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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-04-01 · 32 added, 58 removed, 42 unchanged (68% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Report.

The following discussion and analysis should be read in conjunction with the financial statements and related notes included in “Item 8.

Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (this “Report”).

This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position.

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We were incorporated as a Cayman Islands exempted company on April 19, 2021 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”).

We have not selected any Business Combination target.

We have not selected any Business Combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any Business Combination target.

We will not be limited to a particular industry or geographic region in our identification and acquisition of a target company.

Our sponsor is ESGEN LLC, a Delaware limited liability company.

The registration statement for our initial public offering was declared effective on October 19, 2021 (the “Effective Date”).

On October 22, 2021, we consummated our initial public offering of 27,600,000 units (the “Units” and, with respect to the ordinary shares included in the Units being offered, the “Public Shares”) at $10.00 per Unit (which included the full exercise of the underwriters’ over-allotment option), and the sale of 14,040,000 warrants (the “Private Placement Warrants”) each exercisable to purchase one Class A ordinary share at $11.50 per share, at a price of $1.00 per Private Placement Warrant in a private placement to our sponsor that closed simultaneously with the initial public offering.

The registration statement for our initial public offering was declared effective on October 19, 2021.

Transaction costs amounted to $16,138,202 consisting of $5,520,000 of underwriting commissions, $9,660,000 of deferred underwriting commissions and $958,202 of other cash offering costs.

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government treasury obligations.

We will have 15 months (unless otherwise extended) from the closing of our initial public offering to consummate the initial Business Combination.

We have until April 22, 2023, with the extension as described below, to consummate the initial Business Combination.

If we have not consummated the initial Business Combination within the Combination Period, we will:

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and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii), to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.

On January 18, 2023, our shareholders voted to amend our amended and restated memorandum and articles of association (the “Extension Proposal”) to extend from January 22, 2023 to April 22, 2023 (the “Extended Date”) the date (the “Termination Date”) by which we must mandatorily liquidate the company.

In connection with the vote to approve the Extension Proposal, the holders of 24,703,445 Class A ordinary shares of ESGEN properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.35 per share, for an aggregate redemption amount of $255,875,757.

Additionally, in the event that we have not consummated an initial business combination by the Extended Date, the Board may extend the Termination Date up to six times, each by one additional month (for a total of up to six additional months to complete a business combination) (each, an “Additional Extension Date”), provided that we deposit into the Trust Account for each Additional Extension Date the lesser of (a) $140,000 or (b) $0.04 for each public share that is then-outstanding.

RESULTS OF OPERATIONS

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We will not generate any operating revenues until the closing and completion of our initial Business Combination.

For the period from April 19, 2021 (inception) through December 31, 2021, we had an income of $9,460,263, which consisted of gain on change in fair value of warrant liabilities of $10,944,240, interest income from marketable securities held in trust account of $2,137, offset by formation and operating costs of $776,033 and warrant issuance costs of $710,081.

For the year ended December 31, 2022, we had a net income of $14,334,250, which consisted of a change in the fair value of warrant liabilities of $13,179,936, investment income on marketable securities held in Trust Account of $3,984,431, partially offset by a loss from operations of $2,830,117.

For the period from April 19, 2021 (inception) through December 31, 2021, we had a net income of $9,460,263, which consisted of change in fair value of warrant liabilities of $10,944,240, investment income on marketable securities held in Trust Account of $2,137, partially offset by a loss from operation including formation and operating costs and operating costs – related party of $776,033 and warrant issuance costs of $710,081.

Liquidity and Capital Resources

As of December 31, 2021, we had $1,323,903 in cash and a working capital of $1,267,382.

As of December 31, 2022, we had cash of $614,767 and owe $1,866,992 in accrued offering costs and expenses and an additional $315,539 payable to related parties.

Prior to the completion of our initial public offering, our liquidity needs had been satisfied through a capital contribution from the sponsor of $25,000 and a loan to us of up to $300,000 by our sponsor under an unsecured promissory note, which had an outstanding balance of $171,346 at December 31, 2022.

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As of December 31, 2022, there were no amounts outstanding under any Working Capital Loans.

Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing.

Based on the foregoing, management believes that we will not have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing.

Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.

Off-Balance Sheet Financing Arrangements

As of December 31, 2021, we did not have any off-balance sheet arrangements and did not have any commitments or contractual obligations.

In connection with the company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the company has until April 22, 2023 (as extended) to consummate a Business Combination.

If a Business Combination is not consummated by this date and an extension not obtained, there will be a mandatory liquidation and subsequent dissolution of the company.

Although the company intends to consummate a Business Combination on or before April 22, 2023 (as extended), it is uncertain whether the Company will be able to consummate a Business Combination by this time.

Management has determined that the mandatory liquidation, should a Business Combination not occur, and an extension is not obtained, as well as the potential for us to have insufficient funds available to operate our business prior to a Business Combination, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern.

It is uncertain whether the company will be able to consummate a Business Combination or obtain an extension by this time.

No adjustments have been made to the carrying amounts of assets or liabilities should the company be required to liquidate after April 22, 2023 (as extended).

Contractual Obligations

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Underwriting Agreement

We granted the underwriters a 45-day option to purchase up to 3,600,000 additional Units to cover over-allotments, if any, at our initial public offering price less the underwriting discounts and commissions.

We granted the underwriters a 45-day option to purchase up to 3,600,000 additional Units to cover over-allotments, if any, at the IPO price less the underwriting commissions.

The underwriters exercised the full over-allotment at the consummation of our initial public offering on October 22, 2021.

The underwriters earned an underwriting discount of two percent (2%) of the gross proceeds of our initial public offering, or $5,520,000, which we paid in cash at closing of the offering.

Additionally, the underwriters are entitled to a deferred underwriting discount of 3.5% of the gross proceeds of our initial public offering upon the completion of our initial Business Combination.

The underwriters earned an underwriting commission of two percent (2%) of the gross proceeds of the IPO, or $5,520,000, which we paid in cash at closing of the offering.

Additionally, the underwriters are entitled to a deferred underwriting commission of 3.5% of the gross proceeds of our initial public offering upon the completion of our initial Business Combination.

Office Space, Secretarial and Administrative Services

Commencing on the date that our securities are first listed on the NASDAQ through the earlier of consummation of our initial Business Combination and the liquidation, we are expected to pay our sponsor a total of $10,000 per month for office space, utilities, secretarial support and administrative services.

As of December 31, 2021, we had incurred $24,193 pursuant to this agreement, which was accrued in “Due to related party”.

Commencing on the date that our securities were first listed on the Nasdaq through the earlier of consummation of our initial Business Combination and the liquidation, we pay our sponsor a total of $10,000 per month for office space, utilities, secretarial support and administrative services (which is accrued in “Due to related party”).

As of December 31, 2022 and 2021, we had incurred $120,000 and $24,193, respectively, pursuant to this agreement, which was accrued in “Due to related party”.

Registration Rights

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In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of the initial Business Combination.

However, the registration and shareholder rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable Lock-up period, which occurs (i) in the case of the Founder Shares, and (ii) in the case of the Private Placement Warrants and the respective Class A ordinary shares issuable upon exercise of the private placement warrants, 30 days after the completion of the initial Business Combination.

However, the registration and shareholder rights agreement provides that we will not permit any registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”) to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the Founder Shares, and (ii) in the case of the Private Placement Warrants and the respective Class A ordinary shares issuable upon exercise of the Private Placement Warrants, 30 days after the completion of the initial Business Combination.

We will bear the expenses incurred in connection with the filing of any such registration statements.

Working Capital Loans (and warrants that may be issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration and expected shareholder rights agreement signed at the closing of our initial public offering.

The holders of these securities are entitled to make up to three demands, excluding short form demands, that our register such securities.

The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Working Capital Loans and warrants that may be issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration and expected shareholder rights agreement signed at the closing of our initial public offering.

The holders of these securities are entitled to make up to three demands, excluding short form demands, that the company register such securities.

In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of its initial Business Combination.

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In addition, pursuant to the registration and shareholder rights agreement, the sponsor, upon and following consummation of an initial Business Combination, will be entitled to nominate three individuals for election to the board of directors, as long as the sponsor holds any securities covered by the registration and shareholder rights agreement.

Going Concern

As of December 31, 2021, the Company had $1,323,903 in cash held outside of the Trust Account and working capital of $1,267,382.

The Company anticipates that the cash held outside of the Trust Account as of December 31, 2021 will be not sufficient to allow the Company to operate for at least the next 12 months from the issuance of the financial statements, assuming that a Business Combination is not consummated during that time.

The Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans.

There is no assurance that the Company's plans to consummate an initial Business Combination will be successful or successful within the Combination Period.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued.

Management plans to address this uncertainty through the initial Business Combination as discussed above.

There is no assurance that the Company’s plans to consummate an initial Business Combination will be successful or successful within the Combination Period.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Policies

Critical Accounting Estimates

The preparation of these financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

Actual results could differ from those estimates.

We have identified the following critical accounting policies:

Warrant Liability

The Company accounts for the Public and Private Placement warrants issued in connection with the Public Offering in accordance with the guidance contained in ASC 815-40 and ASC 480, Distinguishing Liabilities from Equity.

Such guidance provides that because the warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability.

Accordingly, the Company classified each warrant as a liability at its fair value.

This liability is subject to re-measurement at each balance sheet date.

With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.

Offering Costs Associated with Initial Public Offering

We comply with the requirements of Accounting Standards Codification (“ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A—”Expenses of Offering”.

Offering costs consist of legal, accounting, underwriting and other costs incurred through the balance sheet date that are related to our initial public offering.

Offering costs amounted to $16,138,202 and of this, $15,428,121 was charged to temporary equity and $710,081 was deemed allocable to the warrants and charged to expense upon the completion of our initial public offering.

Class A Ordinary Shares Subject to Possible Redemption

We account for our shares of Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value.

Conditionally redeemable ordinary shares (including shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity.

At all other times, ordinary shares are classified as shareholder’s equity.

Our Class A ordinary shares sold in our initial public offering feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events.

Accordingly, as of December 31, 2021, 27,600,000 Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholder’s deficit section of our balance sheet.

Net Income (Loss) Per Ordinary Share

We apply the two-class method in calculating earnings per share.

Ordinary share subject to possible redemption which is not currently redeemable and is not redeemable at fair value, has been excluded from the calculation of basic net income (loss) per ordinary

share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings.

Our net income (loss) is adjusted for the portion of income that is attributable to ordinary share subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.

We have not identified any critical accounting estimates.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.

ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity.

ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.

We are currently assessing the impact, if any, that ASU 2020-06 would have on our financial position, results of operations or cash flows.

We do not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.

Refer to Note 2 in the financial statements for the recent accounting pronouncements.

Off-Balance Sheet Financing Arrangements

As of December 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis