References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Capitalworks Emerging Markets Acquisition Corp. References to
our "management" or our "management team" refer to our officers and directors,
and references to the "Sponsor" refer to CEMAC Sponsor LP. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited condensed 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" 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 March 31, 2022 (the "Annual Report") filed with the U.S. Securities and
Exchange Commission (the "SEC") on July 15, 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 on April 20, 2021, as a Cayman
Islands exempted company. We were incorporated for the purpose of effecting a
merger, share exchange, asset acquisition, share purchase, reorganization or
similar business combination with one or more businesses, which we refer to
throughout this Quarterly Report as our "initial business combination". We will
not pursue or consummate an initial business combination with a target that
conducts a majority of its business or is headquartered in China (including Hong
Kong and Macau). We intend to effectuate our initial business combination using
cash from the proceeds of our initial public offering (the "Initial Public
Offering") and the private placement of the Private Placement Warrants (as
defined below), the sale of certain forward purchase securities, our shares
(other backstop agreements we may enter into following the consummation of the
Initial Public Offering or otherwise), securities, debt or a combination of
cash, equity and debt.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the three months ended June 30, 2022 and for
the period from April 20, 2021 (inception) through June 30, 2021 have been
organizational activities, those necessary to prepare for the Initial Public
Offering and, after the Initial Public Offering, 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 will generate
non-operating income in the form of interest income on cash and cash equivalents
held after the Initial Public Offering and will recognize other income and
expense related to the change in fair value of the derivative warrant liability
and forward purchase agreement liability. 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 June 30, 2022, we had net income of $1,608,198, which
resulted from a gain on the change in fair value of the derivative warrant
liability of $1,853,680 and interest income on investments held in a trust
account (the "Trust Account") in the amount of $307,310, partially offset by
operating costs of $319,948 and a loss on the change in fair value of the
forward purchase agreement liability of $232,844.
For the period from April 20, 2021 (inception) through June 30, 2021, we had net
loss of $10,606, which resulted solely from operating and formation costs.
Liquidity and Capital Resources
On December 3, 2021, we consummated the Initial Public Offering of 20,000,000
Units (the "Units") generating gross proceeds of $200,000,000. Simultaneously
with the closing of the Initial Public Offering, we completed the private sale
of 10,500,000 warrants to our Sponsor at a purchase price of $1.00 per warrant
(the "Private Placement Warrants"), generating gross proceeds of $10,500,000. On
December 3, 2021, the underwriter purchased an additional 3,000,000 Units
pursuant to the exercise of the over-allotment option. The Units were sold at an
offering price of $10.00 per Unit, generating additional gross proceeds of
$30,000,000. Also, in connection with the exercise of the over-allotment option,
our Sponsor purchased an additional 1,200,000 Private Placement Warrants at a
purchase price of $1.00 per warrant, generating additional gross proceeds of
$1,200,000.
For the three months ended June 30, 2022, net cash used in operating activities
was $185,494, which was due to non-cash adjustments to net income related to the
change in fair value of the derivative warrant liability of $1,853,680 and
interest income on investments held in the Trust Account of $307,310, partially
offset by net income of $1,608,198 and non-cash adjustment to net income related
to the change in fair value of the forward purchase agreement liability of
$232,844 and changes in operating assets and liabilities of $134,454.
As of June 30, 2022, we had cash of $783,767 held outside 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 finance transaction costs in connection with our 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 ("Working Capital Loans"). As of June 30, 2022, there were no amounts
outstanding under any Working Capital Loans.
Based on the foregoing, it is possible that the $783,767 in cash held outside
the Trust Account on June 30, 2022 might not be sufficient to allow us to
operate for at least 12 months from the date of this Quarterly Report, assuming
that an initial business combination is not consummated during that time. Until
consummation of our initial business combination, we will be using these funds
for paying existing accounts payable, 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
initial business combination.
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We can raise additional capital through Working Capital Loans from our Sponsor,
an affiliate of our Sponsor or certain of our officers and directors, or through
loans from third parties. If we are unable to raise additional capital, we may
be required to take additional measures to conserve liquidity, which could
include, but not necessarily be limited to, curtailing operations, suspending
the pursuit of our business plan, and reducing overhead expenses. We cannot
provide assurance that new financing will be available to us on commercially
acceptable terms, if at all. These conditions raise substantial doubt about our
ability to continue as a going concern for a reasonable period of time, which is
considered through the mandatory liquidation date, which is 15 months from the
closing of the IPO or March 3, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of operations, and/or search
for a target company, the specific impact is not readily determinable as of the
date of this Quarterly Report. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
As of June 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
General and Administrative Services
Commencing on the date the Units were first listed on the Nasdaq Global Market
("Nasdaq"), we agreed to pay an affiliate of our Sponsor a total of $20,000 per
month for office space, utilities and secretarial and administrative support for
up to 15 months (or up to 18 months if the period of time to consummate a
business combination is extended). Upon the earlier of the completion of our
initial business combination or our liquidation, we will cease paying these
monthly fees. During the period ended June 30, 2022, we incurred and paid
$60,000 of expenses.
Registration Rights
The holders of our Class B ordinary shares (the "Founder Shares"), Private
Placement Warrants and warrants that may be issued upon conversion of Working
Capital Loans or any payments by our Sponsor or its affiliates or designees in
the form of a loan, in order to extend the time available for us to consummate
our initial business combination (the "Extension Loans") (and any shares of
ordinary shares issuable upon the exercise of the Private Placement Warrants or
warrants issued upon conversion of the Working Capital Loans or Extension Loan
and upon conversion of the Founder Shares) are entitled to registration rights
pursuant to a registration rights agreement requiring us to register such
securities for resale (in the case of the Founder Shares, only after conversion
to Class A ordinary shares). The holders of these securities are entitled to
make up to three demands, excluding short form registration demands, that we
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
completion of a business combination and rights to require us to register for
resale such securities pursuant to Rule 415 under the Securities Act. However,
the registration rights agreement provides that we will not be required to
effect or permit any registration or cause any registration statement to become
effective until the securities covered thereby are released from their lock-up
restrictions. We will bear the expenses incurred in connection with the filing
of any such registration statements.
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Underwriting Agreement
We granted the underwriter a 45-day option from the date of the Initial Public
Offering to purchase up to 3,000,000 additional Units to cover over-allotments
(the "Over-Allotment"), if any, at the Initial Public Offering price less the
underwriting discounts and commissions. On December 3, 2021, the underwriter
purchased an additional 3,000,000 Units pursuant to the exercise of the
over-allotment option. The Units were sold at an offering price of $10.00 per
Unit, generating additional gross proceeds of $30,000,000.
The underwriter was paid a cash underwriting discount of $0.20 per Unit, or
$4,600,000, upon the closing of the Initial Public Offering. In addition,
subject to certain exceptions, the underwriter is entitled to a deferred fee of
$0.35 per Unit, or $8,050,000 in the aggregate. The deferred fee will become
payable to the underwriter from the amounts held in the Trust Account solely in
the event that we complete a business combination, subject to the terms of the
underwriting agreement.
Forward Purchase Agreement
We entered into a forward purchase agreement (the "Forward Purchase Agreement")
with Camber Base, LLC, which provides for the purchase of up to $20,000,000 of
units, with each unit consisting of one share of Class A ordinary shares and
one-half of one redeemable warrant to purchase one share of Class A ordinary
shares, at $11.50 per share, subject to adjustment, for a purchase price of
$10.00 per unit, in a private placement to occur in connection with the closing
of a business combination.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of our financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities in
our financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to fair value of financial instruments and
accrued expenses. We base our estimates on historical experience, known trends
and events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have identified the following as its critical
accounting policies:
Class A Ordinary Shares Subject to Possible Redemption
All of the Class A ordinary shares sold as part of the Units in the Initial
Public Offering and as a result of the underwriter's exercise of the
Over-Allotment 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 the initial business combination and in
connection with certain amendments to our Amended and Restated Memorandum and
Articles of Association. In accordance with SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC 480-10-S99,
redemption provisions not solely within our control require ordinary shares
subject to redemption to be classified outside of permanent equity.
The Class A ordinary shares are subject to SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC 480-10-S99. If it
is probable that the equity instrument will become redeemable, we have the
option to either accrete changes in the redemption value over the period from
the date of issuance (or from the date that it becomes probable that the
instrument will become redeemable, if later) to the earliest redemption date of
the instrument or to recognize changes in the redemption value immediately as
they occur and adjust the carrying amount of the instrument to equal the
redemption value at the end of each reporting period. We recognize changes in
redemption value immediately as they occur. Immediately upon the closing of the
Initial Public Offering and the Over-Allotment, we recognized the remeasurement
from initial book value to redemption amount value. The change in the carrying
value of redeemable ordinary shares resulted in charges against additional
paid-in capital and accumulated deficit.
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Net Loss Per Ordinary Share
We comply with accounting and disclosure requirements of ASC Topic 260,
"Earnings Per Share." Our statement of operations includes a presentation of
income per share for ordinary shares subject to possible redemption in a manner
similar to the two-class method of income per share. The remeasurement
associated with the redeemable Class A ordinary shares is excluded from net loss
per ordinary share as the redemption value approximates fair value. Net income
per share, basic and diluted, for Class A redeemable ordinary shares is
calculated by dividing interest income earned and realized gains or losses on
the Trust Account for the three months ended June 30, 2022 and for the period
from April 20, 2021 (inception) through June 30, 2021, by the weighted average
number of Class A redeemable ordinary shares outstanding since original
issuance. The Company has not considered the effect of the Public Warrants or
the Private Placement Warrants to purchase an aggregate of 23,200,000 of the
Company's Class A ordinary shares in the calculation of diluted income per
share, since their exercise is contingent upon future events. Net income per
share, basic and diluted, for Class A and Class B non-redeemable ordinary shares
is calculated by dividing the net income, adjusted for income or loss
attributable to Class A redeemable ordinary shares, by the weighted average
number of Class A and Class B non-redeemable ordinary shares outstanding for the
period. Class A and Class B non-redeemable ordinary shares includes the Founder
Shares as these shares do not have any redemption features and do not
participate in the income or losses of the Trust Account. At June 30, 2022, we
did not have any dilutive securities and other contracts that could,
potentially, be exercised or converted into ordinary shares and then share in
the earnings of our company. As a result, diluted income per share is the same
as basic income per share for the period presented.
Warrants
We account for the Public Warrants and the Private Placement Warrants issued in
connection with the Initial Public Offering and the Private Placement in
accordance with the guidance contained in Financial Accounting Standards Board
("FASB") ASC 815, "Derivatives and Hedging" whereby under that provision, the
Public Warrants and the Private Placement Warrants do not meet the criteria for
equity treatment and must be recorded as a liability. Accordingly, we classify
the warrant instruments as a liability at fair value and adjust the instrument
to fair value at each reporting period. This liability will be re-measured at
each balance sheet date until the Public Warrants and the Private Placement
Warrants are exercised or expire, and any change in fair value will be
recognized in our statement of operations. The fair value at issuance was
calculated using a Monte Carlo simulation model to value the Public Warrants and
a modified Black-Scholes model to value the Private Placement Warrants. The
valuation models utilize inputs and other assumptions and may not be reflective
of the price at which they can be settled. Such warrant classification is also
subject to re-evaluation at each reporting period. Upon issuance of the Private
Warrants, we recorded a charge of $1,532,700 for the excess fair value of
private warrant liabilities over the proceeds received.
Forward Purchase Agreement
We entered into the Forward Purchase Agreement, which provides for the purchase
of up to $20,000,000 of units, with each unit consisting of one Class A ordinary
share (the "Forward Purchase Shares") and one-half of one redeemable warrant
(the "Forward Purchase Warrants") to purchase one Class A ordinary share, at
$11.50 per share, subject to adjustment, for a purchase price of $10.00 per
unit, in a private placement to occur in connection with the closing of a
business combination.
The Forward Purchase Warrants will have the same terms as the Public Warrants,
and the Forward Purchase Shares will be identical to the Class A ordinary shares
included in the Units sold in the Initial Public Offering, except the Forward
Purchase Shares will be subject to transfer restrictions and certain
registration rights.
Recent Accounting Standards
In August 2020, FASB issued Accounting Standards Update ("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) to simplify
accounting for 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 January 1, 2024 and should be
applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The Company is currently assessing the impact, if
any, it would have on its financial position, results of operations or cash
flows.
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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 balance sheet.
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