ESM ACQUISITION CORPORATION Special Note Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this annual report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a newly incorporated blank check company, incorporated as a
The issuance of additional ordinary shares or preference shares in a business combination:
• may significantly dilute the equity interest of investors in our IPO,
which dilution would increase if the anti-dilution provisions in the
Class B ordinary shares resulted in the issuance of Class A ordinary
shares on a greater than
one-to-one
basis upon conversion of the Class B ordinary shares;
• may subordinate the rights of holders of ordinary shares if preference
shares are issued with rights senior to those afforded our ordinary
shares;
• could cause a change of control if a substantial number of our ordinary
shares is issued, which could result in the resignation or removal of our
present directors and officers;
• may have the effect of delaying or preventing a change of control of us
by diluting the share ownership or voting rights of a person seeking to
obtain control of us;
• may adversely affect prevailing market prices for our units, ordinary
shares and/or warrants; and
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Table of Contents • may not result in adjustment to the exercise price of our warrants.
Similarly, if we issue debt or otherwise incur significant indebtedness, it could result in:
• default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt
obligations;
• acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if
the debt is payable on demand;
• our inability to obtain necessary additional financing if the debt
contains covenants restricting our ability to obtain such financing while
the debt is outstanding;
• our inability to pay dividends on our ordinary shares;
• using a substantial portion of our cash flow to pay principal and
interest on our debt, which will reduce the funds available for dividends
on our ordinary shares, expenses, capital expenditures, acquisitions and
other general corporate purposes;
• limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
• increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
• limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, execution
of our strategy and other purposes and other disadvantages compared to
our competitors who have less debt.
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
conditions and events that are relevant to the Company's ability to meet its
obligations as they become due within one year after the date that financial
statements are issued. As of
In connection with the Company's assessment of going concern considerations in
accordance with FASB ASC Topic 205-40, "Presentation of Financial Statements
-Going Concern," management has determined that the Company's liquidity, and the
mandatory liquidation and subsequent dissolution raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after
Results of Operations
Our entire activity since inception up to
For the period from
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Table of Contents Contractual Obligations Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans (and any Class A ordinary
shares issuable upon the exercise of the Private Placement Warrants and warrants
that may be issued upon conversion of Working Capital Loans) were entitled to
registration rights pursuant to a registration rights agreement signed on
Underwriting Agreement
The underwriters were entitled to an underwriting discount of
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry 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 these financial statement. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class A ordinary shares that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control) are classified as temporary equity. At all other times, Class A ordinary shares is classified as shareholders' equity. The Company's Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company's control and subject to the occurrence of uncertain future events. Accordingly, 30,694,067 Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders' deficit section of the Company's balance sheet.
Effective with the closing of the Initial Public Offering (including the sale of shares in the Over-Allotment), the Company recognized the remeasurement from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) Per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, "Earnings Per Share." The Company has two classes of 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 shares. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) does not consider the effect of the
warrants underlying the Units sold in the Initial Public Offering (including the
consummation of the Over-allotment) and the private placement warrants to
purchase an aggregate of 15,990,564 Class A ordinary shares in the calculation
of diluted income (loss) per share because their exercise is contingent upon
future events and their inclusion would be anti-dilutive under the treasury
stock method. As a result, diluted net income (loss) per share is the same as
basic net income (loss) per share for the period from
The Company has considered the effect of Class B common stock that were excluded from weighted average number as they were contingent on the exercise of over-allotment option by the underwriters. Since the contingency was satisfied, the Company included these shares in the weighted average number as of the beginning of the interim period to determine the dilutive impact of these shares.
The following table presents a reconciliation of the numerator and denominator
used to compute basic and diluted net income (loss) per share for each class of
ordinary share:
For the period from January 13, 2021
(inception) through December 31, 2021
Class A Class B
Basic net income per ordinary share:
Numerator:
Allocation of net income $ 3,857,705 $ 1,150,619
Denominator:
Basic weighted average ordinary shares outstanding 25,562,370 7,624,361
Basic net income per ordinary share $ 0.15 $ 0.15
For the period from January 13, 2021
(inception) through December 31, 2021
Class A Class B
Diluted net income per ordinary share:
Numerator:
Allocation of net income $ 3,852,000 $ 1,156,324
Denominator:
Diluted weighted average ordinary shares outstanding 25,562,370 7,673,516 Diluted net income per ordinary share $ 0.15 $ 0.15
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Recent Accounting Standards
InAugust 2020 , the FASB issued Accounting Standards Update ("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 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 early adopted ASU 2020-06 onJanuary 13, 2021 . Adoption of the ASU did not impact the Company's financial position, results of operations or cash flows.
The Company's 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 accompanying financial statements.
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Off-Balance
Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As ofDecember 31, 2021 , we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.
JOBS Act
OnApril 5, 2012 , the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an "emerging growth company" and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 69
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Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an "emerging growth company," we choose to rely on such exemptions we may not be required to, among other things: (1) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (2) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (3) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (4) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an "emerging growth company," whichever is earlier.
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