ESM ACQUISITION CORPORATION You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements." Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K.
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 Initial
Public Offering, 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
• 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 aninitial 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;
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• 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.
Liquidity and 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 afterMarch 12, 2023 . Management plans to complete a business combination prior to the mandatory liquidation date and expects to receive financing to meet its obligations through the time of liquidation; however no financing is currently committed.
Results of Operations
We have neither engaged in any operations (other than searching for a Business
Combination after our Initial Public Offering) nor generated any revenues to
date. Our entire activity since inception up to
For the three months endedJune 30, 2022 , we had a net income of approximately$2.9 million , which consisted of approximately$373,000 in income from investments held in the Trust Account, non-operating income of approximately$3.7 million resulting from changes in fair value of derivative warrant liabilities, partially offset by approximately$1.1 million in general and administrative expenses.
For the three months ended
For the six months endedJune 30, 2022 , we had a net income of approximately$7.0 million , which consisted of approximately$503,000 in income from investments held in the Trust Account, non-operating income of approximately$9.0 million resulting from changes in fair value of derivative warrant liabilities, partially offset by approximately$2.4 million in general and administrative expenses.
For the period from
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Commitments and Contingencies
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) are 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 the accompanying condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In
Class A Ordinary Shares Subject to Possible Redemption
We account for our 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 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
shareholders' equity. Our Class A ordinary shares feature certain redemption
rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, as of
We recognize changes in redemption value immediately as they occur and adjust the carrying value of the Class A ordinary shares subject to possible redemption to equal the redemption value at the end of each reporting period. Effective with the closing of the Initial Public Offering (including the sale of shares in the Over-Allotment), we 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. Subsequent changes result from income and losses on investments held in the Trust Account that would be distributed to the Class A ordinary shareholders upon redemption. Subsequent increases in the carrying value of Class A ordinary shares subject to redemption reduces retained earnings (or in the absence of retained earnings, additional paid-in capital, or accumulated deficit if no paid-in capital is available) and reduces net income (or increases net loss) to arrive at net income available to common shareholders in computing basic and diluted net income per share.
Net Income Per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, "Earnings Per Share." We have 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 per ordinary share is calculated by dividing the net income by the weighted average number of ordinary shares outstanding for the respective period.
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The calculation of diluted net income 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 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 per share is the same as basic net
income per share for the three and six months ended
We have considered the effect of Class B ordinary shares that were excluded from the weighted average number as they were contingent on the exercise of the over-allotment option by the underwriters. Since the contingency was satisfied, we included these shares in the weighted average number as of the beginning of the interim period to determine the dilutive impact of these shares.
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our 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.
The 10,231,355 warrants issued in connection with the Initial Public Offering
(the "Public Warrants") and the 5,759,209 Private Placement Warrants are
recognized as derivative liabilities in accordance with ASC 815. Accordingly, we
recognize the warrant instruments as liabilities at fair value and adjust the
carrying values of the instruments to fair value at each reporting period. The
liabilities are subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in the condensed
statements of operations. The initial estimated fair value of the Public
Warrants was measured using a Monte Carlo simulation. The initial and subsequent
fair value estimates of the Private Placement Warrants is measured using a
Black-Scholes option pricing model. Beginning in
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements.
JOBS Act
On
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 Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
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