Filing summary
Important entity clarification: The supplied 10-Q is for Virgin Group Acquisition Corp. II, a Cayman Islands blank-check SPAC, not Grove Collaborative Holdings, Inc. It covers the quarter ended September 30, 2021, and financial activity from inception on January 13, 2021 through September 30, 2021. The filing reports no operating business or operating revenue.
Financial position and results
| Metric | Reported amount |
|---|---|
| Trust account assets | $402.521 million |
| Cash outside trust | $58,873 |
| Current assets | $687,978 |
| Current liabilities | $1.044 million |
| Working capital deficit | $356,380 |
| Total liabilities | $28.787 million, including $13.655 million of warrant liabilities and $14.088 million of deferred underwriting discount |
| Debt | No long-term debt reported; no working capital loans outstanding |
| Shareholders’ deficit | $27.779 million |
- For the three months ended September 30, 2021, net income was $5.455 million, comprising a $6.658 million gain from the change in warrant fair value, $1.209 million of formation and operating costs, and $5,179 of trust investment interest.
- From inception through September 30, 2021, net income was $4.460 million. The filing reports $1.486 million of formation and operating costs, $570,496 of offering costs allocated to warrants, $20,541 of trust interest, and a $6.496 million warrant fair-value gain.
- Net income per share was $0.11 for both Class A and Class B shares for the quarter and inception-to-date periods. Earnings were materially affected by non-cash warrant remeasurement; the company had no operating revenue, so operating margins are not meaningful.
- Inception-to-date net cash used in operating activities was $1.371 million. Investing cash outflow was $402.500 million, principally the deposit into the trust account; financing provided $403.929 million. Ending cash outside the trust was $58,873.
Material changes and unusual items
- The company revised its accounting presentation to classify all 40.25 million public Class A shares as temporary equity at their $402.5 million redemption value. Management said the prior-period impacts were not material and would be presented prospectively, without amending earlier filings.
- Warrants are recorded as derivative liabilities and remeasured through earnings each reporting period. Their fair-value changes can cause significant earnings volatility without corresponding operating cash flow.
- Disclosure controls were reported as not effective during the quarter due to a material weakness involving accounting classification of public and private warrants. Management stated the weakness was remediated by June 30, 2021 through enhanced accounting processes and consultation.
Outlook, risks and contingencies
- At September 30, the company had not selected a business-combination target and reported no substantive discussions with a target. It expected no operating revenue until after a business combination and gave no specific financial guidance.
- Management believed existing working capital and borrowing capacity would meet needs through the earlier of a business combination or one year from the filing. It also warned that actual search, diligence, or transaction costs could exceed available funds; sponsor-related parties may provide loans but are not obligated to do so.
- The SPAC must complete a business combination within 24 months of its March 25, 2021 IPO or redeem public shares from the trust, subject to the filing’s terms. The $14.088 million deferred underwriting fee is payable only if a business combination is completed.
- Management said COVID-19 could adversely affect the company’s financial position, operations, or target search, but the potential impact was not determinable. The filing reported no legal proceedings and no material market or interest-rate exposure at the reporting date.
Key facts for investors to verify
- Confirm the filing entity: this 10-Q is for Virgin Group Acquisition Corp. II, not Grove Collaborative Holdings, Inc.
- Review the temporary-equity revision and warrant-liability accounting, including the non-cash warrant gains driving reported net income.
- Assess the limited $58,873 of unrestricted cash against the working-capital deficit and prospective transaction expenses.
- Verify the business-combination deadline, redemption terms, and deferred underwriting fee obligations.
- Review the stated remediation of the material weakness and the filing’s disclosure that controls were not effective during the quarter.