Business context and reporting period
This is ACON S2 Acquisition Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not an operating-company 10-Q for ESS Tech, Inc. ACON was a blank-check company seeking a business combination and had not commenced operating activities. Its reported results primarily reflect transaction-related expenses and changes in warrant fair value.
On May 6, 2021, ACON agreed to combine with ESS Tech. The proposed transaction included a $250 million PIPE at $10 per share and was expected to close in the third quarter of 2021, subject to stockholder approval and other closing conditions.
Financial results and liquidity
- Revenue: None; ACON stated it would not generate operating revenue until after a business combination.
- Net results: Second-quarter net loss was $6.785 million, including a $6.111 million loss from warrant-liability remeasurement and $678,000 of general and administrative expense. For the six months, net income was $2.454 million, including a $3.370 million gain from warrant-liability remeasurement, partly offset by $923,000 of general and administrative expense.
- Cash flow: Net cash used in operating activities was $442,000 for the six months. Cash declined from $470,000 at December 31, 2020 to $27,591 at June 30, 2021.
- Trust and liquidity: Trust Account investments were $250.012 million. ACON reported a working-capital deficit of approximately $280,000 and said it would need additional financing for transaction costs; potential sponsor or insider loans were not committed.
- Liabilities and equity: Total liabilities were $27.266 million, including $17.984 million of derivative warrant liabilities and $8.750 million of deferred underwriting commissions. No working-capital loans were outstanding. The filing provides no operating margin measure, and revenue was zero.
Material changes versus the prior comparable period
The filing does not provide second-quarter 2020 operating results for comparison. Compared with December 31, 2020, cash fell by approximately $442,000; warrant liabilities declined from $21.354 million to $17.984 million; and Class A shares classified as subject to possible redemption increased from 21.558 million to 21.804 million. Six-month income was substantially affected by warrant fair-value movements, which can fluctuate and do not represent operating performance.
Outlook, risks, contingencies, and unusual items
- Business-combination conditions: The ESS transaction and related PIPE financing were contingent on completion of the combination and customary conditions, including stockholder approval. Public shareholders could redeem shares; redemption levels could affect funds available to the combined company.
- Going concern: Management said the low operating cash balance and working-capital deficit raised substantial doubt about ACON’s ability to continue as a going concern through the earlier of closing or required liquidation. ACON had until September 2022 to complete a business combination or liquidate under its stated terms.
- Controls: Disclosure controls were deemed ineffective because of material weaknesses involving warrant classification and warrant valuation. Remediation had begun but was not fully evidenced or complete.
- Other risks: ACON said COVID-19 could impair its target-search process, but the impact was not readily determinable. It also disclosed no off-balance-sheet arrangements as of June 30, 2021.
- Unusual accounting item: Warrant-liability remeasurement drove the swing from quarterly loss to six-month income. The filing’s warrant fair-value discussion contains figures that do not align clearly across the statements and notes; consult the underlying disclosures for reconciliation.
Important facts for investors to verify
- Confirm whether the ESS business combination and $250 million PIPE closed, and review the final transaction terms, redemptions, and resulting capitalization.
- Review ACON’s subsequent filings for its going-concern status, available operating cash, and any financing commitments.
- Check whether the warrant-valuation and classification control weaknesses were remediated and whether later filings clarify the fair-value figures.
- Distinguish ACON’s SPAC financial results from ESS Tech’s operating performance; this filing does not report ESS Tech’s revenue, margins, or cash flows.