ESM ACQUISITION : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

References to the "Company," "ESM Acquisition Corporation," "ESM," "our," "us"
or "we" refer to ESM Acquisition Corporation. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the unaudited interim condensed financial statements
and the notes thereto contained elsewhere in this 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 and Section 21E of the Exchange Act that are
not historical facts, and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form
10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"anticipate," "believe," "continue," "could," "estimate," "expect," "intend,"
"may," "might," "plan," "possible," "potential," "predict," "project," "should,"
"would" and variations thereof and similar words and expressions are intended to
identify such forward-looking statements. Such forward-looking statements relate
to future events or future performance, but reflect management's current
beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of the Company's final prospectus for
its Initial Public Offering filed with the SEC on March 10, 2021. The Company's
securities filings can be accessed on the EDGAR section of the SEC's website at
www.sec.gov. Except as expressly required by applicable securities law, the
Company disclaims 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
on January 13, 2021. We were formed for the purpose of effecting a merger, share
exchange, asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses (the "Business Combination"). We are an
emerging growth company and, as such, we are subject to all of the risks
associated with emerging growth companies.
Our sponsor is ESM Sponsor, LP, a Cayman Islands exempted limited partnership
(the "Sponsor"). The registration statement for our Initial Public Offering was
declared effective on March 9, 2021. On March 12, 2021, we consummated our
Initial Public Offering of 30,000,000 units (the "Units" and, with respect to
the Class A ordinary shares included in the Units being offered, the "Public
Shares"), at $10.00 per Unit, generating gross proceeds of $300.0 million, and
incurring offering costs of approximately $17.1 million, of which $10.5 million
was for deferred underwriting commissions. We granted the underwriter a
45-day
option to purchase up to an additional 4,500,000 Units at the Initial Public
Offering price to cover over-allotments, if any. The underwriter partially
exercised the over-allotment option and purchased an additional 694,067 Units on
April 26, 2021, generating gross proceeds of approximately $6.9 million, and
incurred additional offering costs of approximately $0.4 million of which
$0.2 million was for deferred underwriting commissions (the "Over-allotment").
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 5,666,667 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.50 per Private Placement Warrant with the Sponsor, generating
gross proceeds of $8.5 million. Simultaneously with the closing of the
Over-Allotment on April 26, 2021, the Company consummated the second closing of
the Private Placement, resulting in the purchase of an aggregate of an
additional 92,542 Private Placement Warrants by the Sponsor, generating gross
proceeds to the Company of approximately $0.1 million.

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Upon the closing of the Initial Public Offering, the Private Placement and the
Over-Allotment, $306.9 million ($10.00 per Unit) of the net proceeds of the
Initial Public Offering and certain of the proceeds of the Private Placement was
placed in a trust account ("Trust Account"), located in the United States at
J.P. Morgan Chase Bank, N.A., with Continental Stock Transfer & Trust Company
acting as trustee, and invested only 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 any open-ended investment company that holds itself out as a money market
fund selected by us meeting the conditions of paragraphs (d)(2), (d)(3) and
(d)(4) of Rule
2a-7
of the Investment Company Act, as determined by the Company, until the earlier
of: (i) the completion of a Business Combination and (ii) the distribution of
the Trust Account as described below.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination. There is no
assurance that we will be able to complete a Business Combination successfully.
We must complete one or more initial Business Combinations having an aggregate
fair market value of at least 80% of the assets held in the Trust Account
(excluding the amount of any deferred underwriting discount held in trust) at
the time of the signing of the agreement to enter into the initial Business
Combination. However, we will only complete a Business Combination if the
post-transaction company owns or acquires 50% or more of the 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.
If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or March 12, 2023 (the "Combination
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 in the Trust Account (less
taxes payable and up to $100,000 of interest to pay dissolution expenses),
divided by the number of then issued and 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 the remaining shareholders and the board of
directors, liquidate and dissolve, subject, in the case of clauses (ii) and
(iii), 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.
There will be no redemption rights or liquidating distributions with respect to
the warrants, which will expire worthless if the Company fails to complete its
initial Business Combination within the Combination Period.
Liquidity and Capital Resources
As of June 30, 2021, we had approximately $1.4 million in our operating bank
account and working capital of approximately $1.6 million.
Prior to the completion of the Initial Public Offering, we lacked the liquidity
we needed to sustain operations for a reasonable period or time, which is
considered to be one year from the issuance date of the financial statement. We
have since completed our Initial Public Offering at which time capital in excess
of the funds deposited in the trust and/or used to fund offering expenses was
released to us for general working capital purposes. Accordingly, management has
since reevaluated our liquidity and financial condition and determined that
sufficient capital exists to sustain operations one year from the date these
financial statements are issued and therefore substantial doubt has been
alleviated.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity from our Sponsor or an affiliate of our Sponsor,
or certain of our officers and directors to meet its needs through the earlier
of the consummation of a Business Combination or one year from this filing. Over
this time period, we 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 Business Combination.
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 our financial position, results
of our operations and/or search for a target company, the specific impact is not
readily determinable as of the date of the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

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Results of Operations
Our entire activity since inception up to June 30, 2021 was in preparation for
our formation and the Initial Public Offering. We will not be generating any
operating revenues until the closing and completion of our initial Business
Combination.
For the three months ended June 30, 2021, we had a net income of approximately
$3.0 million, which consisted of approximately $236,000 in general and
administrative expenses, a gain of approximately $3.2 million resulting from
changes in fair value of derivative warrant liabilities, approximately $13,000
of offering costs related to derivative warrant liabilities issued in the
Over-Allotment and in the second closing of the Private Placement concurrent
with the Over-Allotment, which was partially offset by approximately $7,000 of
income on investments held in the Trust Account.
For the period from January 13, 2021 (inception) through June 30, 2021, we had a
net income of approximately $2.8 million, which consisted of approximately
$393,000 in general and administrative expenses, approximately $735,000 of
offering costs related to derivative warrant liabilities, which was partially
offset by approximately $3.9 million gain from changes in fair value of
derivative warrant liabilities, and approximately $11,000 of income on
investments held in the Trust Account.
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
March 9, 2021. These holders were entitled to certain demand and "piggyback"
registration rights. However, the registration rights agreement provided that we
would not permit any registration statement filed under the Securities Act to
become effective until the termination of the applicable
lock-up
period for the securities to be registered. We will bear the expenses incurred
in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$6.1 million in the aggregate, paid upon the closing of the Initial Public
Offering and partial exercise of the over-allotment option. In addition, $0.35
per unit, or $10.7 million in the aggregate will be payable to the underwriters
for deferred underwriting commissions. The deferred 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.
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
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in Financial Accounting Standards Board's ("FASB")
Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities
from Equity" ("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 June 30, 2021, 27,661,394 Class A ordinary shares
subject to possible redemption are presented as temporary equity, outside of the
shareholders' equity section of our balance sheet.
Net loss per ordinary shares
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income (loss) per ordinary share is computed by
dividing net loss by the weighted average number of ordinary shares outstanding
during the period. The Company has not considered the effect of the warrants
sold in the Initial Public Offering and Private Placement to purchase an
aggregate of 15,990,564 shares of our ordinary shares in the calculation of
diluted loss per share, since the exercise of the warrants are contingent upon
the occurrence of future events and the inclusion of such warrants would be
anti-dilutive.

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Our statement of operations includes a presentation of income (loss) per
ordinary share for Class A ordinary shares subject to possible redemption in a
manner similar to the
two-class
method of income (loss) per ordinary share. Net income (loss) per ordinary
share, basic and diluted, for Class A ordinary shares subject to possible
redemption is calculated by dividing the proportionate share of income on
investments held by the Trust Account, by the weighted average number of shares
of Class A ordinary shares subject to possible redemption outstanding since
original issuance.
Net income (loss) per ordinary share, basic and diluted, for
non-redeemable
ordinary shares is calculated by dividing the net income (loss), adjusted for
income on investments held by the Trust Account attributable to ordinary shares
subject to possible redemption, by the weighted average number of
non-redeemable
ordinary shares outstanding for the period.
Non-redeemable
ordinary shares include Founder Shares and
non-redeemable
Class A ordinary shares as these shares do not have any redemption features.
Non-redeemable
ordinary shares participate in the income on investments held by the Trust
Account based on
non-redeemable
shares' proportionate interest.
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 April 2021,
the estimated fair value of the Private Placement Warrants is based on the
listed price in an active market for such warrants.
Recent Accounting Pronouncements
In August 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 adopted ASU
2020-06
on January 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.
Off-Balance
Sheet Arrangements
As of June 30, 2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are 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, the financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.

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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, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) 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, (iii) 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 (iv) 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule
12b-2
of the Exchange Act and are not required to provide the information otherwise
required under this item. As of June 30, 2021, we were not subject to any
significant market or interest rate risk. The net proceeds of the Initial Public
Offering, including amounts in the Trust Account, were invested in U.S.
government securities with a maturity of 185 days or less or in money market
funds that meet certain conditions under Rule
2a-7
under the Investment Company Act of 1940, as amended, that invest only in direct
U.S. government treasury obligations. Due to the short-term nature of these
investments, we believe there will be no associated material exposure to
interest rate risk.
We have not engaged in any hedging activities since our inception and we do not
expect to engage in any hedging activities with respect to the market or
interest rate risk to which we are exposed.
Item 4. Controls and Procedures
On April 12, 2021, the staff at the Securities and Exchange Commission (the
"SEC") issued a statement on Accounting and Reporting Considerations for
Warrants Issued by Special Purpose Acquisition Companies ("SPACs") (the "SEC
Statement"). In the SEC Statement, the SEC staff noted that certain provisions
in the typical SPAC warrant agreement may require that the warrants be
classified as a liability measured at fair value, with changes in fair value
reported each period in earnings, as compared to the historical treatment of the
warrants as equity, which has been the practice of most SPACs, including us. We
had previously classified our private placement warrants and public warrants as
equity (for a full description of our private placement warrants and public
warrants, refer to the registration statement on Form
S-1
(File
No. 333-
253359), filed in connection with the Company's Initial Public Offering,
declared effective by the SEC on March 9, 2021).
After considering the SEC Statement, we concluded that there were misstatements
in the March 12, 2021 audited closing balance sheet we filed with the SEC on
Form
8-K
on March 18, 2021. Based on the guidance in ASC 815, we concluded that
provisions in the warrant agreement preclude the warrants from being accounted
for as components of equity. As the warrants meet the definition of a derivative
as contemplated in ASC 815, the warrants should have been recorded as derivative
liabilities on the balance sheet and measured at fair value at inception and at
each reporting date in accordance with FASB ASC Topic 820, "Fair Value
Measurement", with changes in fair value recognized in the statement of
operations in the period of change. Further, ASC 815 requires that upfront costs
and fees related to items for which the fair value option is elected (our
warrant liabilities) should have been recognized as expense as incurred.
We have corrected the accounting for the warrants in this Quarterly Report on
Form
10-Q.
The effect of the revision on specific line items in our March 12, 2021 audited
closing date balance sheet can be found in footnote 3 of the Notes to Condensed
Financial Statements.
Evaluation of Disclosure Controls and Procedures
In connection with the revision of our March 12, 2021 audited closing balance
sheet, our management reassessed the effectiveness of our disclosure controls
and procedures as of June 30, 2021. As a result of that reassessment and in
light of the SEC Statement, our management determined that our disclosure
controls and procedures as of June 30, 2021 were not effective solely as a
result of its classification of the warrants as components of equity instead of
as derivative liabilities. Due solely to the events that led to our revision,
management has made changes in internal controls related to the accounting for
warrants issued in connection with our Initial Public Offering. In light of the
material weakness that we identified, we performed additional analysis as deemed
necessary to ensure that our financial statements for the period from
January 13, 2021 (inception) through June 30, 2021, were prepared in accordance
with U.S. generally accepted accounting principles. Accordingly, management
believes that the financial statements included in this Quarterly Report on Form
10-Q
present fairly in all material respects our financial position, results of
operations and cash flows for the period presented.

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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such
term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting, as the circumstances that led to the revision
of our previously filed financial statements described above had not yet been
identified. In light of the revision of the previously filed financial
statements, we plan to enhance our processes to identify and appropriately apply
applicable accounting requirements to better evaluate and understand the nuances
of the complex accounting standards that apply to our financial statements. Our
plans at this time include providing enhanced access to accounting literature,
research materials and documents and increased communication among our personnel
and third-party professionals with whom we consult regarding complex accounting
applications. The elements of our remediation plan can only be accomplished over
time, and we can offer no assurance that these initiatives will ultimately have
the intended effects.

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