ESS Tech(GWH) - 2020 Q4 - Annual Report

PART I Business ACON S2 Acquisition Corp. is a blank check company (SPAC) focused on acquiring a sustainable business within 24 months, operating with reduced reporting requirements - The company is a blank check company, or SPAC, incorporated in the Cayman Islands, with the purpose of executing a merger, asset acquisition, or similar business combination[13] - The company's sponsor is ACON S2 Sponsor, L.L.C., an affiliate of ACON Investments, a private equity firm managing approximately $5.9 billion in assets[14][15] - The primary business strategy is to identify and acquire a business that focuses on strategic sustainability (environmental, social, and/or economic) as a core driver of its performance[18] - The company intends to target businesses with a transaction value between $500 million and $2.0 billion[19] - The company must complete its initial business combination within 24 months of its IPO closing date (September 21, 2022) If it fails, it will cease operations and liquidate the trust account[79][113] - As of December 31, 2020, the company had approximately $240.25 million in trust available to fund a business combination[38] Business Strategy and Market Opportunity The company leverages its sponsor's expertise to acquire a sustainable business, prioritizing targets with strong growth and proven sustainability - The company will leverage its relationship with ACON Investments, a private equity firm with a 23-year history and $5.9 billion in assets under management, to source and execute a transaction[15] - The company's primary focus is on businesses where sustainability is a core strategic element, leveraging the experience of its management team and ACON Investments[18] - Key business combination criteria include a proven track record in sustainability, being a middle-market business, having significant growth potential, possessing unrecognized value, a strong competitive position, and an experienced management team[23] - The company is not prohibited from pursuing a business combination with an entity affiliated with its Sponsor, officers, or directors, but would require a fairness opinion from an independent firm in such a case[24] Business Combination Process The company uses trust account cash for business combinations, offering redemption rights, and will liquidate if no deal is completed within 24 months - Public shareholders have the right to redeem their Class A ordinary shares for cash upon completion of the initial business combination The per-share redemption price will be the aggregate amount in the trust account divided by the number of outstanding public shares[61] - Redemptions are limited to ensure the company's net tangible assets do not fall below $5,000,001, a threshold to avoid being classified as a "penny stock" by the SEC[63] - If a shareholder vote is sought, a public shareholder, along with affiliates, is restricted from redeeming more than 15% of the shares sold in the IPO, referred to as "Excess Shares"[70] - If no business combination is consummated within 24 months of the IPO, the company will liquidate and redeem all public shares using funds from the trust account Warrants will expire worthless in this scenario[79][80] - The Sponsor has agreed to indemnify the company against claims from third parties or prospective targets that could reduce the trust account below $10.00 per share, with certain exceptions[85][86] Company Status and Reporting The company is an 'emerging growth company' and 'smaller reporting company', benefiting from reduced disclosure and extended accounting standard transition periods - The company is an "emerging growth company" under the JOBS Act, allowing for exemptions from certain reporting requirements, such as auditor attestation on internal controls and reduced executive compensation disclosure[34][99] - The company is also a "smaller reporting company," which permits reduced disclosure, such as providing only two years of audited financial statements[37][103] - The company has two executive officers who are not obligated to devote a specific number of hours but will dedicate necessary time to find a business combination There are no full-time employees prior to the business combination[94] - The company is required to file annual, quarterly, and current reports with the SEC and must provide audited financial statements of a prospective target business in proxy or tender offer materials[95][96] Risk Factors The company faces significant risks as a SPAC, including inability to complete a business combination within the timeframe, intense competition, and conflicts of interest Risks Relating to Business Combination Key risks include completing a business combination without shareholder approval, 24-month deadline pressure, intense competition, and insufficient funds outside the trust account - The company may complete its initial business combination without a shareholder vote, meaning a deal could be finalized even if a majority of public shareholders do not support it[106] - The 24-month deadline to consummate a business combination may give potential targets leverage in negotiations and limit the time available for due diligence[113] - The COVID-19 pandemic could materially adversely affect the search for a target and the ability to complete a transaction due to travel restrictions and market volatility[114][115] - An increasing number of SPACs has led to more competition for attractive targets, which could increase costs or result in an inability to find a suitable target[118][119] - The sponsor and insiders will lose their entire investment if a business combination is not completed, creating a conflict of interest that may influence their selection of a target[165][166] Risks Relating to Post-Business Combination Company Post-combination risks include significant write-downs, loss of key personnel, lack of control, and exposure to foreign operation risks like currency fluctuations and political instability - The company may be forced to take significant write-downs, write-offs, or restructuring charges post-combination, which could negatively affect its financial condition and stock price[192] - Key personnel of the target business may resign upon completion of the business combination, which could negatively impact the operations and profitability of the post-combination business[193] - The company may acquire a target with foreign operations, exposing it to risks including currency fluctuations, tariffs, trade barriers, and political or social unrest[196][197] - If the company reincorporates in another jurisdiction as part of the business combination, shareholders may face taxes and difficulties in enforcing their legal rights[198][199] Risks Relating to Management and Governance The company is highly dependent on executive officers and directors, who have other business endeavors and fiduciary duties to affiliated entities, creating conflicts of interest - The company is dependent on its executive officers and directors, who are not required to commit a specific amount of time to its affairs and have other business endeavors[207][212] - Officers and directors have fiduciary or contractual obligations to other entities, including ACON investment vehicles, and may present business opportunities to those entities before presenting them to the company[161][213] - The company's amended and restated memorandum and articles of association renounce its interest in any corporate opportunity offered to a director or officer unless it is expressly offered to them in their capacity as a director or officer of the company[214] Risks Relating to Securities Risks include limited shareholder rights to the trust fund, potential delisting, difficulties enforcing U.S. judgments due to Cayman Islands incorporation, and adverse warrant terms - Public shareholders only have rights to funds in the trust account upon completion of a business combination (if they redeem), an amendment to the charter, or liquidation[220] - The company's securities may be delisted from NASDAQ if it fails to meet continued listing requirements, which would reduce liquidity and could classify the shares as "penny stock"[221][224] - As a Cayman Islands company, it may be difficult for investors to enforce U.S. court judgments against the company, its directors, or officers[227][229] - The company may redeem outstanding public warrants for $0.01 per warrant if the stock price exceeds $18.00 for a specified period, or for $0.10 if the price exceeds $10.00, potentially forcing holders to exercise at a disadvantageous time[244][245] - The terms of the warrants can be amended with the approval of holders of at least 50% of the then-outstanding public warrants, which could adversely affect individual holders[238] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments[266] Properties The company's principal executive offices are in Washington, DC, with a monthly fee paid to a Sponsor affiliate for office space and administrative services - The company maintains its executive offices in Washington, DC, and pays an affiliate of its Sponsor $10,000 per month for office space and administrative support[267] Legal Proceedings To the knowledge of its management, there is no current or contemplated litigation against the company or its officers and directors - There is no litigation currently pending or contemplated against the company[268] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[269] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's units, Class A ordinary shares, and warrants trade on NASDAQ, with no cash dividends intended prior to business combination, and details of founder and private placement share sales - The company's securities trade on NASDAQ: Units (STWOU), Class A ordinary shares (STWO), and Warrants (STWOW)[272] - No cash dividends have been paid, and none are intended prior to the completion of an initial business combination[274] - The Sponsor purchased 7,187,500 founder shares for $25,000 An over-allotment option expired, resulting in the forfeiture of 937,500 of these shares[277] - The Sponsor purchased 4,666,667 private placement warrants at $1.50 each, generating gross proceeds of $7.0 million[278] - Net proceeds of $250 million were placed in the trust account following the IPO and private placement[280] Selected Financial Data This item is not applicable as the company is a smaller reporting company - Not applicable[283] Management's Discussion and Analysis of Financial Condition and Results of Operations The company, a blank check entity with no operations, reported a net loss of approximately $704,000 for the period from inception to December 31, 2020, raising going concern doubts Results of Operations Since inception to December 31, 2020, the company generated no operating revenue, incurring a net loss of approximately $704,000 from administrative expenses - The company has not engaged in any operations or generated any revenue to date and will not do so until after its initial Business Combination[291] Results of Operations (Inception to Dec 31, 2020) | Metric | Amount (USD) | | :--- | :--- | | General and administrative expenses | $708,829 | | Gain on marketable securities (net) | $4,454 | | Net Loss | ($704,375) | Liquidity and Capital Resources As of December 31, 2020, the company had approximately $470,000 cash and $684,000 working capital, raising substantial doubt about its ability to continue as a going concern Liquidity Position (as of Dec 31, 2020) | Metric | Amount (USD) | | :--- | :--- | | Cash in operating account | ~$470,000 | | Working Capital | ~$684,000 | - Liquidity needs have been satisfied by the Sponsor's initial investment, a loan from the Sponsor (repaid), and proceeds from the private placement[294] - The company's financial state raises substantial doubt about its ability to continue as a going concern, which is contingent on consummating a Business Combination[296][413] Critical Accounting Policies The company's critical accounting policies include classifying redeemable Class A ordinary shares as temporary equity and calculating net loss per share using a two-class method - Class A ordinary shares subject to possible redemption are classified as temporary equity on the balance sheet, in accordance with ASC Topic 480[303][459] - Net loss per share is calculated using a two-class method Income from trust account investments is allocated to redeemable Class A shares, while the net loss from operations is allocated to non-redeemable Class A and Class B shares[304][305][306] Quantitative and Qualitative Disclosures about Market Risk This item is not required as the company is a smaller reporting company - The company is not required to provide this information as it qualifies as a smaller reporting company[313] Financial Statements and Supplementary Data Financial statements as of December 31, 2020, show total assets of $250.8 million and a net loss of $704,375, with the auditor expressing substantial doubt about going concern Balance Sheet Summary (as of December 31, 2020) | Category | Amount (USD) | | :--- | :--- | | Assets | | | Cash | $470,073 | | Investments held in Trust Account | $250,004,454 | | Total Assets | $250,827,490 | | Liabilities & Equity | | | Total Liabilities | $8,889,107 | | Class A ordinary shares subject to redemption | $236,938,380 | | Total Shareholders' Equity | $5,000,003 | | Total Liabilities and Shareholders' Equity | $250,827,490 | Statement of Operations Summary (Inception to Dec 31, 2020) | Category | Amount (USD) | | :--- | :--- | | Loss from operations | ($708,829) | | Gain on marketable securities (net) | $4,454 | | Net Loss | ($704,375) | - The report from the independent registered public accounting firm, Marcum LLP, includes an explanatory paragraph raising substantial doubt about the Company's ability to continue as a going concern due to its dependence on completing a business combination[413] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[315] Controls and Procedures As of December 31, 2020, management concluded disclosure controls and procedures were effective, with no material changes to internal controls reported during the last fiscal quarter - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[317] - A report on internal control over financial reporting is not included, as permitted for newly public companies[318] Other Information The company reports no other information under this item - None[320] PART III Directors, Executive Officers and Corporate Governance The company's governance includes a seven-member board with independent committees, but significant conflicts of interest exist due to officers' and directors' fiduciary duties to affiliated entities - The executive team includes Adam Kriger as CEO and John Roush as CFO and Chairman[322] - The board has seven directors divided into three classes Sarah Kirshbaum Levy, Ryan Shadrick Wilson, and Janie Goddard are determined to be independent directors[330][335] - The board has three standing committees (Audit, Nominating, Compensation), each composed entirely of independent directors[340] - Significant conflicts of interest exist as officers and directors have fiduciary duties to other entities, including ACON Investments, which may be presented with business opportunities before the company[352][356] Executive Compensation No cash compensation has been paid to executive officers or directors, though a Sponsor affiliate receives a monthly fee for administrative services, with post-combination compensation to be determined - No cash compensation has been paid to executive officers or directors for services rendered[366] - An affiliate of the Sponsor receives $10,000 per month for office space, secretarial, and administrative services[366] - Post-combination compensation for management is possible but will be determined by the board of the combined company[368] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The Sponsor holds 19.5% of total voting control, with all officers and directors as a group controlling 20%, and two external firms owning over 5% of Class A ordinary shares Beneficial Ownership | Beneficial Owner | Class B Shares Owned | Approx. % of Class B | Approx. % of Total Voting Control | | :--- | :--- | :--- | :--- | | ACON S2 Sponsor, L.L.C. | 6,100,000 | 97.9% | 19.5% | | All officers and directors as a group | 6,250,000 | 100% | 20.0% | Significant Class A Shareholders (>5%) | Beneficial Owner | Class A Shares Owned | Approx. % of Class A | | :--- | :--- | :--- | | Weiss Asset Management LP | 2,000,000 | 8.0% | | Glazer Capital, LLC | 2,113,988 | 8.5% | - The Sponsor's ownership gives it the right to elect all directors prior to the initial business combination and significant influence over shareholder votes[376] Certain Relationships and Related Transactions, and Director Independence This section outlines related party transactions, including the Sponsor's purchase of founder shares and private placement warrants, and monthly payments for administrative services - The Sponsor paid $25,000 for 7,187,500 founder shares (prior to forfeiture)[379] - The Sponsor purchased 4,666,667 private placement warrants for $7.0 million[380] - The Sponsor provided a promissory note for offering costs, which was fully repaid The Sponsor may also provide up to $1.5 million in Working Capital Loans, convertible into warrants at $1.50 per warrant[383][384] - The company pays a Sponsor affiliate $10,000 per month for office space and administrative services[382][385] Principal Accountant Fees and Services The company's principal accountant is Marcum LLP, with total audit fees of $62,155 from inception to December 31, 2020, and all services pre-approved by the audit committee Accountant Fees (Inception to Dec 31, 2020) | Service Category | Fees Paid (USD) | | :--- | :--- | | Audit Fees | $62,155 | | Audit-Related Fees | $0 | | Tax Fees | $0 | | All Other Fees | $0 | - The audit committee pre-approves all auditing and permitted non-audit services provided by the independent auditor[397] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed as part of the Annual Report, including key corporate and financial agreements and certifications - Lists all exhibits filed with the 10-K, such as the Amended and Restated Memorandum and Articles of Association, Warrant Agreement, and Investment Management Trust Agreement[401] Form 10-K Summary This item is not applicable - Not applicable[402]