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 capitalized terms used but not defined in the below discussion and
elsewhere in this Quarterly Report have the meanings ascribed to them in the
footnotes to the accompanying financial statements included as part of this
Quarterly Report.
Cautionary 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 herein 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
filed with the U.S. Securities and Exchange Commission (the "SEC") on July 15,
2022 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,
as filed with the SEC on November 14, 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
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 and the Private Placement, the sale of certain forward purchase
securities, our shares (other backstop agreements we may enter into following
the consummation of the Business Combination or otherwise), securities, debt or
a combination of cash, equity and debt.
Recent Development
On February 2, 2023, the Company filed a definitive proxy statement with the SEC
in connection with an extraordinary general meeting of shareholders, to be held
on February 24, 2023, for purposes of seeking shareholder approval of, among
others, a proposal to extend the date the Company would be required to
consummate a Business Combination from March 3, 2023 to December 3, 2023 and a
proposal to permit the board of directors of the Company, in its sole
discretion, to elect to wind up the Company's operations on an earlier date than
December 3, 2023 (including prior to March 3, 2023).
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from April 20, 2021 (inception) through December
31, 2022 have been organizational activities, the Initial Public Offering and
identifying a target company for a Business Combination. We do not expect to
generate any operating revenues until after the completion of our initial
Business Combination. We generate non-operating income in the form of interest
income from the funds held in the Trust Account and 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 related to our search for targets for
our initial Business Combination.
24
Table of Contents
For the three months ended December 31, 2022, we had net income of $3,328,008,
which resulted from a gain on the change in fair value of the derivative warrant
liability of $1,621,680, a gain on the change in fair value of the Forward
Purchase Agreement liability of $16,634 and interest income on investments held
in the Trust Account in the amount of $1,959,780, partially offset by operating
costs of $270,086.
For the three months ended December 31, 2021, we had net income of $13,327,335,
which resulted from a gain on the change in fair value of warrant liabilities of
$14,243,100 and interest income on investments held in the Trust Account in the
amount of $1,001, partially offset by operating costs of $114,916 and
transaction costs allocable to warrant liability of $801,850.
For the nine months ended December 31, 2022, we had net income of $5,459,292,
which resulted from a gain on the change in fair value of the derivative warrant
liability of $3,709,680 and interest income on investments held in the Trust
Account in the amount of $3,305,210, partially offset by operating costs of
$1,414,315 and a loss on the change in fair value of the Forward Purchase
Agreement of $141,283.
For the period from April 20, 2021 (inception) through December 31, 2021, we had
net income of $13,316,729, which resulted from a gain on the change in fair
value of warrant liabilities of $14,243,100 and interest income on investments
held in the Trust Account in the amount of $1,001, partially offset by operating
costs of $125,522 and transaction costs allocable to warrant liability of
$801,850.
Liquidity and Capital Resources
On December 3, 2021, we consummated the Initial Public Offering of 20,000,000
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
Private Placement Warrants to our Sponsor at a purchase price of $1.00 per
warrant, generating gross proceeds of $10,500,000. On December 3, 2021, the
underwriter purchased an additional 3,000,000 Units pursuant to the full
exercise of their 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 nine months ended December 31, 2022, net cash used in operating
activities was $734,118, which was due to non-cash adjustments to net income
related to the change in fair value of the derivative warrant liability of
$3,709,680 and interest income on investments held in the Trust Account of
$3,305,210, partially offset by net income of $5,459,292 and non-cash adjustment
to net income related to the change in fair value of the Forward Purchase
Agreement liability of $141,283 and changes in operating assets and liabilities
of $680,197.
As of December 31, 2022, we had cash of $260,143 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, provide us Working Capital
Loans as may be required. As of December 31, 2022, there were no amounts
outstanding under any Working Capital Loans.
Based on the foregoing, it is possible that the $260,143 in cash held outside
the Trust Account on December 31, 2022 might not be sufficient to allow us to
operate until the last day of the Combination Period , 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.
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 acquisition plan, and reducing overhead expenses. We cannot
provide assurance that new financing will be available to us on
25
Table of Contents
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 Initial Public Offering or March 3, 2023, or, if
extended in accordance with our Charter, 18 months from the closing of the
Initial Public Offering or June 3, 2023.
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.
Off-Balance Sheet Financing Arrangements
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
General and Administrative Services
Commencing on the date the Units were first listed on 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 nine months ended December 31, 2022, we incurred and paid $120,000 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.
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,
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 full exercise of their 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.
26
Table of Contents
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 the Forward Purchase Agreement with Camber, 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.
Vendor Agreements
As of December 31, 2022, the Company had incurred unpaid legal fees of
approximately $242,928 which are included in accounts payable and accrued
expenses and accrued offering costs on the condensed balance sheets. These fees
will only become due and payable upon the consummation of a Business
Combination.
Consulting Agreement
On November 27, 2022, the Company entered into an agreement with a Strategic
Advisor for advisory services in connection with a potential Business
Combination. Pursuant to this agreement, the Company, if the Company consummates
a Business Combination., the Company shall pay Strategic Advisor at the
consummation of the Transaction a Capital Markets Advisory Fee in cash, in the
amount equal to (i) $1,500,000 plus (ii) an Incremental Advisory Fee based on
the value of the Trust Proceeds immediately prior to closing of the Business
Combination. If the Trust Proceeds are: (i) greater than $58,650,000 but less
than or equal to $117,300,000, the Company will pay Strategic Advisor an
Incremental Advisory Fee of $250,000; (ii) greater than $117,300,000 but less
than or equal to $175,950,000, the Company will pay Strategic Advisor an
Incremental Advisory Fee of $1,000,000; or (iii) greater than $175,950,000, the
Company will pay Strategic Advisor an Incremental Advisory Fee of $2,500,000.
The Capital Markets Advisory Fee shall be due and payable to Strategic Advisor
by the Company at the consummation of the Business Combination. If the Business
Combination does not occur or is abandoned, the Strategic Advisor will not be
entitled to the Capital Markets Advisory Fee. The Company will also reimburse
the Strategic Advisor all reasonable documented out-of-pocket expenses incurred
in connection with consulting agreement, provided that such expenses will not
exceed $25,000 in the aggregate without the prior written approval of the
Company.
Shareholder Meeting
On February 24, 2023, the Company will be holding an extraordinary general
meeting of shareholders for the purpose of approving: (i) a proposal to approve
an amendment to the Company's Amended and Restated Certificate of Incorporation
to (i) proposal to amend by special resolution the Company's Charter to extend
the date by which the Company would be required to consummate a business
combination from March 3, 2023 to December 3, 2023; (ii) proposal to amend by
special resolution the charter to permit our Board, in its sole discretion, to
elect to wind up our operations on an earlier date than December 3, 2023
(including prior to March 3, 2023); and (iii) a proposal to amend the Company's
investment management trust agreement, dated as of November 30, 2021, by and
between the Company and Continental Stock Transfer & Trust Company, to extend
the date by which the Company would be required to consummate a business
combination from March 3, 2023 to December 3, 2023, or such earlier date as
determined by the Board in its sole discretion.
Critical Accounting Estimates
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:
27
Table of Contents
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 Charter. 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.
Net Income 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
income 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 December 31, 2022 and 2021, the
nine months ended December 31, 2022 and for the period from April 20, 2021
(inception) through December 31, 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 December 31, 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 ASC 815 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
Placement Warrants, we recorded a charge of $1,532,700 for the excess fair value
of Private Placement 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 Forward Purchase
Share and one-half of one Forward Purchase Warrants to purchase one Class A
ordinary share, at
28
Table of Contents
$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 Public Shares, except
the Forward Purchase Shares will be subject to transfer restrictions and certain
registration rights.
Recent Accounting Standards
In August 2020, FASB issued ASU 2020-06) 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.
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.
© Edgar Online, source Glimpses
CAPITALWORKS EMERGING MARKETS ACQUISITION CORP 
