UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarter ended
For the transition period from to
Commission
file number:
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer,a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large, accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large, accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
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As
of July 20, 2024, there were
CHENGHE ACQUISITION II CO.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
CHENGHE ACQUISITION II CO.
CONDENSED BALANCE SHEET
March
31, | March
4, | |||||||
| (Unaudited) | (Audited) | |||||||
| Asset | ||||||||
| Deferred offering costs | $ | $ | ||||||
| TOTAL Current Asset | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued expenses | $ | $ | ||||||
| Accrued offering costs | ||||||||
| Due to related party | ||||||||
| Promissory note – related party | ||||||||
| Total Current Liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Shareholders’ (Deficit) Equity | ||||||||
| Preference shares, $ | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ (Deficit) Equity | ( | ) | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT (EQUITY) | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
CHENGHE ACQUISITION II CO.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the period from January 15, 2024 (Inception) through March 31, 2024 | ||||
| Formation and operating costs | $ | |||
| Net loss | $ | ( | ) | |
| $ | ( | ) | ||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
CHENGHE ACQUISITION II CO.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE PERIOD FROM JANUARY 15, 2024 (INCEPTION)
THROUGH MARCH 31, 2024
| Class B Ordinary Shares | Additional Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance — As of January 15, 2024 (Inception) | $ | $ | $ | $ | ||||||||||||||||
| Issuance of Class B ordinary shares to Sponsor(1) | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – As of March 4, 2024 (Audited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – As of March 31, 2024 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
CHENGHE ACQUISITION II CO.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 15, 2024 (INCEPTION) THROUGH MARCH 31, 2024
| For the period from January 15, 2024 (Inception) through March 31, 2024 | ||||
| Cash Flows from Operating Activities: | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Operating expenses paid by Sponsor | ||||
| Changes in operating assets and liabilities: | ||||
| Accrued expenses | ||||
| Due to related party | ||||
| Net cash used in operating activities | ||||
| Net Change in Cash | ||||
| Cash – beginning at date of incorporation | ||||
| Cash – end of period | $ | |||
| Supplemental disclosure of non-cash information: | ||||
| Deferred offering costs paid by Sponsor for issuance of Class B ordinary shares | $ | |||
| Deferred offering costs included in the accrued offering costs and expenses | $ | |||
| Deferred offering costs paid by Sponsor under the promissory note-related party | $ | |||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
CHENGHE ACQUISITION II CO.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2024
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Chenghe Acquisition II Co. (the “Company”) is blank check company incorporated as a Cayman Islands exempted company on January 15, 2024. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”).
As of March 31, 2024, the Company had not commenced any operations. All activity for the period from January 15, 2024 (inception) through March 31, 2024 relates to the Company’s formation and its initial public offering (“IPO”). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Proposed Public Offering (as defined below). The Company has selected December 31 as its fiscal year end.
Sponsor and Initial Public Offering
The Company’s sponsor is Chenghe Investment II
Limited, a Cayman Islands limited company (the “Sponsor”).
The registration statement for the Company’s IPO was declared effective on June 7, 2024 (the “Effective Date”). On
June 10, 2024, the Company consummated the IPO of
Simultaneously with the closing of the IPO, the
Company consummated the sale of
Transaction costs amounted to $
Trust Account
Following the closing of the IPO, on June 10,
2024, an amount of $
Initial Business Combination
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the IPO, although substantially all of the net proceeds of the IPO are
intended to be generally applied toward consummating an initial Business Combination. The initial Business Combination must be with one
or more target businesses or assets having an aggregate fair market value of at least
5
The Company will
have 24 months from the closing of the IPO (or such other time period in which the Company must consummate an initial Business Combination
pursuant to an amendment to the Company’s amended and restated memorandum and articles of association) (the “Combination
Period”) to complete the initial Business Combination. If the Company has not completed the initial Business Combination within
the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible but not more than 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 (which interest shall be net permitted withdrawals and up to $
The Company will provide the public shareholders
with the opportunity to redeem all or a portion of their Public Shares upon the completion of the initial Business Combination either
(i) in connection with a general meeting called to approve the Business Combination or (ii) without a shareholder vote by means
of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed Business Combination or conduct
a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of
the transaction and whether the terms of the transaction would require the Company to seek shareholder approval under the law or stock
exchange listing requirement. The Company will provide the public shareholders with the opportunity to redeem all or a portion of their
Public Shares upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including
interest earned on the funds held in the Trust Account (which interest shall be net of permitted withdrawals) divided by the number of
then outstanding Public Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account is
initially anticipated to be $
The initial shareholders have agreed to waived their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if the Company fails to complete its initial Business Combination within the Combination Period. However, if the Company’s initial shareholders or management team acquire Public Shares in or after the IPO, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete its initial Business Combination within the allotted Combination Period.
The underwriters have agreed to waive all rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete its initial Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Company’s Public Shares.
In order to protect the amounts held in the Trust
Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered
or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent,
confidentiality or other similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below
the lesser of (i) $
Liquidity
At
March 31, 2024, the Company has no cash and working capital deficit of $
6
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business combination or having the financial abilities to continue as a going concern for the next 12 months from this filing have been alleviated. Over this time period, the Company will be using the funds held outside of the trust Account for paying existing accounts payable and accrued liabilities identifying and evaluating prospective initial Business Combination candidates 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 the Business combination. The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating the business.
Risks and Uncertainties
United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the recent escalation of the Israel-Hamas conflict. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations. The invasion of Ukraine by Russia and the escalation of the Israel-Hamas conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyber-attacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine, the escalation of the Israel-Hamas conflict and subsequent sanctions or related actions, could adversely affect the Company’s search for an initial business combination and any target business with which the Company may ultimately consummate an initial business combination.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its IPO as filed with the SEC on June 7, 2024, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on June 14, 2024. The interim results for the period from January 15, 2024(inception) through March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.
Emerging Growth Company
As an emerging growth company, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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 an emerging growth 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. The Company has 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, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
7
Use of Estimates
The preparation of the financial statement in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did have any cash and cash equivalents as of March 31, 2024.
Ordinary Shares Subject to Possible Redemption
The Company will account for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” 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 the Company’s control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholder’s equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of March 31, 2024, there are no ordinary shares subject to possible redemption.
Deferred Offering Costs
The Company complies with the requirements of
the ASC 340-10-S99 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering.” Deferred
offering costs consist principally of professional and registration fees that are related to the IPO. Financial Accounting Standards
Board (“FASB”) ASC 470-20, “Debt with Conversion and Other Options,” addresses the allocation of proceeds from
the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate IPO proceeds from
the Units between Class A ordinary shares and warrants, using the residual method by allocating IPO proceeds first to assigned value
of the warrants and then to the Class A ordinary shares. Offering costs allocated to the Class A ordinary shares were charged to temporary
equity and offering costs allocated to the Public Warrants and Private Placement Units were charged to shareholders’ deficit. The
Company incurred offering costs amounting to $
As of March 31, 2024, there were $
Income Taxes
The Company accounts for income taxes under ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of June 10, 2024, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company is considered to be an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented.
8
Net Loss per Share
Net loss per share is computed by dividing net
loss by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to forfeiture.
Weighted average shares were reduced for the effect of an aggregate of
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times may exceed the Federal
Depository Insurance Corporation limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement,” approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature.
Warrant Instruments
The Company will account for the Public Warrants and Private Placement Warrants issued in connection with the IPO and the private placement in accordance with the guidance contained in FASB ASC Topic 815, “Derivatives and Hedging”. Accordingly, the Company evaluated and classified the warrant instrument under equity treatment at its assigned value.
Recent Accounting Standards
In August 2020, the FASB issued ASU 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 certain financial instruments. ASU 2020-06 eliminates the current 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. The new standard 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 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 as of January 15, 2024 (inception). There was no effect to the Company’s presented financial statements.
In September 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The Board is issuing the amendments in this Update to enhance the transparency and decision usefulness of income tax disclosures. Investors currently rely on the rate reconciliation table and other disclosures, including total income taxes paid, to evaluate income tax risks and opportunities. While investors find these disclosures helpful, they suggested possible enhancements to better (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. The Board decided that the amendments should be effective for public business entities for annual periods beginning after December 15, 2024. The Company adopted ASU 2020-06 as of January 15, 2024 (inception). There was no effect to the Company’s presented financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statement.
NOTE 3. PUBLIC OFFERING
Subsequent to March 31, 2024 and pursuant to
the IPO, the Company sold
9
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the IPO, the
Sponsor and underwriters purchased an aggregate of
The Founder Shares (as defined in Note 5), Private
Placement Units, private placement shares, Private Placement Warrants and any Class A ordinary shares issued upon conversion or
exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in a letter agreement entered into by the Company’s
initial shareholders and management team. Those lock-up provisions provide that such securities are not transferable or salable (a) in
the case of the Founder Shares, until the earlier of: (i) six months after the completion of the initial Business Combination or
earlier if, subsequent to the initial Business Combination, the closing price of the Class A ordinary shares equals or exceeds $
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On March 4, 2024, the Company’s Sponsor
paid $
On March 11, 2024, the Sponsor transferred
an aggregate of
The Company’s initial shareholders, Sponsor,
officers and directors has agreed not to transfer, assign or sell any of their Founder Shares and any Class A ordinary shares issuable
upon conversion thereof until the earlier to occur of: (i) one year after the completion of the initial Business Combination or
(ii) the date following the completion of the initial Business Combination on which the Company completes a liquidation, merger,
share exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their
ordinary shares for cash, securities or other property (the “Lock-up”). Notwithstanding the foregoing, if the closing price
of the Class A ordinary shares equals or exceeds $
10
Promissory Note — Related Party
On February 29, 2024, the Company entered
into a promissory note with the Sponsor, pursuant to which, the Sponsor has agreed to loan the Company up to $
Working Capital Loans
In addition, in order to finance transaction
costs in connection with an intended initial 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 funds as may be required (the “Working Capital Loans”).
Up to $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Units, shares being issued to the underwriters of the IPO, and units that may be issued on conversion of Working Capital Loans (and in each case holders of their component securities, as applicable) will have registration rights to require the Company to register a sale of any of the Company’s securities held by them pursuant to a registration rights agreement to be signed prior to or on the effective date of the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up
to
The underwriters were paid a cash underwriting
fee of
The Private Placement Units purchased by the underwriters are identical to the units being sold in the IPO except as described in Note 4. The Private Placement Units purchased by the underwriters and underlying ordinary shares and warrants have been deemed compensation by FINRA and are therefore subject to lock-up, registration and termination restrictions. Pursuant to FINRA Rule 5110(e), the Private Placement Units purchased by the underwriters and/or its permitted designees may not be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the commencement of sales of the IPO except to any member participating in the IPO and the officers or partners, registered persons or affiliates thereof or as otherwise permitted by FINRA Rule 5110(e)(2). In addition, for as long as the Private Placement Warrants underlying the Private Placement Units are held by the underwriters and/or its permitted designees, they may not be exercised after five years from the commencement of sales of the IPO. Notwithstanding the foregoing, the underwriters and/or its permitted designees may not exercise their demand and “piggy back” registration rights beyond five (5) and seven (7) years, respectively, from the commencement of sales of the IPO and may not exercise their demand rights on more than one occasion.
11
NOTE 7. SHAREHOLDERS’ EQUITY
Preference Shares — The Company
is authorized to issue a total of
Class A Ordinary Shares — The
Company is authorized to issue a total of
Class B Ordinary Shares — The
Company is authorized to issue a total of
The Class B Ordinary Shares will automatically
convert (unless otherwise provided in the initial Business Combination agreement) into Class A ordinary shares at the time of the
consummation of the initial Business Combination on a one-for-one basis, subject to adjustment for share sub-divisions, share dividends,
reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A
ordinary shares or equity-linked securities are issued or deemed issued in connection with the initial Business Combination, the number
of Class A ordinary shares issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis,
approximately
Ordinary shareholders of record are entitled
to
Warrants – As of March 31,
2024, there were no Public Warrants and Private Placement Warrants outstanding. Each whole warrant entitles the registered holder to
purchase
The Company has agreed that as soon as practicable,
but in no event later than
12
Redemption of warrants for cash
Once the warrants become exercisable, we may call the warrants for redemption for cash:
| ● | in whole and not in part; |
| ● | upon not less than |
| ● | at a price of $ |
If and when the warrants become redeemable by
the Company for cash, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities
for sale under all applicable state securities laws.In addition, if (x) the Company issues additional Class A ordinary shares
or equity-linked securities, for capital raising purposes in connection with the closing of the initial Business Combination at an issue
price or effective issue price of less than $
The Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or saleable until 30 days after the completion of the initial Business Combination (except, among other limited exceptions as described in Note 3, to the Company’s officers and directors and other persons or entities affiliated with the initial purchasers of the Private Placement Units). The Private Placement Warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the IPO.
NOTE 8. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On June 10, 2024, the Company consummated the
IPO of
Simultaneously with the closing of the IPO, the
Company consummated the sale of
The total outstanding balance under Promissory
Note of $
On June 10, 2024, the underwriters were paid a
cash underwriting fee of
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Chenghe Acquisition II Co. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Chenghe Investment II Limited 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 on Form 10-Q 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 an initial 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 IPO 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 January 15, 2024 formed for the purpose of effecting a merger, 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 IPO 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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from January 15, 2024 (inception) through March 31, 2024 were organizational activities, those necessary to prepare for the IPO, described below, and subsequent to the IPO, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our 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 period from January 15, 2024 (inception) through March 31, 2024 we had a net loss of $96,056. The net loss is consisted of formation and operating costs.
Liquidity and Capital Resources
Until the consummation of the IPO, our only source of liquidity was an initial purchase of Class B ordinary shares, par value $0.0001 per share (“Founder Shares”), by Chenghe Investment II Limited (“the Sponsor”) and loans from the Sponsor.
Subsequent to the quarterly period covered by this Quarterly Report on Form 10-Q, on June 10, 2024, we consummated the IPO of 8,625,000 Units, which includes the full exercise by the underwriters of their over-allotment option in the amount of 1,125,000 Units, at a purchase price of $10.00 per Unit, generating total gross proceeds of $86,250,000. Simultaneously with the closing of the IPO, we consummated the sale of an aggregate of 310,000 Private Placement Units at a price of $10.00 per Private Placement Unit in private placements to the Sponsor and underwriters, generating gross proceeds of $3,100,000. Among these Private Placement Units, the Sponsor and the underwriters purchased 266,875 and 43,125 Private Placement Units, respectively.
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Following the IPO and the private placements, a total of $86,250,000 ($10.00 per Unit) was placed in the Trust Account. We incurred transaction costs of $$5,608,295 consisting of $1,725,000 of cash underwriting fee, $3,450,000 of deferred underwriting commission, and $433,295 of other offering costs.
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 deferred underwriting commissions and taxes payable), to complete our initial Business Combination. 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.
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, and to pay for directors and officers liability insurance premiums.
In order to finance transaction costs in connection with an intended initial 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 funds as may be required (the “Working Capital Loans”). Up to $1,500,000 of such working capital loans may be convertible into private placement-equivalent units at a price of $10.00 per unit at the option of the lender. Such units would be identical to the Private Placement Units. The terms of such working capital loans by the sponsor or its affiliates, or the Company’s officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. As of March 31, 2024, the Company had no borrowings under the Working Capital Loans.
We do not 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 a 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 Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024. 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.
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 the Sponsor a sum of $15,000 per month for office space, secretarial and administrative services provided to members of the Company’s management team. We began incurring these fees on June 7, 2024 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.40 per Unit, or $3,450,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
We prepare our unaudited condensed financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of unaudited condensed financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. We did not identify any critical accounting estimates.
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Recent Accounting Standards
In August 2020, the FASB issued ASU 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 certain financial instruments. ASU 2020-06 eliminates the current 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. The new standard 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 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 as of January 15, 2024 (inception). There was no effect to the Company’s presented financial statements.
In September 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The Board is issuing the amendments in this Update to enhance the transparency and decision usefulness of income tax disclosures. Investors currently rely on the rate reconciliation table and other disclosures, including total income taxes paid, to evaluate income tax risks and opportunities. While investors find these disclosures helpful, they suggested possible enhancements to better (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. The Board decided that the amendments should be effective for public business entities for annual periods beginning after December 15, 2024. The Company adopted ASU 2020-06 as of January 15, 2024 (inception). There was no effect to the Company’s presented financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2024 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes with respect to those risk factors previously disclosed in our registration statement on Form S-1 filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 31.2* | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 32.1** | Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 32.2** | Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit). |
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CHENGHE ACQUISITION II CO. | |||
| By: | /s/ Yuan Yixuan | ||
| Name: | Yuan Yixuan | ||
| Title: | Chief Executive Officer (principal executive officer) | ||
| By: | /s/ Lyle Wang | ||
| Name: | Lyle Wang | ||
| Title: | Chief Financial Officer (principal financial officer and principal accounting officer) | ||
| Dated July 22, 2024 | |||
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