ESGEN Acquisition (ESAC) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements of ESGEN Acquisition Corporation, including the balance sheet, statement of operations, statement of changes in shareholder's deficit, and statement of cash flows, along with comprehensive notes explaining the company's organization, accounting policies, and financial instruments Condensed Balance Sheet as of March 31, 2022 and December 31, 2021 Condensed Balance Sheet Data | ASSETS | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash | $1,086,084 | $1,323,903 | | Prepaid expenses | $478,819 | $550,434 | | Total current assets | $1,564,903 | $1,874,337 | | Prepaid expenses, non-current | $— | $26,081 | | Marketable securities held in trust account | $281,540,308 | $281,522,137 | | Total Assets | $283,105,211 | $283,422,555 | | LIABILITIES, REDEEMABLE ORDINARY SHARES AND SHAREHOLDERS' DEFICIT | | | | Accrued offering costs and expenses | $918,891 | $411,416 | | Due to related party | $54,193 | $24,193 | | Promissory note – related party | $171,346 | $171,346 | | Total current liabilities | $1,144,430 | $606,955 | | Warrant liabilities | $7,240,800 | $13,976,160 | | Deferred underwriter's discount | $9,660,000 | $9,660,000 | | Total liabilities | $18,045,230 | $24,243,115 | | Class A ordinary shares subject to possible redemption | $281,540,308 | $281,520,000 | | SHAREHOLDERS' DEFICIT: | | | | Class B ordinary share | $690 | $690 | | Accumulated deficit | $(16,481,017) | $(22,341,250) | | Total shareholders' deficit | $(16,480,327) | $(22,340,560) | | Total Liabilities, Redeemable Ordinary Shares and Shareholders' Deficit | $283,105,211 | $283,422,555 | Condensed Statement of Operations for the three months ended March 31, 2022 Condensed Statement of Operations Data (Three Months Ended March 31, 2022) | Item | Amount | | :--- | :--- | | Formation and operating costs | $842,990 | | Operating cost—related party | $30,000 | | Loss from operations | $(872,990) | | Interest income on marketable securities held in Trust Account | $18,171 | | Change in fair value of warrant liabilities | $6,735,360 | | Total other income, net | $6,753,531 | | Net income | $5,880,541 | | Basic and diluted weighted average shares outstanding of Class A ordinary shares | 27,600,000 | | Basic and diluted net income per ordinary share, Class A | $0.17 | | Basic and diluted weighted average shares outstanding of Class B ordinary shares | 6,900,000 | Condensed Statement of Changes in Shareholder's (Deficit) for the three months ended March 31, 2022 Condensed Statement of Changes in Shareholder's Equity (Deficit) (Three Months Ended March 31, 2022) | Item | Class A Ordinary share subject to possible redemption Amount | Class B Ordinary share Amount | Accumulated Deficit | Total Shareholders' Equity (Deficit) | | :--- | :--- | :--- | :--- | :--- | | Balance as of December 31, 2021 | $281,520,000 | $690 | $(22,341,250) | $(22,340,560) | | Accretion of ordinary share subject to possible redemption | $20,308 | — | $(20,308) | $(20,308) | | Net income | — | — | $5,880,541 | $5,880,541 | | Balance as of March 31, 2022 | $281,540,308 | $690 | $(16,481,017) | $(16,480,327) | Condensed Statement of Cash Flows for the three months ended March 31, 2022 Condensed Statement of Cash Flows Data (Three Months Ended March 31, 2022) | Cash flows from operating activities | Amount | | :--- | :--- | | Net income | $5,880,541 | | Adjustments to reconcile net income to net cash used in operating activities: | | | Interest earned on cash held in Trust Account | $(18,171) | | Change in fair value of warrant liabilities | $(6,735,360) | | Changes in current assets and liabilities: | | | Prepaid expenses | $97,696 | | Accrued expenses | $507,475 | | Due to related party | $30,000 | | Net cash used in operating activities | $(237,819) | | Net change in cash | $(237,819) | | Cash, beginning of the period | $1,323,903 | | Cash, end of the period | $1,086,084 | Notes to Condensed Financial Statements Note 1 — Organization and Business Operation - ESGEN Acquisition Corporation was incorporated on April 19, 2021, as a Cayman Islands exempted company, primarily for the purpose of effecting a business combination (SPAC)[25] - The Company consummated its IPO on October 22, 2021, selling 27,600,000 units at $10.00 per unit, generating gross proceeds of $276,000,000. Concurrently, 14,040,000 private placement warrants were sold for $1.00 each[28] - Following the IPO, $281,520,000 ($10.20 per unit) was deposited into a Trust Account, to be invested in U.S. government securities or money market funds[31] - The Company has 15 months from the IPO closing to complete an initial Business Combination, after which it will liquidate and redeem public shares if unsuccessful[37] - As of March 31, 2022, the Company had cash of $1,086,084 and working capital of approximately $420,473, but anticipates this may not be sufficient for the next 12 months without a Business Combination, raising substantial doubt about its going concern ability[44][46][47] Note 2 — Significant Accounting Policies - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, with certain disclosures condensed or omitted[49] - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[51][52] - Offering costs totaled $16,138,202, with $15,428,121 charged to temporary equity and $710,081 allocated to warrants and expensed[56] - Warrants are classified as liabilities at fair value and re-measured at each balance sheet date, with changes recognized in the statement of operations[60] - Net income (loss) per ordinary share is calculated using the two-class method, treating accretion of Class A ordinary shares subject to possible redemption as a dividend[61][62][63] - Class A ordinary shares subject to possible redemption are classified as temporary equity, with changes in redemption value recognized immediately[64][65] - The Company assessed ASU 2020-06 and found no material effect on its financial statements[71] Note 3 — Public Offering - On October 22, 2021, the Company completed its IPO of 27,600,000 units at $10.00 per unit, generating $276,000,000. Each unit included one Class A ordinary share and one-half of one redeemable warrant[72] - Class A ordinary shares are subject to redemption and classified outside of permanent equity in accordance with ASC Topic 480[73][74] Class A Ordinary Shares Subject to Possible Redemption Reconciliation | Item | Amount | | :--- | :--- | | Gross proceeds | $276,000,000 | | Less: Proceeds allocated to Public Warrants | $(12,144,000) | | Less: Class A ordinary share issuance costs | $(15,428,121) | | Plus: Accretion of carrying value to redemption value (prior period) | $33,092,121 | | Class A ordinary shares subject to possible redemption as of December 31, 2021 | $281,520,000 | | Accretion of carrying value to redemption value (current period) | $20,308 | | Class A ordinary shares subject to possible redemption as of March 31, 2022 | $281,540,308 | Note 4 — Private Placement - The Sponsor and Salient Capital Advisors, LLC purchased an aggregate of 14,040,000 Private Placement Warrants at $1.00 per warrant, totaling $14,040,000, concurrently with the IPO[76] Note 5 — Related Party Transactions - The Sponsor initially paid $25,000 for 5,750,000 Class B ordinary shares, which were retroactively restated to 6,900,000 Founder Shares after a share dividend[77] - The Sponsor loaned the Company up to $300,000 for IPO expenses, with $171,346 outstanding as of March 31, 2022 and December 31, 2021[82] - The Company pays the Sponsor $10,000 per month for office space and administrative services, incurring $54,193 as of March 31, 2022[84] - The Sponsor and management team have waived redemption rights for their Founder Shares and certain public shares, and rights to liquidating distributions from the Trust Account if a Business Combination is not consummated within the Combination Period[79][81] Note 6 — Prepaid Expenses Prepaid Expenses Breakdown | Item | March 31, 2022 (Current) | December 31, 2021 (Current) | December 31, 2021 (Non-current) | | :--- | :--- | :--- | :--- | | Prepaid Insurance | $424,537 | $528,861 | $26,081 | | Other Prepaid Items | $54,282 | $21,573 | $— | | Total | $478,819 | $550,434 | $26,081 | Note 7 — Commitments & Contingencies - Holders of Founder Shares, Private Placement Warrants, and Working Capital Loan warrants are entitled to registration rights, including up to three demands and 'piggy-back' rights[87] - Founder Shares are subject to a lock-up period until the earliest of one year after the Business Combination or specific stock price conditions; Private Placement Warrants are locked up for 30 days post-Business Combination[89] - The underwriters earned a 2% underwriting discount ($5,520,000) at IPO closing and are entitled to a deferred underwriting discount of 3.5% ($9,660,000) upon completion of the initial Business Combination[92] Note 8 — Warrant Liabilities - The Company accounts for its 27,840,000 warrants (13,800,000 Public Warrants and 14,040,000 Private Placement Warrants) as liabilities at fair value, subject to re-measurement at each balance sheet date, with changes recognized in the statement of operations[93][94] - Public Warrants become exercisable 30 days after the initial Business Combination and expire five years thereafter, with an exercise price of $11.50 per share[98] - The Company may redeem warrants at $0.01 per warrant if the Class A ordinary share closing price equals or exceeds $18.00 for 20 trading days within a 30-day period[100] - The Company may also redeem warrants at $0.10 per warrant if the Class A ordinary share closing price equals or exceeds $10.00 for 20 trading days within a 30-day period[104] - For the three months ended March 31, 2022, the change in fair value of warrant liabilities was $6,735,360, resulting in warrant liabilities of $7,240,800 as of March 31, 2022[106] Note 9—Derivative Financial Instruments - Public and Private Placement Warrants are classified as derivative liabilities due to potential cash settlement triggers and variable settlement amounts, not meeting equity treatment criteria under ASC 815-40[107][108] Warrant Liabilities Fair Value (March 31, 2022) | March 31, 2022 Liabilities | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Public warrant liabilities | $3,450,000 | $— | $— | $3,450,000 | | Private warrant liabilities | — | — | $3,790,800 | $3,790,800 | | Total warrant liabilities | $3,450,000 | $— | $3,790,800 | $7,240,800 | Warrant Liabilities Fair Value (December 31, 2021) | December 31, 2021 Liabilities | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Public warrant liabilities | $6,900,000 | $— | $— | $6,900,000 | | Private warrant liabilities | — | — | $7,076,160 | $7,076,160 | | Total warrant liabilities | $6,900,000 | $— | $7,076,160 | $13,976,160 | Changes in Fair Value of Level 3 Financial Instruments | Item | Private Placement Warrants | Public Warrants | Warrant Liabilities | | :--- | :--- | :--- | :--- | | Warrant liability – initial measurement | $12,776,400 | $12,144,000 | $24,920,400 | | Change in fair value of warrant liabilities | $(5,700,240) | $(5,244,000) | $(10,944,240) | | Transfer to Level 1 | — | $(6,900,000) | $(6,900,000) | | Warrant liabilities at December 31, 2021 | $7,076,160 | $— | $7,076,160 | | Change in fair value of warrant liabilities | $(3,285,360) | — | $(3,285,360) | | Warrant liabilities at March 31, 2022 | $3,790,800 | $— | $3,790,800 | Quantitative Information about Level 3 Liabilities | Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Exercise price | $11.50 | $11.50 | | Share price | $10.01 | $9.92 | | Risk-free rate | 2.39% | 1.32% | | Expected volatility | 5.10% | 8.3% | | Term (years) | 5.56 | 5.81 | Note 10—Shareholder's Equity (Deficit) - The Company is authorized to issue 1,000,000 preference shares and 250,000,000 Class A ordinary shares; none are issued or outstanding except for 27,600,000 Class A shares subject to possible redemption[114][115] - The Company is authorized to issue 25,000,000 Class B ordinary shares, with 6,900,000 issued and outstanding as of March 31, 2022 and December 31, 2021[116] - Class A and Class B ordinary shares vote together as a single class. Class B shares automatically convert to Class A shares at the initial Business Combination, ensuring Founder Shares represent 20% of total outstanding shares post-IPO and equity-linked securities[117][118] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, results of operations, and future outlook, including forward-looking statements, an overview of its SPAC nature, and details on liquidity and critical accounting policies Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements identified by words such as 'anticipate,' 'intend,' 'plan,' 'believe,' 'expect,' etc., which are subject to inherent uncertainties, risks, and changes in circumstances[122][123] - Actual results and financial condition may differ materially from those indicated in forward-looking statements due to various factors, including the ability to complete a business combination and the impact of the COVID-19 pandemic[122][123] Overview - ESGEN Acquisition Corporation was incorporated on April 19, 2021, as a Cayman Islands exempted company, with the sole purpose of effecting a business combination (SPAC)[124] - The Company completed its IPO on October 22, 2021, selling 27,600,000 units at $10.00 per unit, and deposited $281,520,000 into a Trust Account[127][129] - The Company has 15 months from the IPO closing to consummate an initial Business Combination, or it will liquidate and redeem public shares[130] Results of Operations - For the three months ended March 31, 2022, the Company reported a net income of $5,880,541[132] - This net income was primarily driven by a $6,735,360 gain on the change in fair value of warrant liabilities and $18,171 in interest income from the Trust Account, offset by $842,990 in formation and operating costs[132] - The Company has not generated any operating revenues and will not until the completion of its initial Business Combination[131] Liquidity and Capital Resources - As of March 31, 2022, the Company had $1,086,084 in cash and a working capital of $420,473[133] - Liquidity needs prior to IPO were met by a $25,000 capital contribution from the Sponsor and an unsecured promissory note from the Sponsor, with $171,346 outstanding as of March 31, 2022[134] - Management believes current working capital and borrowing capacity will be sufficient for needs through the earlier of a Business Combination or one year from filing, but acknowledges substantial doubt about going concern if a Business Combination is not consummated within that time[135][144][145] Contractual Obligations - The Company has no long-term debt, capital lease, operating lease, or purchase obligations other than those disclosed[136] - The underwriters received a 2% underwriting discount ($5,520,000) at IPO closing and are entitled to a deferred underwriting discount of 3.5% ($9,660,000) upon completion of the initial Business Combination[138] - The Company pays its Sponsor $10,000 per month for office space and administrative services, with $54,193 incurred as of March 31, 2022[139] - Holders of Founder Shares, Private Placement Warrants, and Working Capital Loan warrants have registration rights, subject to lock-up periods[140][141][142] Critical Accounting Policies - Warrant liabilities are recorded at fair value and re-measured at each balance sheet date, with changes recognized in the statement of operations[148] - Offering costs of $16,138,202 were incurred, with $15,428,121 charged to temporary equity and $710,081 expensed[149] - Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity due to redemption rights outside the Company's control[150] - The two-class method is applied for earnings per share calculation, excluding redeemable ordinary shares from basic net income (loss) per ordinary share[151] - The Company assessed ASU 2020-06 and found no material effect on its financial statements[152] Off-Balance Sheet Arrangements - As of March 31, 2022, the Company did not have any off-balance sheet arrangements or any commitments or contractual obligations beyond those disclosed[153] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, ESGEN Acquisition Corporation is not required to provide extensive market risk disclosures and confirms minimal exposure to interest rate risk due to the nature of its investments - The Company is a smaller reporting company and is not required to provide the information otherwise required under this item[154] - As of March 31, 2022, the Company was not subject to any material market or interest rate risk[154] - Proceeds in the Trust Account are invested in U.S. government securities with a maturity of 185 days or less or in money market funds, resulting in no material exposure to interest rate risk[154] - The Company has not engaged in any hedging activities since its inception and does not expect to do so[155] Item 4. Control and Procedures This section discusses the evaluation of disclosure controls and procedures, noting a previously identified material weakness related to a lack of qualified accounting resources, and outlines remediation plans - The Company's management evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2022[156] - A material weakness was identified in internal control over financial reporting, specifically a lack of qualified resources within the accounting department, leading to incorrect calculation of earnings per share allocations[157] - Management plans to remediate this weakness by enhancing processes for applying accounting requirements and increasing communication among personnel and third-party professionals[158] - No other material changes in internal control over financial reporting occurred during the most recent fiscal quarter[160] PART II – OTHER INFORMATION Item 1. Legal Proceedings The Company reports that it is not currently involved in any legal proceedings - None[162] Item 1A. Risk Factors This section refers to the Company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, indicating no material changes since that filing - There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K filed with the SEC on April 1, 2022[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities This section details the consummation of the Initial Public Offering and the concurrent private placement of warrants, along with the use of proceeds, confirming no material change in the planned use of funds - The Initial Public Offering of 27,600,000 Units (including over-allotment) was consummated on October 22, 2021, at $10.00 per Unit, generating gross proceeds of $276,000,000[164] - Concurrently, 14,040,000 Private Placement Warrants were sold to the Sponsor and Salient Clients at $1.00 per warrant, generating gross proceeds of $14,040,000[165] - Offering costs amounted to approximately $16.1 million, including $5.5 million in underwriting discounts paid at closing and $9.7 million in deferred underwriting commissions[167][169] - After deducting underwriting discounts and IPO expenses, $281.5 million of net proceeds from the IPO and private placement was placed in the Trust Account[169] - There has been no material change in the planned use of proceeds from the Initial Public Offering and Private Placement as described in the Company's Annual Report[170] Item 3. Defaults Upon Senior Securities The Company states that there are no defaults upon senior securities - None[170] Item 4. Mine Safety Disclosures The Company states that this item is not applicable - Not applicable[170] Item 5. Other Information The Company states that there is no other information to disclose under this item - None[170] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file List of Exhibits | Exhibit No. | Description | | :--- | :--- | | 31.1* | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1** | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2** | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | Inline XBRL Taxonomy Extension Definition Document | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | EX-104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | SIGNATURES SIGNATURES This section contains the required signatures for the Form 10-Q report, confirming its submission on behalf of ESGEN Acquisition Corporation - The report was signed by Andrea Bernatova (Chief Executive Officer) and Nader Daylami (Chief Financial Officer) on May 12, 2022[175][176]