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Item 2. Management’s Discussion and Analysis

2024-05-16 compared with 2023-11-14 · 579 added, 142 removed, 1 unchanged (100% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “our,” “us” or “we” refer to ESGEN Acquisition Corporation.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods.

Examples of forward-looking statements include, among others, statements we make regarding:

our ability to select an appropriate target business or businesses;

our ability to complete our initial business combination;

our expectations around the performance of a prospective target business or businesses;

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;

our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination;

our potential ability to obtain additional financing to complete our initial business combination;

our pool of prospective target businesses;

the ability of our officers and directors to generate a number of potential business combination opportunities;

our public securities’ potential liquidity and trading;

the lack of a market for our securities;

the use of proceeds not held in the trust account or available to us from interest or dividend income on the trust account balance;

the trust account not being subject to claims of third parties;

our financial performance following our initial public offering.

Forward-looking statements are neither historical facts nor assurances of future performance.

Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Therefore, you should not rely on any of these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should not take any statement regarding past trends or activities as representation that the trends or activities will continue in the future.

Accordingly, you should not put undue reliance on these statements.

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 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 “Sponsor”).

The registration statement for our initial public offering (“initial public offering”, “IPO” or “Public Offering”) was declared effective on October 19, 2021.

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.

Following the closing of our initial public offering on October 22, 2021, $281,520,000 ($10.20 per Unit) from the net proceeds sold in our initial public offering, including proceeds of the sale of the Private Placement Warrants, was deposited in a trust account (“Trust Account”) and, until October 16, 2023, was only invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S.

government treasury obligations.

To mitigate the risk of being deemed to have been operating as an unregistered investment company under the Investment Company Act, on October 16, 2023, we instructed the Trustee with respect to the Trust Account, to liquidate the U.S.

government securities or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in demand deposits (i.e., in one or more bank accounts) until the earliest of ESGEN’s completion of an initial business combination or January 22, 2024 (unless extended as described below), as applicable.

Prior to shareholder approval of the First Extension Charter Amendment (as defined below), we had 15 months from the closing of our initial public offering to consummate the initial Business Combination.

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

(i) cease all operations except for the purpose of winding up;

(ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay income taxes, if any (less up to $100,000 of interest or dividends to pay winding up and dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any);

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, the Company held an extraordinary general meeting of shareholders to consider and vote upon, among other things, a proposal to amend the Company’s amended and restated memorandum and articles of association (the “First Extension Charter Amendment”) to (i) extend the date by which the Company must consummate its initial Business Combination (the “Termination Date”) from January 22, 2023 to April 22, 2023 and (ii) in the event that the Company has not consummated an initial Business Combination by April 22, 2023, to allow the Company, by resolution of the Company’s board of directors (the “Board”) and, without any approval of the Company’s shareholders, upon five days’ advance notice prior to each Additional Extension, to extend the Termination Date up to six times (with each such extension being upon five days’ advance notice), each by one additional month (for a total of up to six additional months to complete a business combination) (each, an “Additional Extension” and such date, an “Additional Extension Date”), provided that the Sponsor or the Sponsor’s affiliates or permitted designees will 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, in exchange for one or more non-interest bearing, unsecured promissory notes issued by the Company to the Sponsor or the Sponsor’s affiliates or permitted designees (the “Lenders” and each a “Lender”).

In connection with the vote to approve the First Extension Charter Amendment, the holders of 24,703,445 Class A ordinary shares 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 $255,875,758.

The Company currently has until January 22, 2024 (after giving effect to the second extension described below) to complete an initial Business Combination.

On October 20, 2023, the Company held an extraordinary general meeting (the “Meeting”) and approved (i) (a) the extension (such proposal, the “Extension Proposal”) of the time period the Company has to complete an initial Business Combination from October 22, 2023 to January 22, 2024 (the “Charter Amendment”) and (b) in the event that the Company has not consummated an initial Business Combination by January 22, 2024, to allow the Company, by resolution of the Board and, without any approval of the Company’s shareholders, upon five days’ advance notice prior to each Additional Extension, to complete six Additional Extensions, provided that the Sponsor or the Sponsor’s affiliates or permitted designees will deposit into the Trust Account for each Additional Extension Date the lesser of (x) $35,000 or (y) $0.0175 for each Public Share that is then-outstanding, in exchange for one or more non-interest bearing, unsecured promissory notes issued by a Lender, and (ii) the amendment of the Company’s amended and restated memorandum and articles of association to change certain provisions which restrict the Class B ordinary shares, par value $0.0001, of the Company (the “Class B ordinary shares”) from converting to Class A ordinary shares, par value $0.0001 (the “Class A ordinary shares”) prior to the consummation of an initial Business Combination (such proposal, the “Conversion Proposal”).

In connection with the vote to approve the above proposals, the holders of 1,488,000 Class A ordinary shares of ESGEN properly exercised their right to redeem their shares for cash at a redemption price of approximately $11.21 per share, for an aggregate redemption amount of $16,679,055.

In connection with the approval of the Extension Proposal at the Meeting and the adoption of the Charter Amendment, the Sponsor contributed into the Trust Account $0.0525 per share for each Class A ordinary share that was not redeemed at the Meeting, for an aggregate contribution of $73,949.

In connection with the approval of the Conversion Proposal at the Meeting and the adoption of the Charter Amendment, the Sponsor converted all of its 5,619,077 Class B ordinary shares into Class A ordinary shares (the “Sponsor Share Conversion”).

As a result of the Sponsor Share Conversion and redemptions made in connection with the Extension Proposal and Conversion Proposal, 7,027,632 Class A ordinary shares remain outstanding.

Notwithstanding the Sponsor Share Conversion, the Sponsor will be not entitled to receive any funds held in the Trust Account with respect to any Class A ordinary shares issued to the Sponsor as a result of the Sponsor Share Conversion and no additional amounts will be deposited into the Trust Account in respect of shares of Class A ordinary shares held by the Sponsor in connection with the extension of the Termination Date to the Extended Date or any Additional Extension Dates.

On April 19, 2023, the Company entered into a Business Combination Agreement, by and among the Company, ESGEN OpCo, LLC, a Delaware limited liability company and wholly-owned subsidiary of ESGEN (“OpCo”), Sunergy Renewables, LLC, a Nevada limited liability company (“Sunergy”), the Sunergy equity holders set forth on the signature pages thereto (collectively, “Sellers” and each, a “Seller”, and collectively with Sunergy, the “Sunergy Parties”), for limited purposes, the Sponsor, and for limited purposes, Timothy Bridgewater, an individual, in his capacity as the Sellers Representative (the “Business Combination Agreement”).

In accordance with the terms and subject to the conditions of the Business Combination Agreement, among other things:

(i) prior to the consummation of the Business Combination (the “Closing”), each issued and outstanding Class B ordinary share of ESGEN will convert into one Class A ordinary share of ESGEN (the “ESGEN Share Conversion”);

and (ii) following the ESGEN Share Conversion but prior to the Closing, ESGEN will, subject to the receipt of the requisite shareholder approval, transfer by way of continuation from the Cayman Islands to the State of Delaware and domesticate as a Delaware corporation (the “Domestication”) and will change its name as to be determined by the parties to the Business Combination Agreement (“New PubCo”).

In connection with the Domestication, (A) each outstanding Class A ordinary share will become one share of Class A common stock, par value $0.0001 per share, of New PubCo (the “New PubCo Class A Common Stock”), (B) each outstanding warrant to purchase one Class A ordinary share (each, an “ESGEN Warrant”) will become a warrant to purchase one share of New PubCo Class A Common Stock at an exercise price of $11.50 per share, and (C) New PubCo will file its certificate of incorporation and will adopt bylaws to serve as its governing documents upon consummation of the Domestication.

In connection with the ESGEN Share Conversion and the Domestication, each issued and outstanding unit of ESGEN, each consisting of one Class A ordinary share and one-half of one ESGEN Warrant (each, an “ESGEN Unit”), that has not been previously separated into the underlying Class A ordinary shares and underlying ESGEN Warrants prior to the Domestication will be cancelled and will entitle the holder thereof to (x) one share of New PubCo Class A Common Stock and (y) one-half of one warrant representing the right to purchase one share of New PubCo Class A Common Stock at an exercise price of $11.50 per share on the terms and subject to the conditions applicable to ESGEN Warrants set forth in the Warrant Agreement, dated as of October 22, 2021, between ESGEN and Continental Stock Transfer & Trust Company (the “Trustee”).

In accordance with the terms and subject to the conditions of the Business Combination Agreement, Sunergy will cause all holders of any options, warrants or rights to subscribe for or purchase any equity interests of Sunergy or its subsidiaries or securities (including debt securities) convertible into or exchangeable for, or that otherwise confer on the holder any right to acquire, any equity interests of Sunergy or any subsidiary thereof (collectively, the “Sunergy Convertible Interests”) existing immediately prior to the Closing either to exchange or convert all such holder’s Sunergy Convertible Interests into limited liability interests of Sunergy (the “Sunergy Company Interests”) in accordance with the governing documents of Sunergy or the Sunergy Convertible Interests (collectively, the “Sunergy Exchanges”).

At the Closing, ESGEN will contribute to OpCo (1) all of its assets (excluding its interests in OpCo, but including the amount of cash in the Trust Account as of immediately prior to the Closing (after giving effect to the exercise of redemption rights by any ESGEN shareholders)), and (2) a number of newly issued shares of Class V common stock of ESGEN, par value $0.0001 per share, which will generally have only voting rights (the “ESGEN Class V Common Stock”), equal to the number of Seller OpCo Units (as defined in the Business Combination Agreement) (the “Seller Class V Shares”) and (y) in exchange, OpCo shall issue to ESGEN (i) a number of common units of OpCo (the “OpCo Units”) which shall equal the number of total shares of ESGEN Class A Common Stock issued and outstanding immediately after the Closing and (ii) a number of warrants to purchase OpCo Units which shall equal the number of SPAC Warrants issued and outstanding immediately after the Closing (the transactions described above in this paragraph, the “ESGEN Contribution”).

Immediately following the ESGEN Contribution, (x) the Sellers will contribute to OpCo the Sunergy Company Interests and (y) in exchange therefor, OpCo will transfer to the Sellers the Seller OpCo Units and the Seller Class V Shares.

The obligation of ESGEN, the Sunergy Parties and OpCo to consummate the Business Combination is subject to certain customary closing conditions, including, but not limited to, (i) the absence of any order, law or other legal restraint or prohibition enacted, issued or promulgated by any court of competent jurisdiction or other governmental entity of competent jurisdiction having the effect of making the Business Combination illegal or otherwise prohibiting the consummation of the Business Combination, (ii) the termination or expiration of any applicable waiting period applicable to the consummation of the Business Combination under the Hart-Scott-Rodino Act, (iii) the effectiveness of the Registration Statement on Form S-4 (the “Registration Statement”) in accordance with the provisions of the Securities Act, registering the ESGEN Class A Common Stock to be issued in connection with the Business Combination Agreement, (iv) receipt of the required approvals of ESGEN’s shareholders at a meeting of the shareholders of ESGEN in connection with the Business Combination, (v) the ESGEN Class A Common Stock to be issued in connection with the Business Combination immediately after Closing shall be listed on Nasdaq and ESGEN will be able to satisfy any continued listing requirements of Nasdaq immediately after Closing, (vi) if the ESGEN shareholders do not approve the Redemption Limitation Amendment (as defined in the Business Combination Agreement), ESGEN having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) remaining immediately after any holders of the ESGEN Class A Ordinary Shares exercise their redemption rights, (vii) the members of the post-Business Combination ESGEN board of directors shall have been elected or appointed in accordance with the Business Combination Agreement and (viii) the aggregate transaction proceeds, including from the Trust Account after giving effect to the exercise of redemption rights by any ESGEN shareholders pursuant to the ESGEN amended and restated memorandum and articles of association, as amended, and the proceeds resulting from the Initial PIPE Investment (as defined below) and any financing agreements executed in furtherance of the Business Combination Agreement, shall be greater or equal to $20,000,000.

Concurrently with the execution of the Business Combination Agreement, ESGEN entered into a subscription agreement (the “Initial Subscription Agreement”) with Sponsor.

Pursuant to the Initial Subscription Agreement, Sponsor agreed to subscribe for and purchase, and ESGEN agreed to issue and sell to Sponsor, concurrently with the Closing, an aggregate of 1,000,000 shares of ESGEN Class A Common Stock for a purchase price of $10.00 per share, for aggregate gross proceeds of $10,000,000 (the “Initial PIPE Investment”).

The closing of the Initial PIPE Investment is contingent upon, among other things, the substantially concurrent consummation of the Business Combination.

The Initial Subscription Agreement provides that ESGEN will grant Sponsor certain customary registration rights.

In addition to the Initial PIPE Investment, under the Business Combination Agreement, ESGEN and Sunergy have agreed to use their reasonable best efforts to identify other investors to enter into equity financing agreements (the “Additional Financing Agreements” and, together with the Initial Subscription Agreement, the “Financing Agreements”), in form and substance reasonably acceptable to ESGEN and Sunergy, to support the transaction (such equity financing under the Financing Agreements, collectively, herein referred to as the “Private Placements”).

For additional information regarding the Business Combination Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on April 20, 2023.

The Business Combination is expected to close in the first quarter of 2024, following the receipt of the required approvals by our shareholders and the fulfillment of other customary closing conditions.

On April 5, 2023, the Company issued an unsecured promissory note (the “Note”) in the principal amount of up to $1,500,000 to the Sponsor, which may be drawn down by the Company from time to time prior to the consummation of the Company’s Business Combination.

The Note does not bear interest, matures on the date of consummation of the Business Combination and is subject to customary events of default.

As of September 30, 2023, there was $1,238,449 outstanding under the Note.

In addition, on October 17, 2023, the Company issued an amended and restated promissory note (the “Restated Note”) in the principal amount of up to $2,500,000 to the Sponsor.

The Restated Note amends, restates, replaces and supersedes the Note dated April 5, 2023.

The Restated Note may be drawn down by the Company from time to time prior to the consummation of the Company’s initial Business Combination.

The Restated Note does not bear interest, matures on the date of consummation the Business Combination and is subject to customary events of default.

The Restated Note will be repaid only to the extent that the Company has funds available to it outside of its Trust Account.

Results of Operations

All of our activity from April 19, 2021 (inception) through September 30, 2023, was in preparation for our initial public offering, and since our initial public offering, including the effectuation of the Charter Amendment and the negotiation and entry into the Business Combination Agreement.

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

For the three months ended September 30, 2023, we had net income of $631,724, which consisted of a change in fair value of warrant liabilities of $1,046,784 and dividends earned on marketable securities held in the Trust Account of $413,940, partially offset by operating costs of $829,000.

For the three months ended September 30, 2022, we had net income of $4,262,070, which consisted of a gain on change in fair value of warrant liabilities of $3,345,600, dividends earned on marketable securities held in trust account of $1,245,745, partially offset by operating costs of $329,275.

For the nine months ended September 30, 2023, we had a net loss of $2,225,459, which consisted of a change in fair value of warrant liabilities of $206,016 and operating costs of $4,164,293, partially offset by dividends earned on marketable securities held in the Trust Account of $1,719,810 and recovery of offering costs related to the IPO allocated to warrants of $425,040.

For the nine months ended September 30, 2022, we had net income of $11,637,242, which consisted of a gain on change in fair value of warrant liabilities of $11,608,560 and dividends earned on marketable securities held in trust account of $1,632,690, partially offset by operating costs of $1,604,008.

Liquidity and Capital Resources

As of September 30, 2023, we had cash of $267,058 and owe $5,296,038 in accounts payable and accrued expenses and an additional $1,718,988 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 September 30, 2023 and December 31, 2022.

The Sponsor has agreed to defer repayment of the loan until the close of the Business Combination.

On April 5, 2023, we issued the Note in the principal amount of up to $1,500,000 to our Sponsor, which may be drawn down by us from time to time prior to the consummation of the initial Business Combination.

As of September 30, 2023, there was $1,238,449 outstanding under the Note.

In addition, in order to finance transaction costs in connection with a business combination, our Sponsor, an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans.

As of September 30, 2023 and December 31, 2022, there were no amounts outstanding under any Working Capital Loans.

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.

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 January 22, 2024 (unless extended as described above) to consummate a Business Combination.

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

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 Additional 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 January 22, 2024 (unless extended as described above).

Contractual Obligations

Other than the below, we do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities.

Underwriting Agreement

The IPO underwriters were entitled to a deferred underwriters fee of 3.5% of the gross proceeds of our IPO upon the completion of our initial Business Combination.

In April 2023, the IPO underwriters waived any right to receive such deferred underwriters fee and will therefore receive no additional underwriters fee in connection with the Closing.

Office Space, Secretarial and Administrative Services

Through the earlier of consummation of the initial Business Combination or the liquidation, the Company incurs $10,000 per month for office space, utilities, secretarial support and administrative services provided by the Sponsor.

For the three and nine months ended September 30, 2023, the Company incurred $30,000 and $90,000, respectively, pursuant to this agreement.

For the three and nine months ended September 30, 2022, the Company incurred $30,000 and $90,000, respectively, pursuant to this agreement.

No amounts have been paid for these services.

As of September 30, 2023 and December 31, 2022, the Company reported on the balance sheets $165,000 and $120,000, respectively, pursuant to this agreement, in “Due to related party”.

Registration Rights

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 Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) are entitled to registration rights pursuant to a registration and shareholder rights agreement signed at the closing of our initial public offering (the “IPO Registration Rights Agreement”).

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

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 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.

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.

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 lockup period, which occurs (i) in the case of the Founder Shares, as described in the following paragraph, and (ii) in the case of the Private Placement Warrants and the respective Class A ordinary shares underlying such 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.

Except as described herein, the Sponsor and its directors and executive officers have agreed not to transfer, assign or sell any of their Founder Shares until the earliest of (A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, or (y) the date on which we complete a liquidation, merger, share exchange or other similar transaction that results in all of the public shareholders having the right to exchange their ordinary shares for cash, securities or other property.

Any permitted transferees would be subject to the same restrictions and other agreements of the Sponsor and its directors and executive officers with respect to any founder shares.

Any permitted transferees will be subject to the same restrictions and other agreements of the Sponsor with respect to any Founder Shares.

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.

A&R Registration Rights Agreement

The Business Combination Agreement contemplates that, at the Closing, Sunergy, Sunergy’s underlying equityholders and the Initial Shareholders (as defined below) (collectively, the “New PubCo Holders”) and New PubCo will enter into an amended and restated IPO Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which, among other things, New PubCo and the Initial Shareholders will agree to amend and restate the Registration and Shareholder Rights Agreement, dated as of October 22, 2021, entered into by them in connection with ESGEN’s IPO.

Pursuant to the A&R Registration Rights Agreement, New PubCo will agree that, within 30 days following the consummation of the Business Combination, it will use its commercially reasonable efforts to file a resale shelf registration statement on behalf of Sunergy, Sunergy’s underlying equityholders and the Initial Shareholders registering (i) New PubCo’s private placement warrants, (ii) any outstanding shares of New PubCo Class A Common Stock held by the New PubCo Holders, (iii) any shares of New PubCo Class A Common Stock issued or issuable upon exchange of an equivalent number of Class B units of OpCo and Class V common stock of New PubCo, par value $0.0001 per share, issued to the Sellers pursuant to the Business Combination Agreement, (iv) any shares of New PubCo Class A Common Stock issued or to be issued to any of the New PubCo Holders in connection with the Business Combination and (v) any other equity security of New PubCo issued or issuable with respect to any of the foregoing by way of a stock dividend or stock split or in connection

with a combination of shares, recapitalization, merger, consolidation or reorganization (collectively, the “Registrable Securities”);

provided, however, that as to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such Registrable Securities becomes effective under the Securities Act and such Registrable Securities shall have been sold, transferred, disposed of or exchanged in accordance with such registration statement, (B) such Registrable Securities shall have been otherwise transferred and such transferee is not entitled to the registration rights provided in the A&R Registration Rights Agreement, (C) such Registrable Securities shall have ceased to be outstanding, or (D) such Registrable Securities may be sold without registration pursuant to Rule 144 and Rule 145, as applicable, promulgated under the Securities Act (or any successor rule promulgated thereto) (but with no volume or other restrictions or limitations).

Additionally, the A&R Registration Rights Agreement will also provide, subject to certain underwriter cutbacks and suspension periods, (i) certain demand rights entitling the New PubCo Holders the right to require New PubCo to effect an underwritten offering and (ii) certain piggyback rights entitling the New PubCo Holders the right to include such New PubCo Holder’s Registrable Securities in any underwritten offering that New PubCo proposes to consummate for its own account or for the account of its stockholders.

Amendment to the Letter Agreement

Concurrently with the execution of the Business Combination Agreement, the Sponsor, the independent directors of the board of directors of ESGEN and one or more client accounts of Westwood Group Holdings, Inc.

(successor to Salient Capital Advisors, LLC) (collectively, the “Initial Shareholders”) entered into an amendment (as amended, the “Amendment to the Letter Agreement”) to that certain Letter Agreement, dated as of October 22, 2021, by and between the Initial Shareholders, pursuant to which, among other things, each of the Initial Shareholders agreed (i) not to transfer his, her or its ESGEN Class B ordinary shares (or the ESGEN Class A Common Stock issuable in exchange for such ESGEN Class B ordinary shares pursuant to the Business Combination Agreement) prior to the earlier of (A) six months after the Closing or (B) subsequent to the Closing (x) if the last sale price of the ESGEN Class A Common Stock quoted on Nasdaq is greater than or equal to $12 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-consecutive trading day period commencing at least 90 days after Closing, or (y) the date on which ESGEN completes a liquidation, merger, share exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their ESGEN Class A ordinary shares (including any shares of ESGEN Class A Common Stock issuable in exchange for such ESGEN Class A ordinary shares) for cash, securities or other property and (ii) each Initial Shareholder agreed to waive any adjustment to the conversion ratio set forth in the governing documents of ESGEN with respect to the ESGEN Class B ordinary shares prior to the earlier of the ESGEN Share Conversion or the Closing.

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 not identified any critical accounting estimates.

Recent Accounting Pronouncements

Refer to Note 2 (“Significant Accounting Policies”) in the financial statements for the recent accounting pronouncements.

to the “Company,” “our,” “us” or “we” refer to Zeo Energy Corp.

The following discussion

and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed

financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and

uncertainties.

Note Regarding Forward-Looking Statements

Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as

amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We have based these forward-looking statements on our current expectations and projections about future events.

These forward-looking

statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of

activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements

expressed or implied by such forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such

as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,”

“believe,” “estimate,” and “continue,” or the negative of such terms or other similar expressions.

Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well

as all other statements other than statements of historical fact included in this Form 10-Q.

Factors that might cause or contribute to

such a discrepancy include, but are not limited to, those described in our other SEC filings.

Except as expressly required by applicable

securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new

information, future events or otherwise.

mission is to expedite the country’s transition to renewable energy by offering our customers an affordable and sustainable means

of achieving energy independence.

We are a vertically integrated provider of residential solar energy systems, other energy efficient

equipment and related services currently serving customers in Florida, Texas, Arkansas and Missouri.

Sunergy was created on October 1,

2021 through the Contribution of Sun First Energy, LLC, a rapidly growing solar sales management company, and Sunergy Solar, LLC, a large

solar installation company based in Florida, to Sunergy Renewables, LLC.

believe that we have built (and continue to build) the infrastructure and capabilities necessary to rapidly acquire and serve customers

in a low-cost and scalable manner.

Today, our scalable regional operating platform provides us with a number of advantages, including

the marketing of our solar service offerings through multiple channels, including our diverse sales partner network and direct-to-consumer

vertically integrated sales and installation operations.

We believe that this multi-channel model supports rapid sales and installation

growth, allowing us to achieve capital-efficient growth in the regional markets we serve.

our founding, we have continued to invest in a platform of services and tools to enable large scale operations for us and our partner

network, which includes sales partners, installation partners and other strategic partners.

The platform includes processes and software,

as well as the fulfillment and acquisition of marketing leads.

We believe our platform empowers our in-house sales team and external

sales dealers to profitably serve our regional and underpenetrated markets and helps us compete effectively against larger, more established

industry players without making significant investment in technology and infrastructure.

We have focused to date on a simple, capital light business strategy

utilizing, as of March 31, 2024, approximately 337 sales agents and approximately 15 independent sales dealers to produce a growing sales

We engineer and design projects and process building permit applications on behalf of our customers to timely install their

systems and assist their connections to the local utility power grid.

Most of the equipment we install is drop-shipped to the installation

site by our regional distributors, requiring minimal inventory to be held by the Company during any given period.

We depend on our distributors

to timely handle logistics and related requirements in moving equipment to the installation sites.

In addition to our main offering of

residential solar energy systems, we sell and install products such as roofing, insulation, energy efficient appliances and battery storage

systems for the residential market.

We believe that continued government policy support of solar energy

and increasing conventional utility costs provide the solar energy market with material headwinds for accelerating adoption in the United

States, which currently lags other international markets, including Australia and Europe.

We offer our products and services throughout

Florida, Texas, Arkansas, Missouri, Ohio, and Illinois and plan to enter new markets selectively where favorable net metering policies

exist and solar penetration is below 7% of the addressable residential market.

Most of our sales were generated in Florida through March

31, 2024 and 2023 with the remainder for each period generated in Texas, Arkansas, and Missouri.

We have focused on improving our operational

efficiency to meet the growing demand for our services and have increased our installation capacity by investing in new equipment and

We have also expanded our workforce by hiring more skilled technicians and training them extensively to ensure that they meet

our high standards for quality and safety.

core solar service offerings are generated by customer purchases and financing through third-party long-term lenders that provide customers

with simple, predictable pricing for solar energy that is insulated from rising retail electricity prices.

Most of our customers finance

their purchases with affordable loans from third-party lenders that require minimal or no upfront capital or down payment.

launched a leasing program where a third-party purchases the residential solar energy system that we install on the customer’s

We believe this leasing option may better suit some homeowners in a higher interest rate environment who may not have a need

for the investment tax credits associated with investing in renewable energy.

the Closing Date, we consummated the Business Combination.

Prior to the Closing, (i) except as otherwise specified in the Business Combination

Agreement, each issued and outstanding ESGEN Class B ordinary share was converted into one ESGEN Class A ordinary;

and (ii) ESGEN was

domesticated into the State of Delaware so as to become a Delaware corporation (.

In connection with the Closing, we changed our name

from “ESGEN Acquisition Corporation” to “Zeo Energy Corp.”

the Domestication, each then-outstanding ESGEN Class A ordinary share was converted into one share of Class A common stock, and each

then-outstanding ESGEN Public Warrant converted automatically into a Warrant, exercisable for one share of Zeo Class A Common Stock.

Additionally, each outstanding unit of ESGEN was cancelled and separated into one share of Class A Common Stock and one-half of one Warrant.

accordance with the terms of the Business Combination Agreement, Sunergy caused all holders of any options, warrants or rights to subscribe

for or purchase any equity interests of Sunergy or its subsidiaries or securities (including debt securities) convertible into or exchangeable

for, or that otherwise conferred on the holder any right to acquire, any equity interests of Sunergy or any subsidiary thereof (collectively,

the “Sunergy Convertible Interests”) existing immediately prior to the Closing to either exchange or convert all such holder’s

Sunergy Convertible Interests into limited liability interests of Sunergy (the “Sunergy Company Interests”) in accordance

with the governing documents of Sunergy or the Sunergy Convertible Interests.

the Closing, ESGEN contributed to OpCo (1) all of its assets (excluding its interests in OpCo, but including the amount of cash in ESGEN’s

Trust Account as of immediately prior to the Closing (after giving effect to the exercise of redemption rights by ESGEN stockholders)),

and (2) a number of newly issued shares of Class V common stock, which are non-economic, voting shares of Zeo, equal to the number of

Seller OpCo Units (as defined in the Business Combination Agreement) and (y) in exchange, OpCo issued to ESGEN (i) a number of Class

A common units of OpCo (the “OpCo Manager Units”) which equaled the total number of shares of Class A Common Stock issued

and outstanding immediately after the Closing and (ii) a number of warrants to purchase OpCo Manager Units which equaled the number of

Warrants issued and outstanding immediately after the Closing (the transactions described above in this paragraph, the “ESGEN Contribution”).

Immediately following the ESGEN Contribution, (x) the Sellers contributed to OpCo the Sunergy Company Interests and (y) in exchange therefor,

OpCo transferred to the Sellers the Seller OpCo Units and the Seller Class V Shares.

to the Closing, Sellers transferred 24.167% of their Sunergy Company Interests (which were thereafter exchanged for Seller OpCo Units

and Seller Class V Shares at the Closing, as described above) pro rata to Sun Managers, LLC, a Delaware limited liability company (“Sun

Managers”), in exchange for Class A Units (as defined in the Sun Managers limited liability company agreement (the “SM LLCA”))

in Sun Managers.

In connection with such transfer, Sun Managers executed a joinder to, and became a “Seller” for purposes

of, the Business Combination Agreement.

Sun Managers intends to grant Class B Units (as defined in the SM LLCA) in Sun Managers through

the Sun Managers, LLC Management Incentive Plan (the “Management Incentive Plan”) adopted by Sun Managers to certain eligible

employees or service providers of OpCo, Sunergy or their subsidiaries, in the discretion of Timothy Bridgewater, as manager of Sun Managers.

Such Class B Units may be subject to a vesting schedule, and once such Class B Units become vested, there may be an exchange opportunity

through which the grantees may request (subject to the terms of the Management Incentive Plan and the OpCo A&R LLC Agreement) the

exchange of their Class B Units into Seller OpCo Units (together with an equal number of Seller Class V Shares), which may then be converted

into Class A Common Stock (subject to the terms of the Management Incentive Plan and the OpCo A&R LLC Agreement).

Grants under the

Management Incentive Plan will be made after Closing.

of the Closing Date, upon consummation of the Business Combination, the only outstanding shares of capital stock of the registrant were

shares of Class A Common Stock and Class V Common Stock.

connection with entering into the Business Combination Agreement, ESGEN and the Sponsor entered the Sponsor Subscription Agreement, pursuant

to which, among other things, the Sponsor agreed to purchase an aggregate of 1,000,000 Convertible OpCo Preferred Units convertible into

Exchangeable OpCo units (and be issued an equal number of shares of Class V Common Stock) concurrently with the Closing at a cash purchase

price of $10.00 per unit and up to an additional 500,000 Convertible OpCo Preferred Units (together with the concurrent issuance of an

equal number of shares of Zeo Class V Common Stock) during the six months after Closing if called for by Zeo.

Prior to the Closing, ESGEN

informed the Sponsor that it wished to call for the additional 500,000 Convertible OpCo Preferred Units at the Closing and, as a result,

a total of 1,500,000 Convertible OpCo Preferred Units and an equal number of shares of Class V Common Stock were issued to Sponsor in

return for aggregate consideration of $15,000,000.

for the Business Combination

the Business Combination, we are organized in an “Up-C” structure, such that Sunergy and the subsidiaries of Sunergy hold

and operate substantially all of the assets and businesses of the registrant, and the registrant is a publicly listed holding company

that holds a certain amount of equity interests in OpCo, which holds all of the equity interests in Sunergy.

The Class A Common Stock

and public warrants are traded on Nasdaq under the ticker symbols “ZEO” and “ZEOWW,” respectively.

Business Combination was accounted for as a reverse recapitalization with ESGEN being treated as the acquired company since there was

no change in control in accordance with the guidance for common control transactions in ASC 805-50.

Accordingly, the financial statements

of the combined entity will represent a continuation of the financial statements of Sunergy with the business combination treated as

the equivalent of Sunergy issuing stock for the net assets of ESGEN, accompanied by a recapitalization.

The net assets of ESGEN were

stated at historical cost, with no goodwill or other intangible assets recorded.

Operations prior to the Business Combination were those

was determined to be the accounting acquirer based on evaluation of the following facts and circumstances.

upon the evaluation of the OpCo A&R LLC Agreement, the Sellers contributed their interests of Sunergy into OpCo.

OpCo’s members

did not have substantive kickout or participating rights and therefore OpCo is a VIE.

Consideration of OpCo as a VIE was necessary to

determine the accounting treatment between ESGEN and Sunergy.

Upon evaluation, ESGEN Acquisition Corp.

is considered to be the primary

beneficiary through its membership interest and manager powers conferred to it through the Class A Units.

For VIEs, the accounting acquirer

is always considered to be the primary beneficiary.

As such, ESGEN will consolidate OpCo and is considered to the accounting acquirer;

however, further consideration of whether the entities are under common control was required in order to determine whether there is an

ultimate change in control and the acquisition method of accounting is required under ASC 805.

Sunergy did not control or have common ownership of ESGEN prior to the consummation of the Business Combination, the Company evaluated

the ownership of the new entity subsequent to the consummation of the transaction to determine if a change in control occurred by evaluating

whether Sunergy was under common control prior to and subsequent to the consummation of the transaction.

If the business combination

is between entities under common control, then the acquisition method of accounting is not applicable and the guidance in ASC 805-50

regarding common control should be applied instead.

EITF Issue 02-5 “Definition of ‘Common Control’ in Relation to

FASB Statement No.

141” indicates that common control would exist if a group of stockholders holds more than 50 percent of the

voting ownership of each entity, and contemporaneous written evidence of an agreement to vote a majority of the entities’ shares

in concert exists.

Prior to the Business Combination, Sunergy was majority owned by five entities (the “ Primary Sellers ”),

who entered into a Voting Agreement, dated September 7, 2023.

The term of the Voting Agreement is for five years from the date of the

Voting Agreement.

The consummation of the Business Combination with ESGEN occurred within the term of the Voting Agreement.

to the Business Combination and the contributions to Sun Managers as described above, the Primary Sellers had 98% ownership in Sunergy.

Immediately following the Business Combination, the Sellers now own 83.8% of the equity of the Company.

Voting Agreement constitutes contemporaneous written evidence of an agreement to vote a majority of the Primary Sellers’ shares

of the Company in concert.

Accordingly, the Primary Sellers retain majority control through the voting of their units in conjunction

with the Voting Agreement immediately prior to the Business Combination and their shares following the Business Combination and, therefore,

there was no change of control before or after the Business Combination.

This conclusion was appropriate even though there was no relationship

or common ownership or control between Sunergy and ESGEN prior to the Business Combination.

Accordingly, the Business Combination should

be accounted for in accordance with the guidance for common control transactions in ASC 805-50.

factors that were considered include the following:

the Business Combination, the Board has been comprised of one individual designated by ESGEN

and five individuals designated by Sunergy.

the Business Combination, management of the Company has been the existing management at Sunergy

immediately prior to the Business Combination.

The individual that was serving as the chief

executive officer and chief financial officer of Sunergy’s management team immediately

prior to the Business Combination continues substantially unchanged upon completion of the

Business Combination.

common control transactions that include the transfer of a business, the reporting entity is required to account for the transaction

in accordance with the procedural guidance in ASC 805-50.

In essence, the Business Combination will be treated as a reverse recapitalization

with ESGEN being treated as the acquired company since there was no change in control.

Accordingly, the financial statements of the combined

entity will represent a continuation of the financial statements of Sunergy with the business combination treated as the equivalent of

Sunergy issuing equity for the net assets of ESGEN, accompanied by a recapitalization.

Company Costs

the Business Combination, we have ongoing reporting and other compliance requirements relating to our Exchange Act registration and Nasdaq

We expect to see an increase in general and administrative, compared to historical results, to support the legal and accounting

requirements of the combined publicly traded company.

We also expect to incur substantial additional expenses for, among other things,

directors’ and officers’ liability insurance, director fees, internal control compliance, and additional costs for investor

relations, accounting, audit, legal and other functions.

Operating and Financial Metrics and Outlook

regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure

our performance, identify trends in our business, prepare financial projections and make strategic decisions.

We believe the operating

and financial metrics presented below are useful in evaluating our operating performance, as they are similar to measures by our public

competitors and are regularly used by security analysts, institutional investors and other interested parties in analyzing operating

performance and prospects.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures, as they are not financial measures calculated

in accordance with GAAP and should not be considered as substitutes for net (loss) income or net (loss) income margin, respectively,

calculated in accordance with GAAP.

See “Non-GAAP Financial Measures ” for additional information on non-GAAP financial

measures and a reconciliation of these non-GAAP measures to the most comparable GAAP measures.

following table sets forth these metrics for the periods presented:

Three Months Ended

(In thousands, except percentages)

Operating profit

Net (loss) income

Adjusted EBITDA

Adjusted EBITDA margin

Profit and Gross Margin

define gross profit as revenue, net less direct costs of revenue and depreciation and amortization, and define gross margin, expressed

as a percentage, as the ratio of gross profit to revenue, net.

Gross profit and margin can be used to understand our financial performance

and efficiency and allows investors to evaluate our pricing strategy and compare against competitors.

Our management uses these metrics

to make strategic decisions, identify areas for improvement, set targets for future performance and make informed decisions about how

to allocate resources going forward.

EBITDA and Adjusted EBITDA Margin

define Adjusted EBITDA, a non-GAAP financial measure, as earnings (loss) before interest expense, income tax expense (benefit), depreciation

and amortization, other income (expenses), net as adjusted to exclude merger transaction related expenses.

We define Adjusted EBITDA

margin, a non-GAAP financial measure, expressed as a percentage, as the ratio of Adjusted EBITDA to revenue, net.

See “ Non-GAAP

Financial Measures ” for a reconciliation of GAAP net loss to Adjusted EBITDA and a ratio of GAAP net loss to revenue, net.

Factors that May Influence Future Results of Operations

financial results of operations may not be comparable from period to period due to several factors.

Key factors affecting the results

of our operations are summarized below.

of Residential Sales into New Markets .

Our future revenue growth is, in part, dependent on our ability to expand our product offerings

and services in the select residential markets where we operate in Florida, Texas, Arkansas and Missouri.

We primarily generate revenue

from our sales, product offerings and services in the residential housing market.

To continue our growth, we intend to expand our presence

in the residential market into additional states based on markets underserved by national sales and installation providers that also

have favorable incentives and net metering policies.

We believe that our entry into new markets will continue to facilitate revenue growth

and customer diversification.

of New Products and Services.

In 2024 we sold over $1.3 million in roofing replacements to facilitate our solar installations and

to repair rooftops on homes in Florida damaged by severe weather.

We plan to expand our roofing business in all markets we enter in the

Roofing facilitates a faster processing time for our solar installations in cases where the customer is in need of a roof replacement

prior to installing a solar system.

In addition, to provide more financing options for our prospective residential solar energy customers,

in 2023, we launched a program that allows customers to choose a leasing option to finance their systems from a third party.

selling systems utilizing third party leases under this and other similar programs to be a growing portion of our customer finance offerings

in the future.

Adding New Customers and Expansion of Sales with Existing Customers.

We intend to increase our in-house sales force and external sales dealers in 2024 in order to target new customers in the Southern

regional residential markets.

We provide competitive compensation packages to our in-house sales teams and external sales dealers,

which incentivizes the acquisition of new customers.

We are seeing an increase in the costs of labor and components as the result of higher inflation rates.

In particular, we are experiencing

an increase in raw material costs and supply chain constraints, and trade tariffs imposed on certain products from China, which may continue

to put pressure on our operating margins and increase our costs.

We do not have information that allows us to quantify the specific amount

of cost increases attributable to inflationary pressures.

Interest rate increases for both short-term and long-term debt have increased sharply.

Historically, most of our customers

have financed the purchase of their solar systems.

Higher interest rates have resulted in higher monthly costs to customers, which has

the effect of slowing the financing related sales of solar systems in the areas in which we sell and operate.

We do not have information

that allows us to quantify the adverse effects attributable to increased interest rates.

Managing our Supply Chain.

We rely on contract manufacturers

and suppliers to produce our components.

We have seen supply chain challenges and logistics constraints increase, including component

shortages, which have, in certain cases, caused delays in the delivery of critical components and inventory, created longer lead times,

and resulted in increased costs on jobs that were impacted by these issues.

We experienced material shortages and an increase in pricing

in 2022 and the beginning of 2023.

In the second half of 2023 purchases we saw a correction in the supply chain.

Our suppliers are generally

meeting our materials needs and we are realizing a decrease in pricing for our solar components.

Our ability to grow depends, in part,

on the ability of our contract manufacturers and suppliers to provide high quality services and deliver components and finished products

on time and at reasonable costs.

In the event we are unable to mitigate the impact of delays and/or price increases in raw materials,

electronic components and freight, it could delay the manufacturing and installation of our systems, which would adversely impact our

cash flows and results of operations, including revenue and gross margin.

of Consolidated Statements of Operations

primary source of revenue is the sale of our residential solar systems.

Our systems are fully functional at the time of installation

and require an inspection prior to interconnection to the utility power grid.

We sell our systems primarily direct to end user customers

for use in their residences.

Upon installation inspection, we satisfy our performance obligation and recognize revenue.

Many of the Company’s

customers finance their obligations with third parties.

In these situations, the finance company deducts their financing fees and remits

the net amount to the Company.

Revenue is recorded net of these financing fees (and/or dealer fees).

The volume of sales and installations

of rooftop solar systems, our primary product, increase from April to September when a majority of our sales teams are most active in

our areas of service.

In addition to sales of solar systems, “adders” or accessories to a sale may include roofing, energy

efficient appliances, upgraded insulation and/or energy storage systems.

All adders consisted of less than 10% of the total revenue,

net in each of the three months ended March 31, 2024 and 2023.

Our revenue is affected by changes in the volume and average selling

prices of our solutions and related accessories, supply and demand, sales incentives and fluctuating interest rates that increase or decrease

the monthly payments for customers purchasing systems through third party financing.

Less than 5% of our sales were paid in cash by the

customer in each of the three months ended March 31, 2024 and 2023.

Our revenue growth is dependent on our ability to compete effectively

in the marketplace by remaining cost competitive, developing and introducing new sales teams within existing and new territories, scaling

our installation teams to keep up with demand and maintaining a strong internal operations team to process orders while working with building

departments and utilities to permit and interconnect our customers to the utility grid.

of Goods Sold

of goods sold consists primarily of product costs (including solar panels, inverters, metal racking, connectors, shingles, wiring, warranty

costs and logistics costs), sales commissions, installation labor and permitting costs.

The Company uses primarily U.S.

suppliers for its materials and supplies.

However, these supplies may be originally sourced from outside of the United States, mainly China.

The supply chain and prices may be

impacted by changes in the geo-political environment.

net less cost of goods sold may vary from period-to-period and is primarily affected by our average selling prices, financing or dealer

fees, fluctuations in equipment costs and our ability to effectively and timely deploy our field installation teams to project sites

once permitting departments have approved the design and engineering of systems on customer sites.

expenses consist of sales and marketing and general and administrative expenses.

Personnel-related costs are the most significant component

of each of these expense categories and include salaries, benefits and payroll taxes.

In the future, the Company intends to provide more

benefits to its employees, including an employee stock purchase plan, which will increase operating expenses.

and marketing expenses consist primarily of personnel-related expenses, as well as advertising, travel, trade shows, marketing, customer

support and other indirect costs.

We expect to continue to make the necessary investments to enable us to execute our strategy to increase

our market penetration geographically and enter into new markets by expanding our base sales teams, installers and strategic sales dealer

and partner network.

and administrative expenses consist primarily of personnel-related expenses for our executive, finance, human resources, information

technology, and software, facilities costs and fees for professional services.

Fees for professional services consist primarily of outside

legal, accounting and information technology consulting costs.

and amortization consist primarily of deprecation of our vehicles, furniture and fixtures, internally developed software and amortization

of our acquired intangibles.

(expenses) income, net

(expenses) income, net primarily consist of interest expense and fees under our equipment and vehicle term loans.

It also includes interest

income on our cash balances, and accrued interest on tariffs previously paid and approved for refund.

of Operations

Months Ended March 31, 2024 Compared to Year Ended March 31, 2023

following table sets forth a summary of our consolidated statements of operations for the periods presented:

Three Months ended

Costs and expenses:

Cost of goods sold

Depreciation and amortization

Sales and marketing

General and administrative

Total operating expenses

(Loss) income from operations

Other (expense) income, net:

Other expense, net

Change in fair value of warrant liabilities

Interest expense

Total other (expenses) income, net

Net (loss) income

$ (1,789,129 )

$ (3,392,068 )

Revenue, net increased by approximately $0.8 million as a result of

our increase in sales volume in 2023 compared 2022.

The Company's first quarter benefits from the sales made in the prior year where the

revenue recognition process is not yet complete.

The Company had more sales at the end of 2023 that were in the installation process and

completed the revenue recognition process in 2024 than they had at the end of 2022 and completed the revenue recognition process in the

first quarter of 2023.

of Goods Sold

Cost of goods sold increased by $2.4 million as a result of the increase

in revenues as noted above and an increase in the cost of labor and materials during the three months ended March 31, 2024 as compared

As a percentage of revenue, the cost of goods sold increased by 9.1%, from 79.1% for the three months ended March 31, 2023 to

88.2% for the three months ended March 31, 2024.

The increase was driven primarily by an increase in the costs associated with the growth

of the business in 2023 which are not as easily reduced when the Company has a decrease in revenue as we did in the first quarter compared

to the 2nd half of 2023.

and amortization

and amortization increased by a nominal amount, from $432,599 for the three months ended March 31, 2023 to $462,701 for the three months

ended March 31, 2024.

The increase was due to an increase in our vehicle fleet in 2023 and the associated depreciation of the new vehicles.

and Administrative expenses

General and administrative expenses increased by $5.1 million from

$1.3 million for the three months ended March 31, 2023 to $6.4 million for the three months ended March 31, 2024.

The increase in expenses

is related primarily to investments the company is making in customer support, technology and costs associated with operating a public

and Marketing

and marketing expenses increased by $0.4 million, from $0.5 million for the three months ended March 31, 2023 to $0.1 million for the

three months ended March 31, 2024.

The decrease was a result of efforts to drive the associated increase in revenues.

(expense) income, net

expense (income), net decreased from $10,544 to $175,054 was due an increase in interest expense due to the financing of additional vehicles

and Capital Resources

primary source of funding to support operations have historically been from cash flows from operations.

Our primary short-term requirements

for liquidity and capital are to fund general working capital and capital expenses.

Our principal long-term working capital uses include

ensuring revenue growth, expanding our sales and marketing efforts and potential acquisitions.

of March 31, 2024 and December 31, 2023, our cash and cash equivalents balance were approximately $7.7 million and $8.0 million, respectively.

The Company maintains its cash in checking and savings accounts.

future capital requirements depend on many factors, including our revenue growth rate, the timing and extent of our spending to support

further sales and marketing, the degree to which we are successful in launching new business initiatives and the cost associated with

these initiatives, and the growth of our business generally.

order to finance these opportunities and associated costs, it is possible that we will need to raise additional capital through either

debt or equity financing if the proceeds realized from the Business Combination are insufficient to support our business needs.

we believe that the proceeds realized through the Business Combination will be sufficient to meet our currently contemplated business

needs for the next twelve months, we cannot assure you that this will be the case.

If additional financing is required by us from outside

sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital on acceptable

terms when needed, our business, results of operations and financial condition would be materially and adversely affected.

following table summarizes our cash flows for the periods presented:

For the three months ended

Net cash (used in) provided by operating activities

$ (10,153,821 )

$ (11,743,598 )

Net cash used in investing activities

Net cash provided by financing activities

Cash flows (used in) provided by operating activities

Net cash used in operating activities was approximately $10.2 million

during the three months ended March 31, 2024 compared to a net cash provided by operating activities of approximately $1.6 million during

three months March 31, 2024.

The decrease was primarily due to a decrease in net income due to the closing of the Business Combination.

Cash flows used in investing activities

Net cash used in investing activities was approximately $0.2 million

for the three months ended March 31, 2024, primarily relating to purchases of property and equipment of $0.3 million.

Net cash used in

investing activities for the three months ended March 31, 2023 was approximately $0.6 million primarily relating to purchases of vehicles.

Cash flows provided by financing activities

Net cash provided by financing activities was approximately $10.1 million

for the three months ended March 31, 2024, primarily relating to cash acquired from the Business Combination of $10.4 million offset by

repayments of debt and distributions of stockholders.

Net cash provided by financing activities for the three months ended March 31, 2023

was approximately $0.2 million, primarily relating to proceeds from the issuance of debt offset by distributions to members.

The Company has utilized internally generated positive cashflow to

grow the business.

The Company has $3.0 million payable for professional services related to the business combination to be paid over

the next six quarters;

$2.8 million in trade credit with solar equipment distributors;

$1.7 million of debt related to service vehicles

valued at approximately $2.1 million net of depreciation.

Financial Measures

non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared

in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results.

In addition, Adjusted EBITDA

and Adjusted EBITDA Margin should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating,

investing and financing activities, as there may be significant factors or trends that they fail to address.

We caution investors that

non-GAAP financial information, by its nature, departs from traditional accounting conventions.

Therefore, its use can make it difficult

to compare our current results with our results from other reporting periods and with the results of other companies.

management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business

and to, among other things:

(i) monitor and evaluate the performance of our business operations and financial performance;

(ii) facilitate

internal comparisons of the historical operating performance of our business operations;

(iii) facilitate external comparisons of the

results of our overall business to the historical operating performance of other companies that may have different capital structures

and debt levels;

(iv) review and assess the operating performance of our management team;

(v) analyze and evaluate financial and strategic

planning decisions regarding future operating investments;

and (vi) plan for and prepare future annual operating budgets and determine

appropriate levels of operating investments.

We believe that the use of these non-GAAP financial measures provides an additional tool

for investors to use in evaluating ongoing operating results and trends, and in comparing our financial results with other companies

in our industry, many of which present similar non-GAAP financial measures to investors.

We define Adjusted EBITDA, a non-GAAP financial measure, as net income

(loss) before interest and other income (expenses), net, income tax expense, and depreciation and amortization.

We utilize Adjusted EBITDA

as an internal performance measure in the management of our operations because we believe the exclusion of these non-cash and non-recurring

charges allow for a more relevant comparison of our results of operations to other companies in our industry.

Adjusted EBITDA should not

be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define Adjusted EBITDA differently.

following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

Three Months Ended

Net income (loss)

$ (1,699,200 )

Other income (expense), net

Income tax expense

Depreciation and amortization

Adjusted EBITDA

EBITDA Margin

We define Adjusted EBITDA margin, a non-GAAP financial measure, expressed

as a percentage, as the ratio of Adjusted EBITDA to revenue, net.

Adjusted EBITDA margin measures net income (loss) before interest expense,

other expenses, net, depreciation and amortization, and M&A expenses.

In the table above, Adjusted EBITDA is reconciled to the most

comparable GAAP measure, net income (loss).

We utilize Adjusted EBITDA margin as an internal performance measure in the management of

our operations because we believe the exclusion of these non-cash and non-recurring charges allow for a more relevant comparison of our

results of operations to other companies in our industry.

following table sets forth our calculations of Adjusted EBITDA margin for the periods presented:

Three Months Ended

Adjusted EBITDA

Ratio of Adjusted EBITDA to revenue, net

Accounting Estimates

preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates and assumptions

that affect our reported amounts of assets and liabilities at the date of the consolidated financial statements.

These financial statements

include some estimates and assumptions that are based on informed judgments and estimates of management.

We evaluate our policies and

estimates on an on-going basis and discuss the development, selection and disclosure of critical accounting policies with those charged

with governance.

Predicting future events is inherently an imprecise activity and as such requires the use of judgment.

Our consolidated

financial statements may differ based upon different estimates and assumptions.

We discuss our significant accounting policies in Note 2, Summary of

Significant Accounting Policies, to our consolidated financial statements.

Our significant accounting policies are subject to judgments

and uncertainties that affect the application of such policies.

We believe these financial statements include the most likely outcomes

with regard to amounts that are based on our judgment and estimates.

Our financial position and results of operations may be materially

different when reported under different conditions or when using different assumptions in the application of such policies.

estimates or assumptions prove to be different from the actual amounts, adjustments are made in subsequent periods to reflect more current

We believe the following accounting policies are critical to the preparation of our consolidated financial statements due

to the estimation process and business judgment involved in their application:

of Business Combinations

Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values

at the acquisition date.

Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets

acquired, if any, is recorded as goodwill or gain from a bargain purchase.

The fair value of assets and liabilities as of the acquisition

date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows

and apply an appropriate discount rate;

and the market approach which uses market data and adjusts for entity-specific differences.

use all available information to make these fair value determinations and engage third-party consultants for valuation assistance.

estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain.

actual results may differ materially from the projected results used to determine fair value.

is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the

acquisition-date amounts recognized for the net identifiable assets acquired.

is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more

likely than not result in an impairment of goodwill.

First, the Company assesses qualitative factors to determine whether or not it is

more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the Company concludes that it is more

likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a quantitative goodwill

impairment test comparing the fair value of the applicable reporting unit with its carrying value.

If the carrying amount of the reporting

unit exceeds the fair value of the reporting unit, the Company recognizes an impairment loss in the consolidated statements of operations

for the amount by which the carrying amount exceeds the fair value of the reporting unit.

The Company performs its annual goodwill impairment

test at December 31 of each year.

There was no goodwill impairment recorded for the three months ended March 31, 2024and 2023.

assets subject to amortization

assets include tradename, customer lists and non-compete agreements.

Amounts are subject to amortization on a straight-line basis over

the estimated period of benefit and are subject to annual impairment consideration.

Costs incurred to renew or extend the term of a recognized

intangible asset, such as the acquired trademark, are capitalized as part of the intangible asset and amortized over its revised estimated

assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the intangible assets

may not be recoverable.

Conditions that would necessitate an impairment assessment include a significant decline in the observable market

value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that

would indicate that the carrying amount of an asset or group of assets may not be recoverable.

The Company evaluates the recoverability

of intangible assets by comparing their carrying amounts to future net undiscounted cash flows expected to be generated by the intangible

If such intangible assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying

amount of the intangible assets exceeds the fair value of the assets.

The Company determines fair value based on discounted cash flows

using a discount rate commensurate with the risk inherent in the Company’s current business model for the specific intangible asset

being valued.

No impairment charges were recorded for the three months ended March 31, 2024 and 2023.

Quantitative and Qualitative Disclosures about Market Risk

a smaller reporting company, we are not required to provide the information required by this Item.

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-Q

Item 2. Management’s Discussion and Analysis