References to the "company," "our," "us" or "we" refer to Emerging Markets
Horizon Corp. 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 on Form 10-Q for the period ended September 30, 2022 (the "Report").
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act, as amended (the "Exchange Act"). We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about us that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "should," "could,"
"would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or
the negative of such terms or other similar expressions. Factors that might
cause or contribute to such a discrepancy include, but are not limited to, those
described in our other filings with the U.S. Securities and Exchange Commission
(the "SEC"), including the "Risk Factors" section of our Annual Report on Form
10-K for the year ended December 31, 2021 (the "Annual Report"). Except as
expressly required by applicable securities law, we disclaim 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 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, which we refer to throughout this Report as our initial business
combination (the "Business Combination"). We intend to effectuate our Business
Combination using cash derived from the proceeds of our initial public offering
(the "Initial Public Offering") and the sale of the private placement warrants,
our shares, debt or a combination of cash, shares and debt.
Our sponsor, New Emerging Markets Horizon, is controlled by FPP Capital Advisers
("FPP"), an affiliate of FPP Asset Management LLP ("FPP AM"). Prior to June 8,
2022, our sponsor was EM Horizon Investments (our "prior sponsor"), which at its
inception was controlled by FPP, Riccardo Orcel and Nevsky Properties Limited
("Nevsky Properties"), which is in turn controlled by VTB Bank (PJSC) ("VTB").
Following the imposition of sanctions relating to Russia by the United States
and other jurisdictions, including blocking sanctions against VTB as well as
entities owned 50 percent or more, directly or indirectly, by VTB, we and our
prior sponsor implemented certain remedial measures. On March 23, 2022, Nevsky
Properties relinquished, irrevocably and in perpetuity, its interest in our
sponsor to the fullest extent permitted by law and such interest was blocked by
our sponsor such that it no longer conferred under any circumstances any
economic or voting rights upon Nevsky Properties. In addition, following certain
other changes in management effective on the same date, neither we nor our prior
sponsor employed, had on its board of directors or received any services from
any employees, representatives or affiliates of VTB. Our prior sponsor was
controlled solely by FPP as of April 21, 2022, when Mr. Orcel agreed to suspend
indefinitely his voting and management rights in our prior sponsor, though he
remained a non-voting member and Nevsky Properties formally remained on our
prior sponsor's register of members due to certain restrictions under applicable
Cayman Islands law.
On June 8, 2022, our prior sponsor and our sponsor entered into a novation
agreement, whereby our prior sponsor transferred all of its rights and
obligations under each of the contracts to which it was a party to our sponsor,
and a securities transfer agreement, whereby our prior sponsor transferred all
of its founder shares and private placement warrants to our sponsor. While our
sponsor remains controlled solely by FPP and Mr. Orcel remains a non-voting
member, Nevsky Properties is not on its register of members.
The registration statement for our Initial Public Offering was declared
effective on December 8, 2021. On December 13, 2021, we consummated the Initial
Public Offering of 28,750,000 units, including the issuance of 3,750,000 units
as a result of the underwriters' exercise in full of their over-allotment
option, at $10.00 per unit and the sale of 9,000,000 private placement warrants
at a price of $1.50 per warrant in a private placement to our prior sponsor that
closed simultaneously with our Initial Public Offering.
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Upon the closing of our Initial Public Offering, a total of $293,250,000,
consisting of proceeds from the Initial Public Offering and the sale of the
private placement warrants, was placed in a trust account maintained by
Continental Stock Transfer & Trust Company, acting as trustee (the "Trust
Account"). The funds in the Trust Account will be invested only in U.S.
government treasury bills with a maturity of 185 days or less or in money market
funds investing solely in U.S. Treasuries and meeting certain conditions under
Rule 2a-7 under the Investment Company Act until the earlier of: (i) the
completion of a business combination and (ii) the distribution of the funds in
the Trust Account to our shareholders.
While we may pursue an initial business combination with a target at any stage
of its corporate evolution or in any industry or sector, we intend to focus on
identifying high-growth technology and consumer-exposed businesses with an
enterprise value of at least $700 million in Western Europe, Central and Eastern
Europe ("CEE"), the Commonwealth of Independent States (the "CIS") (excluding
Russia and Belarus) or Latin America. We will seek to acquire businesses led by
world-class management teams, with validated technologies, proven business
models and attractive unit economics, strong corporate governance compliant with
Environmental, Social and Governance ("ESG") principles and that are well
positioned for continual growth and market leadership over the long term.
We expect to continue to incur significant costs in the pursuit of a Business
Combination. 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 through
September 30, 2022. All activities for the period from January 1, 2022 through
September 30, 2022 were organizational activities and those necessary to
identify a target company for a Business Combination. We do not expect to
generate any operating revenues until after the completion of a Business
Combination. We generate non-operating income in the form of investment income
on balances 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 three months ended September 30, 2022 and 2021, we had net income of
$1,058,410 and zero reported, respectively, an increase of $1,058,410. The
period-over-period change consisted of a gain on warrant liabilities of $233,750
and income earned on investments held in the Trust Account of $1,324,804,
partially offset by an increase in formation and operating costs of $306,705 and
income taxes of $193,439.
For the nine months ended September 30, 2022 and the period from May 6, 2021
(inception) through September 30, 2021, we had net income of $11,553,254 and net
loss of $3,471, respectively, an increase of $11,556,725. The period-over-period
change consisted of a gain on warrant liabilities of $11,543,750 and income
earned on investments held in the Trust Account of $1,757,717, partially offset
by an increase in formation and operating costs of $1,551,303 and income taxes
of $193,439.
Liquidity and Capital Resources
On December 13, 2021, we consummated our Initial Public Offering of 28,750,000
units, at a price of $10.00 per unit, generating gross proceeds of $287,500,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 9,000,000 private placement warrants to our prior sponsor, at a
price of $1.50 per private placement warrant generating gross proceeds of
$13,500,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the private placement warrants, a total of $293,250,000
of the proceeds thereof was placed in the Trust Account. We incurred $850,492 in
other offering costs related to the Initial Public Offering, in addition to
$5,750,000 in underwriting fees and $10,062,500 of deferred underwriting fees.
Of these total amounts, $1,071,693 was allocated to the warrant liabilities and
included in non-operating expense.
For the nine months ended September 30, 2022 and the period from May 6, 2021
(inception) through September 30, 2021, net cash used in operating activities
was $1,026,675 and $195,615, respectively, consisting primarily of payments made
for formation, operating and deferred offering costs.
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For the nine months ended September 30, 2022, net cash provided by financing
activities was $561,996, consisting of proceeds received under a Working Capital
Loan (defined below) with the Sponsor in the form of a promissory note. For the
period from May 6, 2021 (inception) through September 30, 2021, net cash
provided by financing activities was $275,000, consisting of proceeds received
under a promissory note with the Prior Sponsor, which was subsequently repaid
upon the closing of the Initial Public Offering.
As of September 30, 2022, we had investments held in the Trust Account of
$295,009,088. We intend to use substantially all of the funds held in the Trust
Account, including any amounts representing investment income earned on the
Trust Account, which interest shall be net of taxes payable and excluding
deferred underwriting commissions, to complete a Business Combination. We may
withdraw the investment income from the Trust Account to pay taxes, if any, or
up to $100,000 of dissolution expenses in the event of liquidation. To the
extent that our share capital or debt is used, in whole or in part, as
consideration to complete a 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/or pursue our
growth strategies.
As of September 30, 2022, we had cash of $38,508 held outside of the Trust
Account and a working capital deficit, excluding income tax accruals, of
$471,116. 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/or complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a 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. If we complete a Business Combination, we may
repay such loaned amounts out of the proceeds held in the Trust Account released
to us. In the event that a Business Combination does not close, we may use a
portion of the working capital held outside the Trust Account to repay such
loaned amounts, but no proceeds from our Trust Account would be used for such
repayment.
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 is less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to a Business Combination. Moreover, we may need to obtain additional financing
either to complete a Business Combination or because we become obligated to
redeem a significant number of the public shares upon consummation of a Business
Combination, in which case we may issue additional securities or incur debt in
connection with such Business Combination.
Going Concern Consideration
As of September 30, 2022, we had cash held outside of the Trust Account of
$38,508 and a working capital deficit, excluding income tax accruals, of
$471,116. We have incurred and expect to continue to incur significant costs in
pursuit of our financing and acquisition plans. We anticipate that the cash held
outside of the Trust Account as of September 30, 2022, will not be sufficient to
allow us to operate through the end of the Combination Period (as defined
below). Additionally, in order to finance transaction costs in connection with a
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 with
working capital loans ("Working Capital Loans"). While we expect to have
sufficient access to additional sources of capital under Working Capital Loans
pursuant to a promissory note with the Sponsor, there is no current commitment
on the part of any financing source to provide additional capital and no
assurances can be provided that such additional capital will ultimately be
available, if necessary.
In addition, we will have until March 13, 2023 (or June 13, 2023, as
applicable), as such period may be extended pursuant to our amended and restated
memorandum and articles of association, to complete a Business Combination (the
"Combination Period"). Therefore, the end of the Combination Period will occur
prior to one year after the issuance of these financial statements. Although we
are continuing our pursuit of potential targets for an initial business
combination, there is no assurance that our plans to consummate a Business
Combination will be successful during the Combination Period. As outlined in our
certificate of incorporation, if we do not complete, or have an agreement in
principle or a definitive agreement for, a business combination by the end of
the Combination Period, we will cease operations and redeem our public shares
through a wind-up of the Company and liquidation.
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Both of these conditions raise substantial doubt about our ability to continue
as a going concern for a period of time within one year after the date that
these condensed financial statements were issued. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K. 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.
The underwriters are entitled to a deferred underwriting fee of $0.35 per unit,
or $10,062,500 in the aggregate. The deferred underwriting fee will become
payable to the underwriters 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.
Critical Accounting Policies and Significant Estimates
The preparation of financial statements and related disclosures in conformity
with GAAP requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the critical accounting policies set forth below.
Warrant Liabilities
We account for our public warrants and private placement warrants (collectively,
the "Warrants") as either equity-classified or liability-classified instruments
based on an assessment of the Warrants' specific terms and applicable
authoritative guidance in the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 480, "Distinguishing Liabilities
from Equity," and ASC Topic 815, "Derivatives and Hedging." The assessment
considers whether the Warrants are freestanding financial instruments pursuant
to ASC Topic 480, whether Warrants meet the definition of a liability pursuant
to ASC Topic 480 and whether the Warrants meet all of the requirements for
equity classification under ASC Topic 815, including whether the Warrants are
indexed to the Class A ordinary shares, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of issuance of the Warrants and as of each
subsequent quarterly period-end date while the Warrants are outstanding.
For issued or modified Warrants that meet all of the criteria for equity
classification, the Warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
Warrants that do not meet all of the criteria for equity classification, the
Warrants are required to be recorded as liabilities at their initial fair value
on the date of issuance and adjusted to fair value at each balance sheet date
thereafter. Changes in the estimated fair value of the warrants are recognized
as a non-cash gain or loss on the statements of operations. The Warrants are
accounted for as liabilities and represent a significant accounting estimate. At
September 30, 2022, the fair value of the public warrants was estimated based
upon the exchange listed price, and the fair value of the private placement
warrants was estimated using a Monte Carlo simulation approach.
Class A Ordinary Shares Subject to Possible Redemption
We account for the Class A ordinary shares subject to possible redemption in
accordance with the guidance in ASC Topic 480, "Distinguishing Liabilities from
Equity." Class A ordinary shares subject to mandatory redemption are classified
as a liability instrument and are measured at fair value. Conditionally
redeemable Class A ordinary shares (including Class A ordinary shares that
feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) are classified as temporary equity. At all other times, Class A
ordinary shares are classified as a component of shareholders' deficit. The
Class A ordinary shares feature certain redemption rights that are considered to
be outside of our control and subject to occurrence of uncertain future events.
Accordingly, the Class A ordinary shares subject to possible redemption are
presented at redemption value as temporary equity, outside of the shareholders'
deficit section of our balance sheet.
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Net Income (Loss) Per Ordinary Share
We have two classes of ordinary shares, which are referred to as Class A
ordinary shares and Class B ordinary shares. Income and losses are shared pro
rata between the two classes of ordinary shares. Net income (loss) per ordinary
share for each class of ordinary shares is computed by dividing net income
(loss) allocated to the class by the weighted average number of ordinary shares
of the class outstanding during the period. The calculation of diluted income
(loss) per share does not consider the effect of the Public Warrants issued in
connection with the Initial Public Offering and the sale of the private
placement warrants, because the exercise of the warrants is contingent upon the
occurrence of future events and the inclusion of such warrants would be
anti-dilutive under the treasury stock method.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on our
financial statements.
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