Zeo Energy Corp. 10-Q/A

Item 1. Financial Statements ZEO ENERGY CORP. CONDENSED CONSOLIDATED BALANCE SHEETS As of March 31, As of December 31, 2024 2023 Assets (as restated – See Note 2) (as restated – See Note 2) Current assets Cash and cash equivalents $ 7,731,124 $ 8,022,306 Accounts receivable, including $ 3,089,328 and $ 396,488 from related parties, net of allowance for credit losses of $ 862,580 and $ 2,270,620 , as of March 31, 2024 and December 31, 2023, respectively 7,392,075 2,905,205 Inventories 379,321 350,353 Prepaid installation costs 424,792 4,915,064 Prepaid expenses and other current assets 4,004,532 40,403 Total current assets 19,931,844 16,233,331 Other assets 158,857 62,140 Property, equipment and other fixed assets, net 2,938,703 2,918,320 Operating lease right of use assets 982,951 1,135,668 Intangibles, net 514,020 771,028 Goodwill 27,010,745 27,010,745 Total assets $ 51,537,120 $ 48,131,232 Liabilities, redeemable noncontrolling interests and stockholders’ equity (deficit) Current liabilities Accounts payable $ 5,448,483 $ 4,699,855 Accrued expenses and other current liabilities, including $ 267,006 and $ 2,415,966 with related parties at March 31, 2024 and December 31, 2023, respectively 3,897,557 4,646,365 Current portion of long-term debt 412,834 404,871 Current operating lease liabilities 487,348 539,599 Contract liabilities, including $ 106,585 and $ 1,160,848 with related parties as of March 31, 2024 and December 31, 2023, respectively 585,809 5,223,518 Total current liabilities 10,832,031 15,514,208 Non-current operating lease liabilities 529,015 636,414 Other liabilities 1,500,000 - Warrant liabilities 1,656,000 - Long-term debt 1,283,022 1,389,545 Total liabilities 15,800,068 17,540,169 Commitments and contingencies (Note 14) Redeemable noncontrolling interests Convertible preferred units 15,079,167 - Class B units 192,261,000 - Stockholders’ equity (deficit) Class V common stock 3,523 3,373 Class A common stock 503 - Additional paid in capital - 31,152,491 (Accumulated deficit) Retained earnings ( 171,607,141 ) ( 564,799 ) Total stockholders’ equity ( 171,603,115 ) 30,591,065 Total liabilities, redeemable noncontrolling interests and stockholders’ equity (deficit) $ 51,537,120 $ 48,131,232 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 ZEO ENERGY CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months ended March 31, 2024 2023 (as restated – See Note 2) Revenue, net of financing fees of $ 4,081,358 and $ 6,269,033 for the three months ended March 31, 2024 and 2023, respectively $ 11,051,021 $ 18,731,489 Related party revenue, net of financing fees of $ 3,856,219 and $ 0 for the three months ended March 31, 2024 and 2023, respectively 8,812,769 - Total revenue 19,863,790 18,731,489 Operating costs and expenses: Cost of goods sold (exclusive of depreciation and amortization shown below) 17,363,701 14,809,215 Depreciation and amortization 462,701 432,599 Sales and marketing 118,983 549,605 General and administrative 3,676,059 1,326,587 Total operating expenses 21,621,444 17,118,006 (Loss) income from operations ( 1,757,654 ) 1,613,483 Other (expenses) income, net: Other income, net - 5,000 Change in fair value of warrant liabilities ( 138,000 ) - Interest expense ( 37,054 ) ( 15,544 ) Total other expense, net ( 175,054 ) ( 10,544 ) Net (loss) income before taxes ( 1,932,708 ) 1,602,939 Income tax (expense) benefit 40,633 - Net (loss) income ( 1,892,075 ) 1,602,939 Less: Net (loss) income attributable to Sunergy Renewables LLC prior to the Business Combination ( 523,681 ) 1,602,939 Net loss for the period March 13, 2024 through March 31, 2024 ( 1,368,394 ) - Less: Net loss attributable to noncontrolling interest ( 124,203 ) - Net loss attributable to Class A common stock $ ( 1,244,191 ) $ - Basic and diluted net loss per share $ ( 1.25 ) - Weighted average units outstanding, basic and diluted 994,345 - The accompanying notes are an integral part of these condensed consolidated financial statements. 2 ZEO ENERGY CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2024 Redeemable noncontrolling interest Convertible Preferred units Class B Common Units Class V Common Stock Class A Common Stock Additional Paid in Retained Earnings (Accumulated Total Stockholders’ Shares Amount Units Units Amount Shares Amount Shares Amount Capital Deficit) Equity Balance, December 31, 2023 (as restated) - $ - $ - 1,000,000 $ 31,155,864 - $ - - $ - $ - $ ( 564,799 ) $ 30,591,065 Retroactive application of Business Combination (Note 3) - - - ( 1,000,000 ) ( 31,155,864 ) 33,730,000 3,373 - - 31,152,491 - - Balance, December 31, 2023 (as restated) - - - - - 33,730,000 3,373 - - 31,152,491 ( 564,799 ) 30,591,065 Stockholder distributions - - - - - - - - - - ( 90,000 ) ( 90,000 ) Net loss prior to the Business Combination (as restated) - - - - - - - ( 523,681 ) ( 523,681 ) Effects of Business Combination Issuance of Class A Shares to third party advisors - - - - - - - 553,207 55 2,765,980 - 2,766,035 Issuance of Class A Shares to backstop investor - - - - - - - 225,174 23 1,569,440 - 1,569,463 Reverse Recapitalization (Note 3) 1,500,000 6,855,076 - - - 1,500,000 150 4,248,583 425 ( 1,677,860 ) - ( 1,677,285 ) Transaction Costs (as restated) ( 2,890,061 ) ( 2,890,061 ) Establishment of redeemable noncontrolling interest - - 26,089,174 - - - - - - ( 26,089,174 ) - ( 26,089,174 ) Activities subsequent to business combination Stock-based compensation (as restated) - - - - - - - - - 504,834 - 504,834 Subsequent measurement of redeemable noncontrolling interest - - 174,520,120 - - - - - - ( 5,335,650 ) ( 169,184,470 ) ( 174,520,120 ) Net income, as restated - 8,224,091 ( 8,348,294 ) - - - - - - - ( 1,244,191 ) ( 1,244,191 ) Balance, March 31, 2024 (as restated) 1,500,000 $ 15,079,167 $ 192,261,000 - $ - 35,230,000 $ 3,523 5,026,964 $ 503 $ - $ ( 171,607,141 ) $ ( 171,603,115 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 ZEO ENERGY CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 Redeemable noncontrolling interest Convertible Preferred units Class B Common Units Class V Common Stock Class A Common Stock Additional Paid in Retained Earnings (Accumulated Total Stockholders’ Shares Amount Units Units Amount Shares Amount Shares Amount Capital Deficit) Equity Balance, December 31, 2022 - $ - $ - 1,000,000 $ 31,155,864 - $ - - $ - $ - $ 119,982 $ 31,275,846 Retroactive application of Business Combination (Note 3) - - - ( 1,000,000 ) ( 31,155,864 ) 33,730,000 3,373 - - 31,152,491 - - Balance, December 31, 2022 - - - - - 33,730,000 3,373 - - 31,152,491 119,982 31,275,846 Stockholder distributions - - - - - - - - - - ( 166,323 ) ( 166,323 ) Net income - - 1,602,939 - - - - - - - - - Balance, March 31, 2023 - $ - $ 1,602,939 - $ - 33,730,000 $ 3,373 - $ - $ 31,152,491 $ ( 46,341 ) $ 31,109,523 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 ZEO ENERGY CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2024 2023 Cash Flows from Operating Activities (As restated, See Note 2) Net (loss) income $ ( 1,892,075 ) $ 1,602,939 Adjustment to reconcile net (loss) income to cash (used in) provided by operating activities Depreciation and amortization 462,701 432,599 Change in fair value of warrant liabilities 138,000 - Provision for credit losses 150,000 240,486 Non-cash lease expense 152,717 120,394 Stock-based compensation 504,834 - Changes in operating assets and liabilities: Accounts receivable ( 1,944,029 ) ( 770,981 ) Accounts receivable due from related parties ( 2,692,841 ) - Inventories ( 28,968 ) ( 53,674 ) Prepaid installation costs 4,490,272 - Prepaids and other current assets ( 1,420,528 ) ( 180,286 ) Other assets ( 35,408 ) - Accounts payable ( 400,861 ) ( 1,914 ) Accrued expenses and other current liabilities ( 691,316 ) 313,286 Accrued expenses and other current liabilities due to related parties ( 2,148,960 ) - Contract liabilities ( 3,583,446 ) ( 14,789 ) Contract liabilities due to related parties ( 1,054,263 ) - Operating lease liabilities ( 159,650 ) ( 98,283 ) Net cash (used in) provided by operating activities ( 10,153,821 ) 1,589,777 Cash flows from Investing Activities Purchases of property, equipment and other assets ( 226,076 ) ( 605,874 ) Net cash used in investing activities ( 226,076 ) ( 605,874 ) Cash flows from Financing Activities Proceeds from the issuance of debt - 408,003 Repayments of debt ( 98,560 ) ( 75,000 ) Proceeds from Business Combination, net of transaction costs 10,277,275 - Distributions to members ( 90,000 ) ( 166,323 ) Net cash provided by financing activities 10,088,715 166,680 Net (decrease) increase in cash and cash equivalents ( 291,182 ) 1,150,583 Cash and cash equivalents, beginning of period 8,022,306 2,268,306 Cash and cash equivalents, end of the period $ 7,731,124 $ 3,418,889 Supplemental Cash Flow Information Cash paid for interest $ 35,894 $ 15,544 Non-cash transactions Recording of right of use assets and lease liability $ - $ 75,378 Transaction costs $ 3,269,039 $ - Issuance of Class A common stock to vendors $ 2,478,480 $ - Issuance of Class A common stock to backstop investors $ 1,569,440 $ - Accretion of Preferred Units $ 8,224,091 $ - The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 1 - ORGANIZATION AND BUSINESS OPERATION Zeo Energy Corp. (formerly known as ESGEN Acquisition Corporation or “ESGEN”), collectively with its subsidiaries (the “Company” or “Zeo”) is in the business of marketing, sales and installation, warranty coverage and maintenance of solar panel technology to individual households within the United States. As part of this, the Company may also provide roofing repairs and construction. Zeo Energy Corp. was a blank check company originally incorporated on April 19, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. On October 22, 2021, ESGEN consummated an initial public offering, after which its securities began trading on the Nasdaq Stock Market LLC (“Nasdaq”). Business Combination On March 13, 2024 (the “Closing Date”), the Company consummated its previously announced business combination (the “Closing”), pursuant to that certain Business Combination Agreement, dated as of April 19, 2023 (as amended on January 24, 2024, the “Business Combination Agreement”), by and among Zeo Energy Corp., a Delaware corporation (f/k/a ESGEN Acquisition Corporation, a Cayman Islands exempted company), ESGEN OpCo, LLC, a Delaware limited liability company(“OpCo”), Sunergy Renewables, LLC, a Nevada limited liability company (“Sunergy”), the Sunergy equity holders set forth on the signature pages thereto or joined thereto (collectively, “Sellers” and each, a “Seller”, and collectively with Sunergy, the “Sunergy Parties”), for limited purposes, ESGEN LLC, a Delaware limited liability company (the “Sponsor”), and for limited purposes, Timothy Bridgewater, an individual, in his capacity as the Sellers Representative (collectively, the “Business Combination”). Prior to the Closing, (i) except as otherwise specified in the Business Combination Agreement, each issued and outstanding Class B ordinary share of ESGEN was converted into one Class A ordinary share of ESGEN (the “ESGEN Class A Ordinary Shares” and such conversion, the “ESGEN Share Conversion”); and (ii) ESGEN was domesticated into the State of Delaware so as to become a Delaware corporation (the “Domestication”). In connection with the Closing, the registrant changed its name from “ESGEN Acquisition Corporation” to “Zeo Energy Corp.” Upon the Domestication, each then-outstanding ESGEN Class A Ordinary Share was cancelled and converted into one share of Class A common stock of the Company, par value $ 0.0001 per share (“Zeo Class A Common Stock”), and each then-outstanding ESGEN Public Warrant was assumed and converted automatically into a warrant of the registrant, exercisable for one share of Zeo Class A Common Stock. Additionally, each outstanding unit of ESGEN was cancelled and converted into one share of Zeo Class A Common Stock and one-half of one warrant of the Company. In 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 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 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. At 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 (the “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 of the registrant, par value $ 0.0001 per share, which generally have only voting rights (the “Zeo Class V Common Stock”), equal to the number of Seller OpCo Units (as defined in the Business Combination Agreement) (the “Seller Class V Shares”). In exchange, OpCo issued to ESGEN (i) a number of Class A common units of OpCo (the “Manager OpCo Units”) which equaled the number of total shares of the Zeo Class A Common Stock issued and outstanding immediately after the Closing and (ii) a number of warrants to purchase Manager OpCo Units which equaled the number of SPAC Warrants (as defined in the Business Combination Agreement) 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. Prior to the Closing, the 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 (as defined below)) 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 Zeo 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. As of March 31, 2024, no such grants have occurred. As of the Closing Date, upon consummation of the Business Combination, the only outstanding shares of capital stock of the registrant were shares of Zeo Class A Common Stock and Zeo Class V Common Stock. 6 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 In connection with entering into the Business Combination Agreement, ESGEN and the Sponsor entered into a subscription agreement, dated April 19, 2023, which ESGEN, the Sponsor and OpCo subsequently amended and restated on January 24, 2024 (the “Sponsor Subscription Agreement”), pursuant to which, among other things, the Sponsor agreed to purchase an aggregate of 1,000,000 OpCo preferred units (and be issued an equal number of shares of Zeo Class V Common Stock) (“Convertible OpCo Preferred Units”) 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 (the “Sponsor PIPE Investment”). 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 were issued to Sponsor in return for aggregate consideration of $ 15,000,000 . Accounting for the Business Combination The 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 Accounting Standards Codification (“ASC”) 805-50, Business Combinations – Related Issues (“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 of Sunergy. Sunergy was determined to be the accounting acquirer based on evaluation of the following facts and circumstances; Based upon the evaluation of the OpCo A&R LLC Agreement, OpCo is considered to be a Variable Interest Entity (“VIE”) and ESGEN 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, Zeo will consolidate OpCo and will be considered 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. While 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 common control existed. 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. The Financial Accounting Standards Board (“FASB”) ASC does not include a definition of common control. In practice, entities with a common parent entity, as determined under ASC 810, Consolidation , are generally considered to be under common control. Emerging Issues Task force (“EITF”) Issue 02-5, “Definition of ‘Common Control’ in Relation to FASB Statement No. 141 (“EITF Issue 02-5”)”, which was never finalized or codified, has also been applied in practice to determine when entities are under common control. EITF Issue 02-5 indicates that common control would exist in any of the following situations: ● An individual (including trusts in which the individual is the beneficial owner) or entity holds more than 50 percent of the voting ownership of each entity. ● Immediate family members hold more than 50 percent of the voting ownership interest of each entity, and there is no evidence that those family members would vote their shares in any way other than in concert. Immediate family members include a married couple and their children, but not the married couple’s grandchildren. Entities might be owned in varying combinations among living siblings and their children. Those situations require careful consideration of the substance of the ownership and voting relationships. ● 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 and the contributions to Sun Managers, Sunergy was majority owned by five entities (the “Primary Sellers”): ● Southern Crown Holdings, LLC (wholly owned by Anton Hruby) — 230,000 Common Units ( 23 %) ● LAMADD LLC (wholly owned by Gianluca Guy) — 230,000 Common Units ( 23 %) ● JKae Holdings, LLC (wholly owned by Kalen Larsen) — 215,000 Common Units ( 21.5 %) ● Clarke Capital, LLC (wholly owned by Brandon Bridgewater) — 215,000 Common Units ( 21.5 %) ● White Horse Energy, LC (wholly owned by Timothy Bridgewater) — 90,000 Common Units ( 9 %) Each of the above parties 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. 7 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Prior to the Business Combination and the contributions to Sun Managers, the Primary Sellers had 98 % ownership in Sunergy. Immediately following the Business Combination, they owned 83.8 % of the Common Stock of the registrant through their Zeo Class V Common Stock that have voting interests. The Voting Agreement constitutes contemporaneous written evidence of an agreement to vote a majority of the Primary Sellers’ shares of the registrant 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 is no change of control before or after the Business Combination. This conclusion is 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. Additional factors that were considered include the following: ● Since the Business Combination, the Board has been comprised of one individual designated by ESGEN and five individuals designated by Sunergy. ● Since 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. For 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. The C Corporation (ESGEN) is considered to be a substantive entity, the LLC (OpCo) is a business and VIE, and the C Corporation is considered to be the accounting acquirer since it is the primary beneficiary of the LLC. In a transaction that is a combination of entities under common control, the acquirer (ESGEN) should recognize the acquired entity (OpCo and Sunergy) on the same basis as the entities’ common parent. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and principles of Consolidation The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with Sunergy’s audited financial statements for the fiscal year ended December 31, 2023 as included in Form 8-K/A filed with the SEC on March 25, 2024. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of results for the full fiscal year. Our condensed consolidated financial statements include the accounts of Zeo Energy Corp, the accounts of Sun First Energy, LLC, Sunergy Solar LLC and Sunergy Roofing and Construction, LLC, all wholly owned subsidiaries, and ESGEN Opco, VIE, as defined in Note 1, for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. The December 31, 2023 balances reported herein are derived from the restated consolidated financial statements of Sunergy as included with the Company’s Current Report on Form 8-K/A Amendment No. 2 as filed with the SEC on August 19, 2024. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation in the condensed consolidated financial statements and these accompanying notes. The reclassifications did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. The impact on any prior period disclosures was immaterial. 8 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Restatement to Previously Reported Financial Statements Restatement Background On July 29, 2024, the Audit Committee of the Board of Directors of the Company, based upon the recommendation of management, determined that our (i) audited consolidated financial statements included in the Company’s Form 8-K for the period ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024 and as amended on March 25, 2024 (the “Original Form 8-K”) and (ii) unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period March 31, 2024, filed with the SEC on May 16, 2024 (the “Original Report”) (collectively, the “Affected Periods”), as well as the relevant portions of any communications which describe or are based on such financial statements, should no longer be relied upon, and that the previously issued financial statements for the Affected Periods should be restated. This Note discloses the nature of the restatement adjustments and discloses the cumulative effects of these adjustments on the condensed consolidated balance sheet, statement of operations, statement of changes in redeemable noncontrolling interests and stockholders’ equity and statement of cash flows for the three months ended March 31, 2024 included in the Original Form 10-Q. In addition, the related notes to the condensed consolidated financial statements have also been adjusted as appropriate to reflect the impact of the restatements. Description of Restatement Adjustments In July 2024, in connection with the Company’s the preparation of the Company’s condensed consolidated financial statements for the quarter ended June 30, 2024, the Company’s management identified the following misstatements in the Company’s previously reported interim financial statements included in the Company’s Original Report: ● Corrections to the December 31, 2023 annual period which reversed in the March 31, 2024 quarterly period increased net income by approximately $ 361,000 as follows: a) revenue increased by $ 376,000 , b) cost of sales increased by $ 180,000 and c) general and administrative expenses decreased by $ 166,000 . ● Stock-based compensation of approximately $ 505,000 relating to an executive had not been recorded as general and administrative expenses and additional paid-in capital. ● Transaction costs relating to the business combination of approximately $ 572,000 had not been recorded in additional paid-in capital and accrued expenses. ● The net impact of correcting the errors in the March 31, 2024 quarterly period is a reduction to Net Income of approximately $ 144,000 . In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the corrections and has determined that the related impacts were material to the previously filed financial statements that contained the errors, reported in the Original Filing (the “Affected Quarterly Period”). Therefore, on July 29, 2024, the audit committee of the Company’s board of directors (the “Audit Committee”) of the Company, after discussion with the Company’s management, who consulted with the Company’s independent registered public accounting firm, concluded that the previously issued financial statements that contained the error should no longer be relied upon and should be restated to correct the errors. As such, the Company is reporting the restatement to the Affected Quarterly Period in this quarterly report. Impact of the Restatement The impact of the restatement on the financial statements for the Affected Quarterly Period is presented below. In addition to the below, the related notes to the condensed consolidated financial statements have also been adjusted as appropriate to reflect the impact of the restatements. 9 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 The tables below present the effect of the financial statement adjustments related to the restatement discussed above of the Company’s previously reported unaudited condensed consolidated financial statements: Impact to the condensed consolidated balance sheet as of March 31, 2024 As reported Adjustment As restated Other assets $ 207,846 $ ( 48,989 ) $ 158,857 Total assets $ 51,586,109 $ ( 48,989 ) $ 51,537,120 Accounts payable $ 4,604,583 $ 843,900 $ 5,448,483 Accrued expenses and other current liabilities, including $ 267,006 and with related parties at March 31, 2024 $ 2,788,460 $ 1,109,097 $ 3,897,557 Total current liabilities $ 8,879,034 $ 1,952,997 $ 10,832,031 Total liabilities $ 13,847,071 $ 1,952,997 $ 15,800,068 (Accumulated deficit) Retained earnings $ ( 169,605,155 ) $ ( 2,001,986 ) $ ( 171,607,141 ) Total stockholders’ equity $ ( 169,601,129 ) $ ( 2,001,986 ) $ ( 171,603,115 ) Impact to the condensed consolidated statement of operations for the three months ended March 31, 2024 As reported Adjustment As restated Revenue, net of financing fees of $ 4,081,358 for the three months ended March 31, 2024 $ 10,675,421 $ 375,600 $ 11,051,021 Total revenue $ 19,488,190 $ 375,600 $ 19,863,790 Cost of goods sold (exclusive of items shown below) $ 17,183,740 $ 179,961 $ 17,363,701 General and administrative $ 3,336,841 $ 339,218 $ 3,676,059 Total operating expenses $ 21,102,265 $ 519,179 $ 21,621,444 Loss from operations $ ( 1,614,075 ) $ ( 143,579 ) $ ( 1,757,654 ) Loss before taxes $ ( 1,789,129 ) $ ( 143,579 ) $ ( 1,932,708 ) Income tax (expense) benefit $ 89,929 $ ( 49,296 ) $ 40,633 Net loss $ ( 1,699,200 ) $ ( 192,875 ) $ ( 1,892,075 ) Net loss attributable to Sunergy Renewables LLC prior to the Business Combination $ ( 759,936 ) $ 236,255 $ ( 523,681 ) Net loss for the period March 13, 2024 through March 31, 2024 $ ( 939,264 ) $ ( 429,130 ) $ ( 1,368,394 ) Net loss attributable to redeemable non-controlling interests $ 249,267 $ ( 373,470 ) $ ( 124,203 ) Net loss attributable to Class A common stock $ ( 1,188,531 ) $ ( 55,660 ) $ ( 1,244,191 ) Basic and diluted net loss per common unit $ ( 1.20 ) $ ( 0.05 ) $ ( 1.25 ) 10 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Impact to the condensed consolidated statement of changes in redeemable noncontrolling interests and stockholders’ equity for the three months ended March 31, 2024 As reported Adjustment As restated Class B units: Establishment of noncontrolling interest $ 27,399,463 $ ( 1,310,289 ) $ 26,089,174 Subsequent measurement of redeemable noncontrolling interest $ 172,836,361 $ 1,683,759 $ 174,520,120 Net loss $ ( 7,974,824 ) $ ( 373,470 ) $ ( 8,348,294 ) Additional paid in capital: Reverse Recapitalization (Note 3) $ ( 1,678,167 ) $ 307 $ ( 1,677,860 ) Transaction costs $ ( 2,317,632 ) $ ( 572,429 ) $ ( 2,890,061 ) Establishment of noncontrolling interest $ ( 27,399,463 ) $ 1,310,289 $ ( 26,089,174 ) Stock-based compensation $ - $ 504,834 $ 504,834 Subsequent measurement of redeemable noncontrolling interest $ ( 4,092,649 ) $ ( 1,243,001 ) $ ( 5,335,650 ) Retained Earnings (Accumulated Deficit): Balance, December 31, 2023, as restated $ 1,177,024 $ ( 1,741,823 ) $ ( 564,799 ) Net loss prior to the business combination $ ( 759,936 ) $ 236,255 $ ( 523,681 ) Subsequent measurement of redeemable noncontrolling interest $ ( 168,743,712 ) $ ( 440,758 ) $ ( 169,184,470 ) Net loss $ ( 1,188,531 ) $ ( 55,660 ) $ ( 1,244,191 ) Retained Earnings (Accumulated Deficit) $ ( 169,605,155 ) $ ( 2,001,986 ) $ ( 171,607,141 ) Total stockholder’s equity (deficit): Total Stockholders’ Equity balance December 31, 2023 $ 32,332,388 $ ( 1,741,323 ) $ 30,591,065 Net loss prior to the Business combination $ ( 759,936 ) $ 236,255 $ ( 523,681 ) Reverse Recapitalization (Note 3) $ ( 1,677,592 ) $ 307 $ ( 1,677,285 ) Transaction costs $ ( 2,317,632 ) $ ( 572,429 ) $ ( 2,890,061 ) Establishment of noncontrolling interest $ ( 27,399,463 ) $ 1,310,289 $ ( 26,089,174 ) Stock compensation $ - $ 504,834 $ 504,834 Subsequent measurement of redeemable noncontrolling interest $ ( 172,836,361 ) $ ( 1,683,759 ) $ ( 174,520,120 ) Net loss $ ( 1,188,531 ) $ ( 55,660 ) $ ( 1,244,191 ) Total stockholder’s equity (deficit) $ ( 169,601,129 ) $ ( 2,001,986 ) $ ( 171,603,115 ) Impact to the condensed consolidated statement of cash flows for the three months ended March 31, 2024 As reported Adjustment As restated Net income $ ( 1,699,200 ) $ ( 192,875 ) $ ( 1,892,075 ) Adjustment to reconcile net (loss) income to cash (used in) provided by operating activities Stock based compensation expense $ - $ 504,834 $ 504,834 Changes in operating assets and liabilities: Accounts receivable $ ( 1,878,529 ) $ ( 65,500 ) $ ( 1,944,029 ) Prepaid installation costs $ 4,280,727 $ 209,545 $ 4,490,272 Other assets $ ( 84,704 ) $ 49,296 $ ( 35,408 ) Accounts payable $ ( 330,661 ) $ ( 70,200 ) $ ( 400,861 ) Accrued expenses and other current liabilities $ ( 456,316 ) $ ( 235,000 ) $ ( 691,316 ) Contract liabilities $ ( 3,383,346 ) $ ( 200,100 ) $ ( 3,583,446 ) 11 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Use of Estimates The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with US GAAP requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Some of the more significant estimates include fair value of warrant liabilities, redemption value of non-controlling interest, subsequent realizability of intangible assets, useful lives of depreciation and amortization and collectability of accounts receivable. Due to the uncertainty involved in making estimates, actual results could differ from those estimates which could have a material effect on the financial condition and results of operations in future periods. The Company bases its estimates and assumptions on historical experience and other factors, including the current economic environment and on various other judgements that it believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment could have a material effect on the financial condition and results of future operations in future periods. Segments Information Operating segments are defined as components of an enterprise for which separate discrete financial information is evaluated regularly by our chief executive officer, who is the chief operating decision maker (“CODM”), in deciding how to allocate resources and assess performance. The CODM reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. Accordingly, the Company operates and manages its business as one operating and reportable segment. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. The Company maintains its cash in checking and savings accounts. Income generated from cash held in savings accounts is recorded as interest income. The carrying value of the Company’s savings accounts is included in cash and cash equivalents and approximates the fair value. Accounts receivable, net of allowance for credit losses Accounts receivable is presented at the invoiced receivable amounts, less any allowance for any potential expected credit loss amounts, and do not bear interest. The Company estimates allowance for credit losses based on the creditworthiness of each customer, historical collections experience, forward-looking information and other information including the aging of the receivables. This analysis resulted in an allowance for credit losses as of March 31, 2024 and December 31, 2023 of $ 2,420,620 and $ 862,580 , respectively. Additionally, the Company had no write-offs and no recoveries for each of the three months ended March 31, 2024 and 2023. The majority of our customers finance their purchase and installation of solar panels through various financing companies, who then remit payment to Sunergy typically within 3 days after installation. The Company is not deemed a borrower with these financing agreements and as a result is not subject to any of the terms of the financing transaction between the financing company and the customer. Prepaid installation costs Prepaid installation costs include costs incurred prior to completion of installations of solar systems. Such costs include the cost of engineering, permits, governmental fees, advances for sales commissions, and other related solar installation costs. These costs are charged to Cost of goods sold when each installation is completed. Prepaid expenses and other current assets Prepaid expenses and other current assets consist of employee advances, prepaid insurance, prepaid sales commissions and other current assets. Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalent balances in highly rated financial institutions, which at times may exceed federally insured limits. The amounts over these insured limits as of March 31, 2024 and December 31, 2023 were $ 7,321,621 and $ 6,979,011 , respectively. The Company mitigates this concentration of credit risk by monitoring the credit worthiness of the financial institutions. No losses have been incurred to date on any deposits. The Company performs periodic credit evaluations of its customers’ financial condition and also monitors the financial condition of the financial counterparties that finance customer transactions and generally does not require collateral. As of March 31, 2024, one customer accounted for 41 % of accounts receivable. No one customer or financing counterparty exceeded 10 % of accounts receivable as of December 31, 2023. 12 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Inventories Inventories are primarily comprised of solar panels and other related items necessary for installations and service needs. Inventories are accounted for on a first-in-first-out basis and are measured at the lower of cost or net realizable value, where cost is determined using a weighted-average cost method. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as cost of goods sold in the condensed consolidated statements of operations. As of March 31, 2024 and December 31, 2023, inventory was $ 379,321 and $ 350,353 , respectively. Property, equipment and other fixed assets Property, equipment and other fixed assets are carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the related costs and accumulated depreciation are removed from their respective accounts, and any difference between the sale proceeds and the carrying amount of the asset is recognized as a gain or loss on disposal in the combined consolidated Statements of Income. Software that is developed for internal use and is accounted for pursuant to ASC 350-40 , Intangibles, Goodwill and Other-Internal-Use Software . Qualifying costs incurred to develop internal-use software are capitalized when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completed and perform as intended. These capitalized costs include compensation for employees who develop internal-use software and external costs related to development of internal use software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Internally developed software is amortized using the straight-line method over an estimated useful life. All other expenditures, including those incurred in order to maintain an intangible asset’s current level of performance, are expensed as incurred. When these assets are retired or disposed of, the cost and accumulated amortization thereon are removed, and any resulting gain or losses are included in the consolidated statements of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is five years , across all asset classes. The estimated useful lives and depreciation methods are reviewed at each year-end, with the effect of any changes in estimates accounted for prospectively. All depreciation expense is included with depreciation and amortization in the condensed consolidated statements of operations. Impairment of long-lived assets Management reviews each asset or asset group for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable, and at least annually. No impairment provisions were recorded by the Company during the three months ended March 31, 2024 and 2023. Business Combinations The Company accounts for an acquisition as a business combination if the assets acquired and liabilities assumed in the transaction constitute a business in accordance with ASC Topic 805. Such acquisitions are accounted using the acquisition method by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Where the set of assets acquired and liabilities assumed doesn’t constitute a business, it is accounted for as an asset acquisition where the individual assets and liabilities are recorded at their respective relative fair values corresponding to the consideration transferred. Goodwill Goodwill 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. Goodwill 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 for the three months ended March 31, 2024 and 2023. 13 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Intangible assets subject to amortization Intangible assets include tradenames, 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 useful life. Intangible 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 assets. 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. Leases The Company determines whether an arrangement contains a lease based on the conveyed rights and obligations at the inception date. If an agreement contains an operating or financing lease, at the commencement date, we record a Right of Use (“ROU”) asset and a corresponding lease liability based on the present value of the minimum lease payments. As most of our leases do not provide an implicit borrowing rate, to determine the present value of lease payments, the Company uses its hypothetical secured borrowing rate based on information available at lease commencement. Further, management made a number of estimates and judgments regarding the lease term and lease payments. Lease Term — Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one month to one year or more. Additionally, some of our leases include an option for early termination. The Company includes renewal periods and exclude termination periods from our lease term if, at commencement, it is reasonably likely that it will exercise the option. Lease Payments — Certain of the Company’s lease agreements include rental payments that are adjusted periodically for inflation or passage of time. These step payments are included within our present value calculation as they are known adjustments at commencement. Some of its lease agreements include variable payments that are excluded from the present value calculations. Warrant Liabilities The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 815-40, Derivatives and Hedging (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company accounts for the Public Warrants (as defined in Note 10) (the “Warrants”) in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations. The Warrants for periods where no observable traded price was available are valued using a binomial lattice model. The quoted market price is utilized as the fair value as of each relevant date. Accrual for Probable Loss Contingencies In the normal course of business, the Company is involved in various claims and legal proceedings. A liability is recorded for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. Legal costs associated with loss contingencies are expensed as incurred. 14 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Revenue Recognition The Company accounts for its revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company applies judgment in the determination of performance obligations in accordance with ASC 606. Performance obligations in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. In addition, a single performance obligation may comprise a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. This principle is achieved through applying the following five-step approach: ● Step 1 - Identification of the contract, or contracts, with a client. ● Step 2 - Identification of the performance obligations in the contract. ● Step 3 - Determination of the transaction price. ● Step 4 - Allocation of the transaction price to the performance obligations in the contract ● Step 5 - Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company recognizes and records revenue from its operations upon completion of installation for both solar system installations and roofing installations. In connection with the sales and installation, a signed contract between the Company and the purchaser defines the duties and obligations of each party. The contract is specific as to the duties and responsibilities which govern the accounting for these transactions. Once the Company’s performance obligations are met with installation completed, according to the signed contract, the Company’s obligations are completed, and title is transferred to the buyer. The Company believes its performance obligation is completed once the installation of the solar panels is completed, which is prior to the customer receiving permission to operate the solar panels from the local utility company. The Company records sales revenue at this point in time in its accounting records. 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 recorded is equal to the contract amount signed by the purchaser, net of the financing fees. The Company incurs several costs associated with the installation prior to its completion recorded. In accordance with ASC 340, Other Assets and Deferred Costs, installation-related costs are recorded as prepaid expenses and other current assets and in turn are expensed when installation is completed. Thus, revenue recognition is in turn matched with the installation equipment costs and expense associated with the completion of each project. For the three months ended March 31, 2024 2023 Solar Systems Installations, gross $ 26,426,178 $ 23,372,617 Financing Fees ( 7,937,577 ) ( 6,250,528 ) Solar Systems Installations, net 18,488,601 17,122,089 Roofing Installations 1,375,189 1,609,400 Total net revenues $ 19,863,790 $ 18,731,489 Contract liabilities The Company receives both customer lender advances and, when the customer does not utilize third-party financing, customer advances. These amounts are listed on the balance sheet as contract liabilities and are considered a liability of the Company until the installation is completed. When an installation is delayed, the lender may withdraw their lender advances until the project installation is completed. The contract liabilities amounts are expected to be recognized as revenue within a few months of the Company’s receipt of the funds. The following table summarizes the change in contract liabilities: For the three months ended March 31, 2024 2023 Contract liabilities, beginning of the period $ 5,223,518 $ 1,149,047 Revenue recognized from amounts included in contract liabilities at the beginning of the period ( 5,223,518 ) ( 1,149,047 ) Cash received prior to completion of performance obligation 585,809 1,134,258 Contract liabilities, as of the end of the period $ 585,809 $ 1,134,258 15 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Contract acquisition costs The Company pays sales commissions to sales representatives based on a percentage of the sales contracts entered into by the customer and the Company. Payment is made to the sales representative once installation is completed. Such costs are included as cost of goods sold on the condensed consolidated statement of operations. Since sales commission payments are subject to completion of the installation, payment is made commensurate with the recognition of revenue from the sale, and therefore the full expense is incurred as the Company does not have any remaining performance obligations. Earnings per share The Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted average number of shares of Class A Common Stock outstanding and excludes the dilutive effect of warrants, stock options, and other types of convertible securities. Diluted earnings per share is calculated based on the weighted average number of shares of Class A Common Stock outstanding and the dilutive effect of warrants and other types of convertible securities are included in the calculation. Dilutive securities are excluded from the diluted earnings per share calculation if their effect is anti-dilutive, such as in periods where a net loss has been reported. Prior to the Business Combination, the membership structure of Sunergy Renewable, LLC included membership units. In conjunction with the closing of the Business Combination, the Company effectuated a recapitalization whereby all membership units were converted to common units of ESGEN Opco, LLC, and Zeo Energy Corp. implemented a revised class structure including Class A Common Stock having one vote per share and economic rights and Class V Common Stock having one vote per share and no economic rights. The Company has determined that the calculation of loss per unit for periods prior to the Business Combination would not be meaningful to the users of these consolidated financial statements. As a result, loss per share information has not been presented for periods prior to the Business Combination. Stock-based Compensation The Company recognizes an expense for stock-based compensation awards based on the estimated fair value of the award on the date of grant. The Company has elected to account for restricted stock awards with market conditions using a graded vesting method. This method recognizes the compensation cost in the statement of operations over the requisite service period for each separately vesting tranche of awards. The Company has elected to recognize forfeitures as they occur rather than estimate expected forfeitures. Fair value of Financial Instruments Fair value is the price that would be received to sell an asset, or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We classify fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows: Level 1 — Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. 16 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable market data. Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy based on the inputs used to measure fair value. The recorded amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accrued expenses, advanced funding, accounts payable, and debt approximate fair value due to their relatively short maturities. Redeemable Noncontrolling Interests Noncontrolling interests represent the portion of ESGEN Opco, LLC that Zeo Energy Corp. controls and consolidates but does not own. The noncontrolling interests was created as a result of the Business Combination and represents 33,730,000 common units issued by Zeo Energy Corp to the prior investors. As of the Close of the Business Combination, Zeo Energy Corp. held a 13.0 % interest in ESGEN Opco LLC with the remaining 87.0 % interest held by ESGEN OpCo’s prior investors. The prior investors’ interests in ESGEN Opco. LLC represent a redeemable noncontrolling interest. At its discretion, the members have the right to exchange their common units in ESGEN Opco LLC (along with the cancellation of the paired shares of Zeo Energy Corp or the Class V Common Stock) for either shares of Class A Common Stock on a one-to-one basis or cash proceeds of equal value at the time of redemption. Any redemption of ESGEN Opco, LLC Common Units in cash must be funded through a private or public offering of Class A Common Stock and is subject to the Company’s Board’s approval. As of March 31, 2024, the prior investors of ESGEN Opco LLC hold the majority of the voting rights on the Board. As the redeemable noncontrolling interests are redeemable upon the occurrence of an event that is not solely within the Company’s control, the Company classifies redeemable noncontrolling interests as temporary equity. The redeemable noncontrolling interests in common units were initially measured at the ESGEN Opco, LLC prior investors’ share in the net assets of the Company upon consummation of the Business Combination. Subsequent remeasurements of the Company’s redeemable noncontrolling interests are recorded as a deemed dividend each reporting period, which reduces retained earnings, if any, or additional paid-in capital of Zeo Energy Corp. Remeasurements of the Company’s redeemable noncontrolling interests are based on the fair value of our Class A Common Stock. Redeemable Convertible Preferred Units The Company records redeemable convertible preferred units at fair value on the dates of issuance, unless an exception applies, net of issuance costs. The redeemable convertible preferred units have been classified outside of stockholders’ equity (deficit) as temporary equity on the accompanying condensed consolidated balance sheets because the shares contain certain redemption features that are not solely within the control of the Company. See Note 9 – Redeemable Noncontrolling Interest and Equity. Because the Class A convertible preferred units are held by the Sponsor at the OpCo level, the preferred units are presented as a noncontrolling interest on the condensed consolidated balance sheets. Income Taxes Zeo Energy Corp. is a corporation and thus is subject to United States (“U.S.”) federal, state and local income taxes. ESGEN Opco, LLC is a partnership for U.S. federal and most state and local income tax purposes and therefore is generally not subject to U.S. federal and most state and local income taxes. Instead, the ESGEN Opco, LLC unitholders, including Zeo Energy Corp., are liable for U.S. federal income tax on their respective shares of Zeo Energy Corp.’s taxable income. ESGEN Opco, LLC is liable for income taxes in those states that treat partnerships as the ultimate taxpayer for U.S. federal income tax purposes. Otherwise, the income still flows to the LLC owners. 17 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 We use the asset and liability method of accounting for income taxes for the Company. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss (“NOL”) and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the results of operations in the period that includes the enactment date. The realizability of deferred tax assets is evaluated quarterly based on a “more likely than not” standard and, to the extent this threshold is not met, a valuation allowance is recorded. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. Management has evaluated the Company’s tax positions, including its previous status as a pass-through entity for federal and state tax purposes, and has determined that the Company has taken no uncertain tax positions that require adjustment to the condensed consolidated financial statements. The Company’s reserve related to uncertain tax positions was zero as of March 31, 2024 and December 31, 2023. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. The open tax years for the U.S. federal and state income tax purposes are 2019 and forward. The Company has calculated the provision for income taxes during the interim reporting period by applying an estimate of the Annual Effective Tax Rate (AETR) for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Our effective tax rate (ETR) from continuing operations was 2.1 % for the three months ended March 31, 2024, and 0 % percent for the three months ended March 31, 2023. The ETR for the three months ended differs from statutory rates primarily due to the non-controlling interest portion of ESGEN Opco, LLC, which is a partnership for federal tax purposes. Tax Receivable Agreement In conjunction with the consummation of the Transactions, Zeo Energy Corp entered into a Tax Receivable Agreement (the “TRA”) with ESGEN Opco, LLC and certain ESGEN Opco, LLC members (the “TRA Holders”). Pursuant to the TRA, Zeo Energy Corp. is required to pay the TRA Holders 85 % of the net cash savings, if any, in U.S. federal, state and local income and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Business Combination as a result of, as applicable to each such TRA Holder, (i) certain increases in tax basis that occur as a result of the acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Exchangeable OpCo Units pursuant to the exercise of the OpCo Exchange Rights or a Mandatory Exchange and (ii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments it makes under the Tax Receivable Agreement. All such payments to the TRA Holders are the obligations of Zeo Energy Corp., and not that of ESGEN Opco, LLC. As of March 31, 2024, there have been no exchanges of ESGEN Opco, LLC units for Class A Common Stock of Zeo Energy Corp. and, accordingly, no TRA liabilities currently exist. Future exchanges will result in incremental tax attributes and potential cash tax savings for Zeo Energy Corp. Depending on the Company’s assessment of the realizability of such Tax Attributes, the arising TRA liability will be recorded through income. As of March 31, 2024, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized; therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets. As of March 31,2024, the total unrecorded TRA liability is approximately $ 48.8 million. If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations. 18 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 New Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting-Improvements to Reportable Segment Disclosures (Topic 280) (“ASU 2023-07”), which requires an enhanced disclosure of segments on an annual and interim basis, including the title of the chief operating decision maker, significant segment expenses, and the composition of other segment items for each segment’s reported profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to income tax disclosures (“ASU 2023-09”), expanding the disclosures requirement for income taxes primarily by requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and adoption of ASU 2023-09 can be applied prospectively or retrospectively. The Company is currently evaluating the impact of this standard. NOTE 3 - REVERSE RECAPITALIZATION As discussed in Note 1, “Nature of Operations”, the Business Combination was consummated on March 13, 2023, which, for accounting purposes, was treated as the equivalent of Zeo issuing stock for the net assets of ESGEN, accompanied by recapitalization. Under this method of accounting, ESGEN was treated as the acquired company for financial accounting and reporting purposes under GAAP. Transaction Proceeds Upon closing of the Business Combination, the Company received gross proceeds of $ 17.7 million from the Business Combination, offset by total transaction costs and other fees totaling $ 7.4 million. The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statement of changes in stockholders’ deficit for the period ended December 31, 2023: Cash-trust and cash, net of redemptions $ 2,714,091 Less: transaction costs, promissory note and professional fees, paid ( 7,350,088 ) Proceeds from pipe subscription 15,000,000 Net proceeds from the Business Combination 10,364,003 Less: liabilities assumed ( 12,041,288 ) Reverse recapitalization, net $ ( 1,677,285 ) 19 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 The number of shares of Common Stock issued immediately following the consummation of the Business Combination was: Class V Common Stock Class A Common Stock ESGEN Class A common stock, outstanding prior to the Business Combination - 7,027,636 Forfeiture of Class A founder shares - ( 2,900,000 ) Less redemptions - ( 1,159,976 ) Class A common stock of ESGEN - 2,967,660 ESGEN Class B common stock, outstanding prior to the Business Combination - 1,280,923 Business Combination shares - 4,248,583 Sunergy Shares 33,730,000 - Issuance of Class A Shares to third party advisors - 553,207 Issuance of Class A Shares to backstop investor - 225,174 Shares issued to sponsor 1,500,000 - Common Stock immediately after the Business Combination 35,230,000 5,026,964 Public and private placement warrants The 13,800,000 Public Warrants issued at the time of ESGEN’s initial public offering remained outstanding and became warrants for the Company and the 14,040,000 Private Placement Warrant were forfeited. Redemption Prior to the closing of the Business Combination, certain ESGEN public stockholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 1,159,976 shares of ESGEN Class A common stock for an aggregate payment from the Trust of $ 13,336,056 . NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following: As of March 31, As of December 31, 2024 2023 Internally-developed software $ 799,400 $ 691,745 Furniture 126,007 126,007 Equipment and vehicles 3,084,381 2,965,961 Property and equipment 4,009,788 3,783,713 Accumulated depreciation ( 1,071,085 ) ( 865,393 ) $ 2,938,703 $ 2,918,320 Depreciation expense related to the Company’s property and equipment was $ 205,693 and $ 108,016 for the three months ended March 31, 2024 and 2023, respectively, which were included in the condensed consolidated statements of operations. 20 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 5 - INTANGIBLE ASSETS The following is a summary of the Company’s intangible assets, net as of March 31, 2024 and December 31, 2023: Weighted March 31, 2024 Average Useful Life (in years) Gross Carrying Amount Accumulated Amortization Total Tradename 0.75 $ 3,084,100 $ 2,570,080 $ 514,020 Customer lists 0 496,800 496,800 - Non-compete 0 224,000 224,000 - $ 3,804,900 3,290,880 $ 514,020 Weighted December 31, 2023 Average Useful Life (in years) Gross Carrying Amount Accumulated Amortization Total Tradename 1.5 $ 3,084,100 $ 2,313,072 $ 771,028 Customer lists 0 496,800 496,800 0 Non-compete 0 224,000 224,000 0 $ 3,804,900 $ 3,033,872 $ 771,028 The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. Management has determined there have been no indicators of impairment or change in useful life for the years ended March 31, 2024 and 2023. Amortization expense relating to the Company’s intangible assets was $ 257,008 and $ 324,583 for the three months ended March 31, 2024 and 2023, respectively, which were included in depreciation and amortization expenses in the condensed consolidated statements of operations. NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES The following table summarizes accrued expenses and other current liabilities: March 31, December 31, 2024 2023 Credit card accrual $ 115,549 $ 58,963 Accrued payroll 420,354 136,668 Accrued commissions 83,765 856,360 Accrued dealer fees 267,006 2,415,966 Transaction Costs 2,316,144 - Accrued Other 694,739 1,178,408 $ 3,897,557 $ 4,646,365 NOTE 7 - LEASES The Company leases both office space and warehouse space for its operations. Lease maturities vary from 2 to 5 years. Leases are viewed and recorded as operating leases and as such periodic payments (monthly) are expensed according to the period for which payment is made. Operating lease costs recorded in general and administrative expenses in the condensed consolidated statements of operations were $ 163,965 and $ 130,942 for the three months ended March 31, 2024 and 2023, respectively. 21 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 The following amounts were recorded in the Company’s balance sheet relating to its operating lease and other supplemental information: March 31, 2024 December 31, 2023 Operating lease ROU assets $ 982,951 $ 1,135,668 Current operating lease liabilities 487,348 539,599 Non-current operating lease liabilities 529,015 636,414 Total lease liabilities $ 1,016,363 $ 1,176,013 Other supplemental information: Weighted average remaining lease term (years) 2.81 2.86 Weighted average discount rate 4.23 % 4.26 % The following table summarizes the supplemental cash flow information related to leases: March 31, 2024 March 31, 2023 Cash paid for amounts included in lease liabilities $ 170,898 $ 108,832 Right-of-use assets obtained in exchange for operating lease liabilities, net $ - $ 75,378 The following table presents the maturity analysis of operating lease liabilities as of December 31, 2023: Years Operating Leases 2024 $ 575,547 2025 291,270 2026 186,931 2027 138,284 2028 58,566 Total lease payments 1,250,598 Less interest 74,585 Present value of lease liabilities 1,176,013 The Company has deposited security payments related to the facility leases of $ 56,515 included in the Consolidated Balance Sheets as other assets. NOTE 8 - DEBT The Company has financing arrangements for many of the vehicles in its fleet. The financing includes direct loans for each vehicle being financed. For the three months ended March 31, 2024 and 2023 the Company entered into new vehicle financing arrangements totaling $0 and $ 380,686 , respectively. Payments of debt obligations are based on level monthly payments for 60 months and include interest rates ranging from 4.94 % - 11.09 %. As of March 31, 2024, the weighted average interest rate on the Company’s short debt obligations was 7.55 %. The combined amounts of these financial obligations are included in the condensed consolidated balance sheets as current portion of long-term debt and Long-term debt. The company does not have debt covenants associated with these arrangements. The following table presents the maturity analysis of the long-term debt as of December 31, 2024: Years 2024 $ 306,311 2025 436,976 2026 451,457 2027 285,134 2028 215,978 Total debt 1,695,856 Less current portion 412,834 Long-term debt $ 1,283,022 22 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 9 - REDEEMABLE NONCONTROLLING INTEREST AND EQUITY Business Combination The consolidated statements of stockholders’ deficit, mezzanine equity and noncontrolling interests reflect the reverse recapitalization and Business Combination as described in Note 1 - Business Description and Note 3 – Reverse Recapitalization. As Sunergy was deemed to be the accounting acquirer in the Business Combination, all periods prior to the consummation of the Business Combination reflect the balances and activity of Sunergy Renewables, LLC. The consolidated balances as of December 31, 2023 from the financial statements of Sunergy Renewables, LLC as of that date and membership unit activity in the consolidated statements of change in stockholders’ deficit, as well as mezzanine and noncontrolling interests, prior to the consummation of the Business Combination have not been retroactively adjusted. Upon consummation of the Transactions, the Company’s capital stock consisted of (i) 3,257,436 shares of Class A Common Stock held by the Sponsor, (ii) 1,026,960 shares of Class A Common Stock issued to public stockholders, net of redemptions as well as certain service providers, (iii) 742,568 shares of Class A Common Stock issued to Sunergy Renewables, LLC initial Stockholders other than Sponsor, (iv) 32,230,000 shares of Class V Common Stock issued to Sun Managers and other prior investors of Sunergy; and (v) 1,500,000 shares of Series A Preferred Stock and 1,500,000 shares of Class V Common Stock issued to Sponsor investors pursuant to the Sponsor PIPE Investment. Private Placement As described in Note 1- Business Description, pursuant to the Sponsor Subscription Agreement, at the Closing, a total of 1,500,000 Convertible OpCo Preferred Units (including an equal number of shares of the Company’s Class V Common Stock) were issued to the Sponsor in return for aggregate consideration of $ 15,000,000 . Lock-Up Agreements Concurrently with the execution of the Business Combination Agreement, on April 19, 2023, the Sponsor, ESGEN’s independent directors at the time of its initial public offering (“IPO”) and one or more client accounts of Westwood Group Holdings, Inc. (successor to Salient Capital Advisors, LLC) (the “Westwood Client Accounts” and, together with the Sponsor and certain independent directors of ESGEN, the “Initial Shareholders”), entered into an amendment to that certain Letter Agreement, dated as of October 22, 2021 (the “Letter Agreement”) (and as further amended on January 24, 2024, the “Letter Agreement Amendment”), pursuant to which, among other things, (i) the Initial Shareholders agreed not to transfer his, her or its ESGEN Class B ordinary shares (or the Class A Common Stock) prior to the earlier of (a) six months after the Closing or (b) subsequent to the Closing (A) if the last sale price of the Zeo 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 (B) the date on which Zeo completes a liquidation, merger, share exchange or other similar transaction that results in all of Zeo’s stockholders having the right to exchange their Zeo Class A Common Stock for cash, securities or other property; and (ii) the Initial Shareholders and Sponsor agreed to forfeit an additional 500,000 shares of Zeo Class A Common Stock if, within two years of Closing, the Convertible OpCo Preferred Units are redeemed or converted (with such shares subject to a lock-up for two years after Closing). On March 13, 2024, concurrently with the Closing, the Sellers entered into the Lock-Up Agreement, pursuant to which each of the Sellers agreed not to transfer its Exchangeable OpCo Units and corresponding shares of Zeo Class V Common Stock received in connection with the Business Combination until the earlier of (i) six months after the Closing and (ii) subsequent to the Closing, (a) satisfaction of the Early Lock-Up Termination or (b) the date on which Zeo completes a PubCo Sale (as defined in the Lock-Up Agreement). Registration Rights Also concurrent with the Closing, on March 13, 2024, the Sellers, the Initial Shareholders, Piper (the “New PubCo Holders”) and Zeo entered into the Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which, among other things, Zeo will provide the stockholders certain registration rights with respect to certain shares of Class A Common Stock held by them or otherwise issuable to them pursuant to the Business Combination Agreement, the OpCo A&R LLC Agreement (as defined below) or the Company’s certificate of incorporation filed on March 13, 2024 (the “Zeo Charter”). The table below reflects share information about the Company’s capital stock as of March 31, 2024. Par Value Authorized Issued Treasury Stock Outstanding Class A Common Stock $ 0.0001 300,000,000 5,026,964 - 5,026,9674 Class V Common Stock $ 0.0001 100,000,000 35,230,000 - 35,230,000 Class A Preferred Stock $ 0.0001 1,500,000 1,500,000 - 1,500,000 Total shares 410,000,000 41,756,964 - 41,756,964 23 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Class A Common Stock Each holder of Class A Common Stock is entitled to one vote for each share of Class A Common Stock held of record in person or by proxy on all matters which stockholders generally are entitled to vote, except that, in each case, to the fullest extent permitted by law, each holder has no voting power with respect to, and will not be entitled to vote on, any amendment to its Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of any outstanding Preferred Stock if the holders of such Preferred Stock are entitled to vote as a separate class thereon (including any certificate of designations relating to any series of Preferred Stock) or under the DGCL. The holders of the outstanding shares of Class A Common Stock shall be entitled to vote separately upon any amendment to its Certificate of Incorporation (including by merger, consolidation, reorganization or similar event) that would alter or change the powers, preferences or special rights of such class of Common Stock in a manner that is disproportionately adverse as compared to the Class V Common Stock. Except as otherwise required in its Certificate of Incorporation or by applicable law, the holders of Common Stock will vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with the holders of Preferred Stock). Class A Common Stockholders have rights to the economics of the Company and to receive dividend distributions, subject to applicable laws and the rights and preferences of holders of Series A Preferred Stock or any other series of stock having preference over or participation rights with Class A Common Stock. In the event of liquidation, dissolution or winding up of the affairs of Company, Class A Common Stock has rights to assets and funds of the Company available for distribution after making provisions for preferential and other amounts to the holders of Series A Preferred Stock or any other series of stock having preference over or participation rights with Class A Common Stock. Class V Common Stock Each holder of Class V Common Stock is entitled to one vote for each share of Class V Common Stock held of record in person or by proxy on all matters which stockholders generally are entitled to vote, except that, in each case, to the fullest extent permitted by law, each holder has no voting power with respect to, and will not be entitled to vote on, any amendment to its Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of any outstanding Preferred Stock if the holders of such Preferred Stock are entitled to vote as a separate class thereon (including any certificate of designations relating to any series of Preferred Stock) or under the DGCL. The holders of the outstanding shares of Class V Common Stock are entitled to vote separately upon any amendment to its Certificate of Incorporation (including by merger, consolidation, reorganization or similar event) that would alter or change the powers, preferences or special rights of such class of Common Stock in a manner that is disproportionately adverse as compared to the Class A Common Stock. Except as otherwise required in its Certificate of Incorporation or by applicable law, the holders of Common Stock will vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with the holders of Preferred Stock). Class V Common Stockholders do not have rights to the economics of the Company nor to receive dividend distributions, and would not be entitled to receive, with respect to such shares, any assets of the Corporation, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. Class A Convertible Preferred Units (Redeemable noncontrolling interest) The Class A Convertible Preferred Unitholders have no voting rights and only have certain consent rights. However, as outlined above, the Preferred Units were issued in conjunction with Class V Units, which entitle the holders to voting rights. The Class A Convertible Preferred Unitholders are to be paid dividends, quarterly in arrears at the rate of 10 % per annum of the original price per share, plus the amount of previously accrued, but unpaid dividends, compounded monthly On each Dividend Payment Date, the Company must: (i) pay the Sponsor an amount equal to 30 % of the Preferred Unit Dividends that have accrued for such Dividend Period (or portion of a Dividend Period, as applicable) and (ii) may elect to either (A) pay the remainder of the Preferred Unit Dividends that have accrued for the applicable Dividend Period in cash or (B) to the extent the remaining portion of any such Preferred Unit Dividends are not paid on the Dividend Payment Date in cash, the remaining portion of the Preferred Unit Dividends will continue to accrue and compound, as described above. Following the first anniversary of the Class A Convertible Preferred Unit Original Issue Date and continuing until the earlier of (A) March 13, 2027, the “Maturity Date,” (B) a Required Redemption (as described in the OPCO A&R LLC Agreement), (C) the date the Sponsor elects for a Put Option Redemption, or (D) a Transaction Event Conversion (as described in the OPCO A&R LLC Agreement), the Sponsor has the option to convert all, but not less than all, of the outstanding Class A Convertible Preferred Units into such number of Class B Units (an “ Optional Conversion ”) as is determined by dividing the Class A Convertible Preferred Unit Original Issue Price plus the aggregate accumulated and unpaid Class A Convertible Preferred Unit Accruing Dividends with respect to such Class A Convertible Preferred Units, if any, through the date the conversion occurs, by $ 11.00 (the “ Optional Conversion Price ”). The Sponsor must elect to convert all, but not less than all, of the outstanding Class A Convertible Preferred Units. 24 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 Each Class A Convertible Preferred Unit that is outstanding on the Maturity Date will be converted into such number of Class B Units (a “ Maturity Date Conversion ”) as is determined by dividing the Class A Convertible Preferred Unit Original Issue Price plus the aggregate accumulated and unpaid Class A Convertible Preferred Unit Accruing Dividends with respect to such Class A Convertible Preferred Units, if any, through and until the Maturity Date, by the Market Price (the “ Maturity Date Conversion Price ”). The “ Market Price ” shall mean the average of the daily VWAP of the Class A Common Stock during the five (5) Trading Days prior to the Maturity Date. The “ VWAP ” means, for any Trading Day, the per share daily volume weighted average price of the Class A Common Stock for such Trading Day on the principal trading exchange or market for the Common Stock (the “ Principal Market ”) from 9:30 a.m. Eastern Time through 4:00 p.m. Eastern Time (the “ Measurement Period ”) or, if such price is not available, “ VWAP ” shall mean the market value per share of Class A Common Stock on such Trading Day as determined, using a volume-weighted average method, by an independent investment banking firm or other similar party chosen by the Company. A “ Trading Day ” means any days during the course of which the Principal Market on which the Class A Common Stock is listed or admitted to trading is open for the exchange of securities. If, after the Class A Convertible Preferred Unit Original Issue Date, the Company (i) makes a distribution on its Class B Units in securities (including Class B Units), (ii) subdivides or splits its outstanding Class B Units into a greater number of Class B Units, (iii) combines or reclassifies its Class B Units into a smaller number of Class B Units or (iv) issues by reclassification of its Class B Units any securities (including any reclassification in connection with a merger, consolidation or business combination in which the Manager is the surviving person), then the Conversion Price in effect at the time of the record date for such distribution or of the effective date of such subdivision, split, combination, or reclassification shall be proportionately adjusted so that the Conversion of the Class A Convertible Preferred Units after such time shall entitle the Sponsor to receive the aggregate number of Class B Units that such holder would have been entitled to receive if the Class A Convertible Preferred Units had been converted into Class B Units immediately prior to such record date or effective date, as the case may be. Such adjustment shall become effective immediately after the record date in the case of a distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification (including any reclassification in connection with a merger, consolidation or business combination in which the Manager or the Company is the surviving person) or split. Such adjustment shall be made successively whenever any event described above shall occur. Redemption The Class A Convertible Preferred Units are redeemable in whole but not in part, at the then-applicable Required Return, at the option of the Company (subject to Section 12.5(a)) , at any time prior to the Maturity Date (a “ Required Redemption ”), or (ii) if required by the Company upon the Sponsor’s delivery to the Company of a notice in accordance with the Sponsor electing a Put Option Redemption. Upon the occurrence of a Liquidating Event (as defined in the OPCO A&R LLC Agreement), the Preferred Units will be entitled to distributions as follows: ● Following the satisfaction of all of the Company’s debts and liabilities to creditors, and the satisfaction of all of the Company’s Liabilities to Members in satisfaction of liabilities for previously declared distributions, the Sponsor is entitled to an amount equal to the then-remaining Required Return with respect to each Preferred Unit then outstanding (the “Liquidation Redemption”). ● The Sponsor does not participate in further distributions following the receipt of the Required Return (i.e., the Preferred Units are non-participating instruments).Upon any liquidation or deemed liquidation event, the holders of Class A Convertible Preferred Units will be entitled to receive out of the available proceeds, before any distribution is made to holders of Common Stock or any other junior securities, an amount per share equal to the greater of (i) 100 % of the Accrued Value (as defined in the Certificate of Designation) or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Class A Common Stock immediately prior to the liquidation event. Redeemable Noncontrolling Interests As of March 31, 2024, the prior investors of Sunergy, LLC own 87.03 % of the common units of the Company. The OpCo A&R LLC Agreement provides among other things, a holder of corresponding economic, non-voting Class B units of OpCo (the “Exchangeable OpCo Units”) has the right to cause OpCo to redeem one or more of such Exchangeable OpCo Units, together with the cancellation of an equal number of shares of such holder’s Zeo Class V Common Stock, for shares of Zeo Class A Common Stock on a one-for-one basis, or, at the election of Zeo (as manager of OpCo), cash, in each case, subject to certain restrictions set forth in the OpCo A&R LLC Agreement and the Charter. The OpCo A&R LLC Agreement also provides for mandatory OpCo Unit Redemptions in certain limited circumstances, including in connection with certain changes of control. Subject to certain conditions, the Class A Convertible OpCo Preferred Units are redeemable by Zeo and following the first anniversary of the Closing may be converted by the Sponsor into Exchangeable OpCo Units (and then would be immediately exchanged on a one-for-one basis, together with an equal number of accompanying shares of Zeo Class V Common Stock, for shares Zeo Class A Common Stock). The Convertible OpCo Preferred Units have accruing distributions of 10 % per annum and the Sponsor as holder thereof has certain consent rights over the taking of certain actions of OpCo and its subsidiaries. The financial results of OpCo, LLC are consolidated with the Company with the redeemable noncontrolling interests’ share of our net loss separately allocated. 25 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 10 - STOCK-BASED COMPENSATION 2024 Omnibus Incentive Plan On March 6, 2024, the shareholders of ESGEN approved the Zeo Energy Corp. 2024 Omnibus Incentive Equity Plan (the “Incentive Plan”), which became effective upon the Closing. 3,220,400 of the outstanding shares of Common Stock of the Company (the “Plan Share Reserve”) shall be available for Awards under the Plan. Each Award granted under the Plan will reduce the Plan Share Reserve by the number of shares of Common Stock underlying the Award. Notwithstanding the foregoing, the Plan Share Reserve shall be automatically increased on the first day of the 2025 fiscal year through the 2029 fiscal year by a number of shares of Common Stock equal to the lesser of (i) the positive difference, if any, between 2 % of the then-outstanding shares of Common Stock on the last day of the immediately preceding fiscal year, and (ii) a lower number of shares of Common Stock as may be determined by the Board. The purpose of the Incentive Equity Plan is to provide a means through which the Company and the other members of the Company Group may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Company’s stockholders. On the Closing Date, the Company entered into an Executive Employment Agreement with the Company’s CEO. In addition to the CEO’s annual salary and cash bonus, the CEO became eligible to receive certain grants of vested shares under the 2024 Omnibus Incentive Plan as follows: ● 50,000 vested shares to be granted on the date that is 12 months after the Closing Date; ● 50,000 vested shares to be granted on the date that is 24 months after the Closing Date; and ● 50,000 vested shares to be granted on the date that is 35 months after the after the Closing Date. The Company determined the grant date fair value per share was $ 6.97 , a Level 1 measurement, by reference to the publicly traded stock price on March 13, 2024. Further, if within three (3) years of the effective date of the Closing, (i) the volume-weighted average price of shares of the publicly traded stock of the Company exceeds $ 7.50 for 20 or more days of any consecutive 30-day period, then the CEO will be granted vested equity from the Incentive Plan equal to 1 % of the total issued and outstanding capital stock of the Company, (ii) the volume-weighted average price of shares of the publicly traded stock of the Company exceeds $ 12.50 for 20 or more days of any consecutive 30-day period, then the CEO will be granted additional vested equity from the Incentive Plan equal to 1 % of the total issued and outstanding capital stock of the Company, (iii) and the volume-weighted average price of shares of the publicly traded stock of the Company exceeds $ 15.00 for 20 or more days of any consecutive 30-day period, then the CEO will be granted additional vested equity from the Incentive Plan equal to 1 % of the total issued and outstanding capital stock of the Company. The fair value of stock option grants with market-based conditions for vesting is estimated on the grant date using a Monte-Carlo simulation under a risk-neutral framework and using the average value over 100,000 model iterations. The following table illustrates the assumptions used in estimating the fair value of options granted during the period ended March 31, 2024. 3/13/2024 Stock price $ 6.97 Tranche 1 hurdle price $ 7.50 Tranche 2 hurdle price $ 12.50 Tranche 3 hurdle price $ 15.00 Risk-free rate 4.28 % Volatility 55.00 % 26 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 The per unit fair value and derived service period for each Tranche of Performance Based Executive Shares is included in the Valuation of Performance-based Equity Bonus Awards as of March 13, 2024, as follows: Fair Value Summary Tranche 1 Tranche 2 Tranche 3 Tranche per unit fair value $ 5.96 $ 4.53 $ 3.82 Stock price on valuation date $ 6.97 $ 6.97 $ 6.97 Derived service period 0.35 years 1.19 years 1.47 years During the period ended March 31, 2024, $ 504,834 of equity compensation expense was recognized for these awards. As of March 31, 2024, an unrecognized compensation expense of $ 6,301,438 was determined and is expected to be recognized over the remaining 2.9 years. NOTE 11 - WARRANT LIABILITIES As part of ESGEN’s initial public offering (“IPO”), ESGEN issued warrants to third-party investors where each whole warrant entitles the holder to purchase one share of the Company’s common stock at an exercise price of $ 11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, ESGEN completed the private sale of warrants where each warrant allows the holder to purchase one share of the Company’s common stock at $ 11.50 per share. Upon the closing of the Business Combination the 14,040,000 Private Warrants were forfeited. As of March 31, 2024, there are 13,800,000 Public Warrants and no Private Placement warrants outstanding. These warrants expire on the fifth anniversary of the Business Combination or earlier upon redemption or liquidation and are exercisable commencing 30 days after the Business Combination, provided that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Once the warrants become exercisable, the Company may redeem the outstanding warrants: ● in whole and not in part; ● at a price of $ 0.01 per warrant; ● upon not less than 30 days’ prior written notice of redemption given after the warrants become exercisable to each warrant holder; and ● if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders. The Public Warrants are recognized as derivative liabilities in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Accordingly, the Company recognized the warrant instruments as liabilities at fair value as of the Closing Date, with an offsetting entry to additional paid-in capital and adjusts the carrying value of the instruments to fair value through other income (expense) on the condensed consolidated statements of operations at each reporting period until they are exercised. As of March 31, 2024, the Public Warrants are presented as warrant liabilities on the condensed consolidated balance sheet. NOTE 12 - FAIR VALUE MEASUREMENTS Items Measured at Fair Value on a Recurring Basis: The Company accounts for certain liabilities at fair value on a recurring basis and classifies these liabilities within the fair value hierarchy (Level 1, Level 2, or Level 3). Liabilities subject to fair value measurements are as follows: March 31, 2024 Level 1 Level 2 Level 3 Total Liabilities: Warrants 1,656,000 - - 1,656,000 The Company’s Warrants are traded on the Nasdaq. As such, the Warrant valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. The fair value of the Warrant liabilities is classified within Level 1 of the fair value hierarchy. There were no warrant liabilities as of December 31, 2023. 27 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 13 - RELATED PARTY TRANSACTIONS There is one operating lease with a related party. Operating lease cost relating to this lease for the three months ended March 31, 2024 and 2023 was $ 7,464 . As of March 31, 2024 and December 31, 2023, the related party operating lease right of use asset was $ 49,900 and $ 75,378 , respectively, and the related party operating lease liability was $ 51,351 and $ 58,134 , respectively. In 2023, some of the Company’s customers financed their obligations with a related party, Solar Leasing, whose CEO is also the CEO of the Company. These arrangements are similar to those with the Company’s third-party lenders. As such, Solar Leasing deducts their financing fees and remits the net amount to the Company. For the three months ended March 31, 2024 and 2023, the Company recognized $ 8,812,769 and $ 0 of revenue, net of financing fees of $ 3,856,219 and $ 0 , respectively from these arrangements. As of March 31, 2024 and December 31, 2023, the Company had $ 3,089,328 and $ 396,488 of accounts receivable, $ 267,006 and $ 2,415,966 of accrued expenses and $ 106,585 and $ 1,160,848 of contract liabilities due to related parties relating to these arrangements, respectively. NOTE 14 - NET INCOME PER SHARE Basic net loss per share of Class A common stock is computed by dividing net income attributable to Class A common stockholders from March 13, 2024, or the Closing Date, to March 31, 2024 by the weighted-average number of shares of Class A common stock outstanding for the same periods. Diluted net loss per share is the same as basic net loss per share as the inclusion of potentially issuable shares would be anti-dilutive. Prior to the Business Combination, the membership structure of Sunergy Renewables, LLC included membership units. In conjunction with the closing of the Business Combination, the Company effectuated a recapitalization whereby all membership units were converted to common units of OpCo, LLC and the Company. implemented a revised class structure including Class A common stock having one vote per share and economic rights, and Class V Common Stock having one vote per share and no economic rights. Shares of the Company’s Class V Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities. The Company has determined that the calculation of loss per unit for periods prior to the Business Combination would not be meaningful to the users of these consolidated financial statements. Therefore, net loss per share information has not been presented for periods prior to the Business Combination on March 13, 2024. The basic and diluted net income per share for the three months ended March 31, 2024 represents only the period of March 13, 2024 to March 31, 2024. The following table presents the computation of the basic and diluted income per share of Class A Common Stock for the period of March 13, 2024 (the Closing Date) to March 31, 2024: Three months ended March 31, 2024 Numerator Net income attributable to Class A common shareholders $ ( 1,244,191 ) Denominator Basic and diluted weighted-average shares of Class A common stock outstanding 994,345 Net income per share of Class A common stock - basic and diluted $ ( 1.25 ) The following table presents potentially dilutive securities, as of the end of the period, excluded from the computation of diluted net earnings per share of Class A Common Stock. Three Months Ended March 31, 2024 Warrants(1) 13,800,000 Series A Preferred Stock (2) 1,500,000 (1) Represents number of instruments outstanding at the end of the period that were evaluated under the treasury stock method for potentially dilutive effects and were determined to be anti-dilutive. (2) Represents number of Preferred Units outstanding at the end of the period that were excluded using the if-converted method. 28 Zeo Energy Corp. Notes to the Condensed Consolidated Financial Statements March 31, 2024 NOTE 15 - COMMITMENTS AND CONTINGENCIES Risks and Uncertainties - Weather Conditions A significant portion of the Company’s business is conducted in the state of Florida. During recent years, there have been several hurricanes that impacted our marketing, sales and installation activities. Future hurricane storms can have an adverse impact of our sales installations. Workmanship and Warranties The Company typically warrants solar energy systems sold to customers for periods of one to ten years against defects in design and workmanship, and that installations will remain watertight. The manufacturers’ warranties on the solar energy system components, which are typically passed through to the customers, typically have product warranty periods of 10 to 20 years and a limited performance warranty period of 25 years. As of March 31, 2024 and 2023, the Company did not record a warranty reserve as the historical costs incurred that the Company is required to pay have not been significant or indicative of the Company performing warranty work in the future. The Company, at its discretion, may provide certain reimbursements to customers if certain solar equipment is not operating as intended during future periods. Litigation In the normal course of business, the Company may become involved in various lawsuits and legal proceedings. While the ultimate results of these matters cannot be predicted with certainty, management does not expect them to have a material adverse effect on the financial position or results of operations of the Company. Vendor Lien To secure a line of credit with one of the Company’s primary supply vendor’s, the vendor filed a lien against the Company’s assets. NOTE 16 - SUBSEQUENT EVENTS Subsequent events have been evaluated through August 19, 2024, which represents the date the condensed consolidated financial statements were available to be issued, and no events have occurred through that date that would impact the financial statements. 29