References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Carney Technology Acquisition Corp. II. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Carney Technology Sponsor II 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 Quarterly Report 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 for the fiscal year ended December 31, 2021
and Quarterly Reports on Form 10-Q for the periods ended September 30, 2020 and
March 31, 2022 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 formed under the laws of the State of Delaware on
August 31, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our initial
Business Combination using cash from the proceeds of the Initial Public Offering
and the sale of the Placement Units, our capital stock, debt or a combination of
cash, stock 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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 31, 2020 (inception) through September 30, 2022
were organizational activities, those necessary to prepare for our Initial
Public Offering, described below, and identifying a target company for an
initial 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 marketable
securities held in the Trust Account. 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.
For the three months ended September 30, 2022, we had net income of $2,827,140,
which included interest earned on cash and marketable securities held in Trust
Account of $1,728,277, change in fair value of warrant liabilities of
$1,783,166, change in fair value of convertible note of $88,560, offset by
operating costs of $279,051 and provision for income tax of $493,812.
For the nine months ended September 30, 2022, we had net income of $10,166,010,
which included interest earned on cash and marketable securities held in Trust
Account of $2,331,534, change in fair value of warrant liabilities of
$9,053,000, change in fair value of convertible note of $210,260, offset by
operating costs of $862,073 and provision for income tax of $566,711.
For the three months ended September 30, 2021, we had a net income of
$3,693,465, which consists of a change in the fair value warrant liabilities of
$3,977,833 and interest income on marketable securities held in the trust
account of $27,529 and interest income in bank of $2, offset by operating costs
of $311,899.
For the nine months ended September 30, 2021, we had a net income of $8,081,123,
which consists of a change in the fair value warrant liabilities of $8,915,833
and interest income on marketable securities held in the trust account of
$63,780 and interest income in bank of $2, offset by operating costs of
$898,492.
Liquidity and Capital Resources
On December 14, 2020, we consummated our Initial Public Offering of 40,250,000
units, which included the full exercise by the underwriters of their
over-allotment option in the amount of 5,250,000 units, at a price of $10.00 per
unit, generating gross proceeds of $402,500,000. Simultaneously with the closing
of our Initial Public Offering, we consummated the sale of 900,000 Placement
Units at a price of $10.00 per Placement Unit in a private placement to our
Sponsor, generating gross proceeds of $9,000,000.
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Following our Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Placement Units, a total of $402,500,000 was placed
in the Trust Account. We incurred $22,583,792 in transaction costs, including
$7,000,000 of underwriting fees, net of reimbursement, $15,137,500 of deferred
underwriting fees and $446,292 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $825,246. Net income of $10,166,010 was affected by interest earned on cash
and investments held in the Trust Account of $2,331,509, change in fair value of
warrant liabilities of $9,053,000, change in fair value of convertible note of
$210,260 and changes in operating assets and liabilities, which provided
$603,513 of cash from operating activities. As of September 30, 2022,
approximately $2,331,534 of the amount on deposit in the Trust Account
represented interest income, which is available to pay the Company's tax
obligations. As of September 30, 2022, the Company withdrew an amount of
$225,000 to pay franchise and income taxes.
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For the nine months ended September 30, 2021, cash used in operating activities
was $558,438. Net income of $8,081,123 was affected by changes in the fair value
of warrant liabilities of $8,915,833 and interest earned on investments and
marketable securities held in the Trust Account of $63,780. Changes in operating
assets and liabilities provided $340,052 of cash from operating activities.
As of September 30, 2022, we had cash and marketable securities held in the
Trust Account of $404,675,430. We intend to use substantially all of the funds
held in the Trust Account, including any amounts representing interest earned on
the Trust Account to complete our initial Business Combination. We may withdraw
interest to pay taxes. During the period ended September 30, 2022, we withdrew
$225,000 to pay franchise and income taxes. To the extent that our capital stock
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 $93,820 of cash 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, and structure, negotiate and complete an initial Business
Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an initial 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 an initial Business
Combination, we may repay such loaned amounts out of the proceeds of the Trust
Account released to us. In the event that an initial 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 units, at a price of $10.00 per unit, at the option of the
lender. The units would be identical to the Placement Units.
On January 24, 2022, we issued a promissory note in the principal amount of up
to $300,000 to our Sponsor. This promissory note was issued in connection with
advances our Sponsor has made, and may make in the future, to us for working
capital expenses. If we complete a Business Combination, we would repay this
promissory note out of the proceeds of the Trust Account released to us.
Otherwise, this promissory note would be repaid only out of funds held outside
the Trust Account. 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
this promissory note but no proceeds from the Trust Account would be used to
repay this promissory note. At the election of our Sponsor, all or a portion of
the unpaid principal amount of this promissory note may be converted into our
units at a price of $10.00 per unit (the "Conversion Units"). The Conversion
Units and their underlying securities are entitled to the registration rights
set forth in this promissory note.
We do believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial Business Combination are less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our initial Business Combination. Moreover, we may need to
obtain additional financing either to complete our initial Business Combination
or because we become obligated to redeem a significant number of our public
shares upon consummation of our initial Business Combination, in which case we
may issue additional securities or incur debt in connection with such initial
Business Combination. Subject to compliance with applicable securities laws, we
would only complete such financing simultaneously with the completion of our
initial Business Combination. If we are unable to complete our initial Business
Combination because we do not have sufficient funds available to us, we will be
forced to cease operations and liquidate the Trust Account. In addition,
following our initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Going Concern
Until the consummation of a Business Combination, the Company will be using the
funds not held in the Trust Account for identifying and evaluating prospective
acquisition candidates, performing due diligence on prospective target
businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination.
In connection with the Company's assessment of going concern considerations in
accordance with FASBASU 2014-15, "Disclosures of Uncertainties about an Entity's
Ability to Continue as a Going Concern" through the liquidation date of
December 14, 2022, management has determined that if the Company is unable to
raise additional funds to alleviate liquidity needs as well as complete a
Business Combination by December 14, 2022, then the Company will cease all
operations except for the purpose of liquidating. The liquidity condition and
date for mandatory liquidation and subsequent dissolution raise 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 December 14, 2022. The Company is holding
a special meeting in lieu of its annual meeting on December 9, 2022, for its
shareholders to vote to extend the original mandatory liquidation date of the
Company from December 14, 2022 to June 14, 2023, or such earlier date as
determined by the board of directors.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay affiliate
of the Sponsor a monthly fee of $15,000 for office space, utilities and
secretarial and administrative support services. We began incurring these fees
on December 9, 2020 and will continue to incur these fees monthly until the
earlier of the completion of our initial Business Combination and our
liquidation.
The underwriters are entitled to a deferred fee of (i) $0.35 per unit of the
gross proceeds of the initial 35,000,000 units sold in our Initial Public
Offering, or $12,250,000, and (ii) $0.55 per unit of the gross proceeds from the
units sold pursuant to the over-allotment option, or $2,887,500. The deferred
fee will become payable to the underwriters from the amounts held in the Trust
Account solely in the event we complete an initial Business Combination, subject
to the terms of the underwriting agreement.
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Critical Accounting Policies
The preparation of 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 our Initial Public
Offering in accordance with the guidance contained in ASC815-40 under which the
warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the warrants as liabilities at their fair
value and adjust the warrants to fair value at each reporting period. This
liability is subject tore-measurement at each balance sheets date until
exercised, and any change in fair value is recognized in our statements of
operations.
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 Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption is
classified as a liability instrument and is measured at fair value.
Conditionally redeemable common stock (including common stock that feature
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, common stock is
classified as stockholders' equity. Our Class A common stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, shares of Class A common
stock subject to possible redemption are presented as temporary equity, outside
of the stockholders' deficit section of our balance sheets.
Net Income per Share of Common Stock
Net income per share of common stock is computed by dividing net income by the
weighted average number of common stock outstanding during the period. Accretion
associated with the redeemable shares of Class A common stock is excluded from
earnings per share as the redemption value approximates fair value.
Convertible Promissory Note
The Company accounts for their convertible promissory note under ASC 815,
Derivatives and Hedging ("ASC 815"). Under 815-15-25, the election can be at the
inception of a financial instrument to account for the instrument under the fair
value option under ASC 825. The Company has made such election for their
convertible promissory note. Using the fair value option, the convertible
promissory note is required to be recorded at its initial fair value on the date
of issuance, and each balance sheet date thereafter. Changes in the estimated
fair value of the notes are recognized as a non-cash gain or loss on the
statements of operations.
Recent Accounting Standards
In June 2016, FASB issued Accounting Standards Update ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which requires entities to measure all expected credit losses for
financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. ASU 2016-13 also
requires additional disclosures regarding significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting
standards of an entity's portfolio. The Company expects to adopt the provisions
of this guidance on January 1, 2023. The adoption is not expected to have a
material impact on the Company's condensed financial statements.
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 financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial 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 the 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.
Management does not believe that any other 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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