-06 is effective January 1, 2024 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
We adopted ASU 2020-16 effective January 1, 2022 and noted we had no impact on
our financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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