References to the "Company," "Capitalworks Emerging Markets Acquisition Corp,"
"our," "us" or "we" refer to Capitalworks Emerging Markets Acquisition Corp. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the audited financial
statements and the notes thereto contained elsewhere in this Annual Report.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report includes forward-looking statements. These forward-looking
statements are based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no assurance that
future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements. Our forward-looking statements include, but
are not limited to, statements regarding our or our management team's
expectations, hopes, beliefs, intentions or strategies regarding the future. In
addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intends," "may," "might," "plan,"
"possible," "potential," "predict," "project," "should," "would" and similar
expressions may identify forward-looking statements, but the absence of these
words does not mean that a statement is not forward-looking. Factors that might
cause or contribute to such forward-looking statements include, but are not
limited to, those set forth in the Risk Factors section of this Annual Report.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the audited financial
statements and the notes thereto contained elsewhere in this Annual Report.
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Overview
We are a blank check company incorporated as a Cayman Islands exempted company
for the purpose of effecting a merger, share exchange, asset acquisition, share
purchase, reorganization or similar business combination with one or more
businesses (the "Initial Business Combination"). Our sponsor is CEMAC Sponsor
LP, a Cayman Islands exempted limited partnership (the "Sponsor").
The registration statement for our initial public offering (the "IPO" or the
"Initial Public Offering") was declared effective on November 30, 2021 (the
"Effective Date"). On December 3, 2021, we consummated our Initial Public
Offering of 20,000,000 units (the "Units"). The Units were sold at an offering
price of $10.00 per Unit, generating gross proceeds of $200,000,000. The
underwriters had a 45-day option from the Effective Date to purchase up to an
additional 3,000,000 Units to cover over-allotments, if any. On December 3,
2021, the underwriters exercised the over-allotment option (the
"Over-Allotment") and purchased an additional 3,000,000 Units (the
"Over-Allotment Units") generating additional gross proceeds of $30,000,000.
Each Unit consists of one Class A ordinary share, par value $0.0001 per share
(the "Class A Ordinary Shares" or "Public Shares") and one-half of one
redeemable warrant, with each whole warrant entitling the holder thereof to
purchase one Class A Ordinary Share for $11.50 per share (the "Public
Warrants").
Simultaneously with the closing of the IPO, we consummated the private sale (the
"Private Placement") of an aggregate of 10,500,000 warrants (the "IPO Private
Placement Warrants") to the Sponsor at a purchase price of $1.00 per warrant,
generating gross proceeds of $10,500,000. Also, in connection with the exercise
of the Over-Allotment, the Sponsor purchased an additional 1,200,000 warrants
(the "Over-Allotment Private Placement Warrants" and together with the IPO
Private Placement Warrants, the "Private Placement Warrants" and the Private
Placement Warrants together with the Public Warrants, the "Warrants") at a
purchase price of $1.00 per warrant, generating gross proceeds of $1,200,000.
Following the closing of the IPO on December 3, 2021, $234,600,000 ($10.20 per
Unit) from the net proceeds of the sale of the Units in the IPO (including the
Over-Allotment Units) and the sale of the IPO Private Placement Warrants was
deposited into a trust account (the "Trust Account") with Continental Stock
Transfer & Trust Company acting as trustee, which may be invested in U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), with
a maturity of 185 days or less or in money market funds meeting certain
conditions under Rule 2a-7 under the Investment Company Act which invest only in
direct U.S. government treasury obligations until the earlier of: (i) the
consummation of an Initial Business Combination or (ii) the distribution of the
Trust Account.
As of March 31, 2022, there was $234,616,409 in securities held in the Trust
Account, which includes interest income of $16,409. As of March 31, 2022,
$969,261 of cash was held outside the Trust Account, available for working
capital needs. We are a Cayman Islands exempted company and are presently not
subject to income taxes or income tax filing requirements in the Cayman Islands
or the United States.
The Company's management has broad discretion with respect to the specific
application of the net proceeds of the IPO (including the Over-Allotment) and
the sale of the Private Placement Warrants although substantially all of the net
proceeds are intended to be generally applied toward consummating an Initial
Business Combination (less deferred underwriting commissions). The Company's
Initial Business Combination must be with one or more operating businesses or
assets with a fair market value equal to at least 80% of the value of the Trust
Account (excluding the amount of any deferred underwriting discount held in
trust and taxes payable on the income earned on the Trust Account). However, the
Company will only complete an Initial Business Combination if the
post-transaction company owns or acquires 50% or more of the issued and
outstanding voting securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to register as an
investment company under the Investment Company Act. There is no assurance that
the Company will be able to successfully effect an Initial Business Combination.
We will have until March 3, 2023 to consummate our Initial Business Combination,
with an automatic three-month extension if we have signed a definitive agreement
with respect to our Initial Business Combination within such 15-month period. If
we anticipate that we may not be able to consummate our Initial Business
Combination within 15 months and are not entitled to an automatic extension, we
may, by resolution of our board if requested by the Sponsor, extend the period
of time to consummate our Initial Business Combination by an additional three
months (for a total of up to 18 months to complete our Initial Business
Combination), subject to the Sponsor depositing additional funds into the Trust
Account as set out below. In connection with an automatic or paid extension as
described above, public shareholders will not be offered the opportunity to vote
on or redeem their shares. Pursuant to the terms of our amended and restated
memorandum and articles of association and the trust agreement entered into
between us and Continental Stock Transfer & Trust Company on November 30, 2021,
in order to extend the time available for us to consummate our Initial Business
Combination in connection with a paid extension, the Sponsor or its affiliates
or designees, upon ten days' advance notice prior to the applicable deadline,
must deposit into the Trust Account $2,300,000 ($0.10 per share in either case),
on or prior to the date of the applicable deadline. Any such payments would be
made in the form of a loan. Any such loans will be non-interest bearing and
payable upon the consummation
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of our Initial Business Combination. If we complete our Initial Business
Combination, we would, at the option of the Sponsor, repay such loaned amounts
out of the proceeds of the Trust Account released to us or convert a portion or
all of the total loan amount into warrants at a price of $1.00 per warrant,
which warrants will be identical to the Private Placement Warrants. If we do not
complete our Initial Business Combination, we would not repay such loans.
Furthermore, the letter agreement with our initial shareholders contains a
provision pursuant to which the Sponsor has agreed to waive its right to be
repaid for such loans out of the funds held in the Trust Account in the event
that we do not complete our Initial Business Combination. The Sponsor and its
affiliates or designees are not obligated to fund the Trust Account to extend
the time for us to complete our Initial Business Combination. However, if we
have not completed our Initial Business Combination within the applicable time
period, we will: (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten 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 and not previously
released to us (less taxes payable and up to $100,000 of interest to pay
liquidation expenses), divided by the number of then-outstanding Public Shares,
which redemption will completely extinguish public shareholders' rights as
shareholders (including the right to receive further liquidation distributions,
if any) and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of our remaining shareholders and our board of
directors, liquidate and dissolve, subject in each case to our obligations under
Cayman Islands law to provide for claims of creditors and in all cases subject
to the other requirements of applicable law.
Liquidity and Capital Resources; Going Concern
As of March 31, 2022, we had approximately $969,000 in cash and working capital
of $1.3 million.
In order to finance transaction costs in connection with an Initial Business
Combination, our Sponsor or an affiliate of our Sponsor or certain of our
officers and directors may, but are not obligated to, provide Working Capital
Loans to us. As of March 31, 2022, there were no amounts outstanding under any
Working Capital Loans.
Based on the foregoing, it is possible that the $969,261 in cash held outside
the Trust Account on March 31, 2022 might not be sufficient to allow the Company
to operate for at least 12 months from the date of this Annual Report, assuming
that an Initial Business Combination is not consummated during that time. Until
consummation of its Initial Business Combination, the Company 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.
The Company can raise additional capital through Working Capital Loans from the
Sponsor, certain of the Company's officers and directors, or through loans from
third parties. If the Company is unable to raise additional capital, it 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 its business plan, and reducing overhead expenses. The Company cannot provide
assurance that new financing will be available to it on commercially acceptable
terms, if at all. These conditions raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of time, which is
considered to be one year from the issuance date of these financial statements.
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 the Company's financial position, results of its operations,
and/or search for a target company, the specific impact is not readily
determinable as of the date of this Annual Report. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Results of Operations
As of March 31, 2022, we had not commenced any operations. All activity for the
period from April 20, 2021 (inception) through March 31, 2022 relates to our
formation and the IPO and, subsequent to the closing of the IPO, identifying a
target company for an Initial Business Combination. We have neither engaged in
any operations nor generated any revenues to date. We will not generate any
operating revenues until after the completion of our Initial Business
Combination, at the earliest. We will generate non-operating income in the form
of interest income on cash and cash equivalents from the proceeds derived from
the IPO. We incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
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For the period from April 20, 2021 (inception) to March 31, 2022, we had net
income of $19,258,401, which consisted primarily of formation and operating
costs amounting to $334,046, administrative fees of $80,000 and transaction
costs allocable to derivative liabilities amounting to $799,766 offset by
interest income earned on cash and marketable securities held in Trust Account
amounting to $16,409, and change in fair value of the derivative warrant
liability and the forward purchase agreement liability of $20,530,500 and
$(74,696), respectively.
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
As of March 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, the Company has
agreed to pay an affiliate of the 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 completion of the Initial Business Combination or
the Company's liquidation, the Company will cease paying these monthly fees.
During the period ended March 31, 2022, the Company incurred and paid $80,000 of
expenses.
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans or Extension Loan (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 the
Company 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 the Company 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 the Company to register for resale such securities
pursuant to Rule 415 under the Securities Act. However, the registration rights
agreement provides that the Company 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. 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 from the date of IPO to
purchase up to 3,000,000 additional Units to cover over-allotments, if any, at
the IPO price less the underwriting discounts and commissions. On December 3,
2021, the underwriters 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 to the Company of
$30,000,000.
The underwriters were paid a cash underwriting discount of $0.20 per Unit, or
$4,600,000, upon the closing of the IPO. In addition, the underwriters are
entitled to a deferred fee of $0.35 per Unit, or $8,050,000. 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 a Business Combination,
subject to the terms of the underwriting agreement.
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 US GAAP. 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:
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Class A Ordinary Shares Subject to Possible Redemption
All of the Class A Ordinary Share sold as part of the Units in the IPO contain a
redemption feature which allows for the redemption of such Public Shares in
connection with the Company's liquidation, if there is a shareholder vote or
tender offer in connection with the Initial Business Combination and in
connection with certain amendments to the Company's 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 the control of the Company
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, the Company has
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. The Company recognizes
changes in redemption value immediately as they occur. Immediately upon the
closing of the IPO and the Over-Allotment, the Company 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 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 period from April 20, 2021 (inception) through March
31, 2022, 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
March 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
The Company accounts for the Public Warrants and the Private Placement Warrants
issued in connection with the IPO 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, the Company classifies the warrant
instrument 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 the
Company's 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, the Company recorded a charge of $1,532,700 for the excess fair value
of private warrant liabilities over the proceeds received.
Forward Purchase Agreement
The Company entered into a Forward Purchase Agreement (a "Forward Purchase
Agreement") with Camber Base, LLC, ("Camber") 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.
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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 IPO, except the Forward Purchase Shares will
be subject to transfer restrictions and certain registration rights.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity ("ASU 2020 06")", which simplifies
accounting for convertible instruments by removing major separation models
required under current US GAAP. The ASU also removes certain settlement
conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share
calculation in certain areas. The Company adopted ASU 2020-06 upon inception.
Adoption of the ASU did not impact the Company's financial position, results of
operations or cash flows.
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CAPITALWORKS EMERGING MARKETS ACQUISITION CORP 
