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 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
• 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;
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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.
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
Our entire activity since inception up to
For the three months endedMarch 31, 2022 , we had a net income of approximately$4.0 million , which consisted approximately$130,000 in interest income from investments held in the trust account, non-operating income of approximately$5.3 million resulting from changes in fair value of derivative warrant liabilities, offset by approximately$1.3 million in general and administrative expenses.
For the period from
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
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Table of Contents 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.
Critical Accounting Policies
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 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 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
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.
Net income (loss) 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 (loss) per common
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 three months ended
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 stock 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
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.
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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