ESS Tech, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021. The reported financial statements cover ACON S2 Acquisition Corp. as a pre-business-combination SPAC, not the operating results of ESS Tech’s energy-storage business. The merger with Legacy ESS closed on October 8, 2021, after quarter-end.
Financial results and position
- Revenue: None reported; the SPAC had not begun operating revenue-generating activities.
- Net loss: $3.93 million for Q3 2021 and $1.48 million for the first nine months of 2021. The filing does not provide a comparable Q3 2020 period; it reports a $777,000 loss from inception through September 30, 2020.
- Expenses and non-operating items: General and administrative expense was $1.70 million in Q3 and $2.63 million year to date. Q3 included a $2.23 million warrant fair-value expense; the nine-month period included a $1.14 million warrant fair-value gain. Trust investment gains were $4,925 in Q3 and $12,393 year to date.
- Cash flow: Net cash used in operating activities was $469,000 for the first nine months. Cash at September 30 was $1,177, compared with $470,073 at year-end 2020.
- Liquidity: The company reported approximately $1.9 million of negative working capital. It held $250.0 million in the trust account, subject to the business-combination and redemption arrangements; this was not ordinary operating cash.
- Liabilities: Total liabilities were $31.11 million, including $8.75 million of deferred underwriting commissions, $20.22 million of derivative warrant liabilities, and a $362,000 related-party working-capital loan. No conventional long-term borrowing balance is reported.
- Margins: Not applicable; the pre-combination SPAC had no operating revenue.
Material changes and subsequent transaction
- On October 8, 2021, the business combination closed and the registrant became ESS Tech, Inc. The transaction included a $250 million PIPE issuance. Holders redeemed 20,754,719 shares for approximately $207.5 million from the trust account.
- The company restated previously issued financial statements because it had incorrectly classified redeemable Class A shares within permanent equity. The restatement moved those shares to temporary equity and affected accumulated deficit and earnings-per-share allocations; it did not change net income or cash flows. The filing says the affected prior statements should no longer be relied upon.
- Reported warrant liabilities are subject to recurring fair-value changes, which materially affected quarterly results despite having no corresponding operating revenue.
Outlook, risks, and unusual items
- Management said that, following the October 8 business combination and PIPE, it expected to have sufficient cash to meet needs for one year from the filing. The filing gives no operating-company revenue or earnings guidance.
- Management noted that COVID-19 could affect the process of identifying a business-combination target, but its specific impact was not determinable. The merger subsequently closed.
- The company disclosed a material weakness in internal control related to accounting for complex features of its Class A shares and warrants. Disclosure controls were deemed ineffective as of September 30, 2021. Remediation steps had begun but were not fully evidenced or completed.
- Warrant fair values rely in part on valuation assumptions and can cause earnings volatility. Warrants may expire worthless if a business combination is not completed; in connection with the completed merger, some sponsor warrants were forfeited and some remained subject to milestone vesting.
- No legal proceedings were reported. Management stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Review the post-merger financial statements and cash position; the figures in this 10-Q largely describe the pre-merger SPAC.
- Confirm the net proceeds available after the PIPE, redemptions, transaction expenses, and other closing payments.
- Assess the remediation and testing of the disclosed material weakness, and whether later filings report effective controls.
- Review the restatement disclosures and the accounting treatment, valuation, vesting, and potential dilution from outstanding warrants.
- Evaluate ESS Tech’s operating performance and outlook using subsequent filings; this 10-Q contains no operating-company revenue or forecast.