ESGEN Acquisition (ESAC) - 2023 Q1 - Quarterly Report

PART 1 – FINANCIAL INFORMATION This section provides the unaudited financial statements, management's analysis, market risk disclosures, and internal controls for the period Financial Statements (Unaudited) The unaudited financial statements for Q1 2023 show a net loss of $1.45 million, a significant asset reduction due to share redemptions, and a going concern warning Condensed Balance Sheets Total assets declined sharply to $31.0 million by March 31, 2023, from $286.2 million, primarily due to significant share redemptions Condensed Balance Sheet Comparison | Account | March 31, 2023 (USD) | December 31, 2022 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash | $50,471 | $614,767 | | Marketable securities held in Trust Account | $30,919,043 | $285,506,568 | | Total Assets | $31,006,539 | $286,152,445 | | Liabilities | | | | Total current liabilities | $3,484,318 | $2,182,531 | | Warrant liabilities | $1,670,400 | $796,224 | | Total Liabilities | $14,814,718 | $12,638,755 | | Class A ordinary shares subject to possible redemption | $30,919,043 | $285,506,568 | | Total shareholders' deficit | ($14,727,222) | ($11,992,878) | Condensed Statements of Operations The company reported a net loss of $1.45 million for Q1 2023, a significant decline from $5.88 million net income in Q1 2022, primarily due to warrant liability valuation changes Condensed Statements of Operations (Three Months Ended March 31) | Account | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Loss from operations | ($1,512,581) | ($872,990) | | Interest income on marketable securities held in Trust Account | $940,646 | $18,171 | | Change in fair value of warrant liabilities | ($874,176) | $6,735,360 | | Net (loss) income | ($1,446,111) | $5,880,541 | | Basic and diluted net (loss) income per share, Class A | ($0.02) | $0.17 | Condensed Statements of Changes in Ordinary Shares Subject to Possible Redemption and Shareholders' Deficit In Q1 2023, 24.7 million Class A ordinary shares were redeemed for $255.9 million, significantly reducing shares subject to redemption and increasing the accumulated deficit - In Q1 2023, 24,703,445 Class A ordinary shares were redeemed, reducing the redemption value from $285.5 million to $30.9 million[17] Condensed Statements of Cash Flows Net cash provided by operating activities was $0.72 million, while investing activities provided $254.6 million and financing activities used $255.9 million, resulting in a net cash decrease of $0.56 million Condensed Statements of Cash Flows (Three Months Ended March 31, 2023) | Activity | Cash Flow (USD) | | :--- | :--- | | Net cash provided by operating activities | $723,937 | | Net cash provided by investing activities | $254,587,525 | | Net cash used in financing activities | ($255,875,758) | | Net change in cash | ($564,296) | | Cash, end of the period | $50,471 | Notes to Condensed Financial Statements Notes detail the SPAC's business combination deadline, significant share redemptions, a going concern warning, the definitive agreement with Sunergy Renewables, and the waiver of IPO underwriting commissions - On January 18, 2023, shareholders approved an extension for the business combination deadline. In connection with the vote, holders of 24,703,445 Class A shares exercised their redemption rights for an aggregate amount of approximately $255.9 million[36] - Management has determined that the mandatory liquidation deadline of May 22, 2023 (unless extended) and insufficient operating funds raise substantial doubt about the Company's ability to continue as a going concern[46] - On April 19, 2023, the Company entered into a Business Combination Agreement with Sunergy Renewables, LLC. The transaction is expected to close in Q4 2023[101][109] - In April 2023, the IPO underwriters waived their right to receive the deferred underwriting commission of 3.5% of the gross proceeds of the Public Offering[79][111] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the signed Business Combination Agreement with Sunergy Renewables, analyzes the Q1 2023 net loss, and highlights critical liquidity issues leading to a going concern warning - The company entered into a Business Combination Agreement with Sunergy Renewables, LLC on April 19, 2023, which is expected to close in the fourth quarter of 2023[121][129] - The net loss for Q1 2023 was $1,446,111, compared to a net income of $5,880,541 in Q1 2022. The variance is primarily due to the change in fair value of warrant liabilities[133][134] - As of March 31, 2023, the company had only $50,471 in cash. Management believes it will not have sufficient working capital to meet its needs, raising substantial doubt about its ability to continue as a going concern[135][138][139] - In April 2023, the IPO underwriters waived their right to receive deferred underwriting commissions upon the closing of the business combination[141] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, ESGEN is not required to provide detailed market risk disclosures and believes it has no material exposure to interest rate risk due to Trust Account investments - The company is a smaller reporting company and is not required to provide the information under this item[153] - Proceeds in the Trust Account are invested in short-term U.S. government securities, and the company believes there is no material exposure to interest rate risk[153] Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 31, 2023, due to a material weakness in internal control over financial reporting, with a remediation plan underway - Disclosure controls and procedures were determined to be not effective as of March 31, 2023[155] - A material weakness exists due to a lack of sufficient personnel with appropriate accounting knowledge, specifically affecting controls over EPS calculation and cash flow classification for the Trust Account[156] - A remediation plan is in place to enhance processes and increase communication with accounting professionals to address the material weakness[157] PART II – OTHER INFORMATION This section covers legal proceedings, updated risk factors, unregistered sales of equity, defaults on senior securities, mine safety disclosures, and exhibits Legal Proceedings The company reported no legal proceedings - None[160] Risk Factors Updated risk factors highlight the uncertainty of completing the proposed Business Combination with Sunergy and the significant transaction costs involved - There are no assurances that the approval of the Charter Amendment or the execution of the Business Combination Agreement will enable the company to complete its proposed Business Combination[162] - The company and its proposed target, Sunergy, will incur significant, non-recurring transaction and transition costs in connection with the proposed Business Combination[165][166] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[167] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[167] Mine Safety Disclosures This item is not applicable to the company - Not applicable[168] Other Information The company reported no other information - None[169] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Memorandum and Articles of Association, CEO and CFO certifications (Sections 302 and 906), and Inline XBRL documents