TLGA TLG Acquisition One Corp

Exhibit 99.1

ELECTRIQ POWER, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Financial Statements

June 30, 2023 and 2022    

TABLE OF CONTENTS

2

ELECTRIQ POWER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to Condensed Consolidated Financial Statements.

3

ELECTRIQ POWER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

See accompanying notes to Condensed Consolidated Financial Statements.

4

ELECTRIQ POWER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY

(unaudited)

See accompanying notes to Condensed Consolidated Financial Statements.

5

ELECTRIQ POWER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(unaudited)

See accompanying notes to Condensed Consolidated Financial Statements.

6

ELECTRIQ POWER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

7

See accompanying notes to Condensed Consolidated Financial Statements.

8

ELECTRIQ POWER, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

1. Organization and Description of Business

Electriq Power, Inc. (“Electriq,” “Electriq Power,” or the “Company,”) is a leading energy solutions provider that designs, develops, manages, delivers and services integrated energy storage systems for residential applications primarily in North America. Electriq Power was formed as a Delaware Corporation in August 2014.

The Company sells its integrated energy storage systems through a network of channel partners, including solar and electrical distributors and installation companies, utility companies, municipalities, community choice aggregators and homebuilders, as well as through partnerships with large strategic corporations where they rebrand the Company’s products (“white-label”).

Electriq’s wholly owned subsidiaries are Electriq Power Labs, Inc., formed in Canada in June 2016 and closed in January 2021, EIQP Limited, formed in Hong Kong in December 2016 and closed in July 2021, Parlier Home Solar, LLC, formed in California in April 2021, and Santa Barbara Home Power Program, LLC, formed in California in September 2022. Electriq has an 80% owned subsidiary, Electriq Microgrid Services LLC, formed in Delaware in May 2022.

On November 13, 2022, the Company entered into a Merger Agreement, which was amended by the First Amendment to Merger Agreement dated December 23, 2022, the Second Amendment to Merger Agreement dated March 22, 2023 and the Third Amendment to Merger Agreement dated June 8, 2023 (the “Merger Agreement”), with a publicly-traded special purpose acquisition company (“SPAC”), TLG Acquisition One Corp. (“TLG”). Following completion of the contemplated transactions by the Merger Agreement (the “Business Combination”), the separate corporate existence of the Company will cease and the Company equity holders will become equity holders of TLG, which will change its name to Electriq Power Holdings, Inc. and will be led by existing Company management. The Business Combination will be accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Under this method of accounting, TLG will be treated as the “acquired” company and the Company as the “accounting acquirer” for financial reporting purposes. The transaction Business Combination closed on July 31, 2023. See Note 14.

The Third Amendment to Merger Agreement includes references to the following Private Capital Raise:

As conditions to closing, the Merger Agreement requires that: (i) within 72 hours after TLG receives comments from the Securities and Exchange Commission (the “SEC”) on Amendment No. 3 to TLG’s Registration Statement on Form S-4 (the “S-4”), the Company shall receive net cash proceeds of at least $3,000,000 from the sale of equity securities to an executive of TLG (“SPAC Executive”) and net cash proceeds of at least $3,000,000 from the sale of equity securities to third parties, and within 24 hours after the SEC declares the S-4 effective, the Company shall receive net cash proceeds of at least $4,500,000 from the sale of equity securities to the SPAC Executive and net cash proceeds of at least $1,500,000 from the sale of equity securities to third parties; (ii) the Company shall have converted an aggregate amount of $10,130,000, including accrued interest, of Shareholder Notes (as defined in the Merger Agreement) from management or significant equity investors that are currently included in loans payable into equity securities of the Company; and (iii) TLG or the Company shall have received net cash proceeds from the sale of equity securities to the SPAC Executive of at least $5,000,000 and net cash proceeds from the sale of equity securities to third parties of at least $1,500,000. See further discussion in Notes 5, 8 and 10.

As disclosed in Note 5, on June 8, 2023, certain notes conversion agreements (the “Notes Conversion Agreement”) were executed between the Company and various noteholders whereby the noteholders have agreed that the currently outstanding aggregate principal amounts of existing notes of the Company to those noteholders (the “Notes”), included in loans payable, totaling approximately $7.8 million, and all accrued but unpaid interest on the Notes of approximately $2.3 million shall automatically convert into securities of the Company, upon the execution of the Notes Conversion Agreements.

9

As disclosed in Notes 8 and 10, with respect to subscription agreements signed in June 2023, including the $18.1 million of Pre-Closing Financings (as defined in the S-4), a total of $11.0 million of Pre-Closing Financings was received through June 30, 2023 from the SPAC Executive in the amount of $5.5 million and from other investors in the amount of $5.5 million, including $3.0 million each received from the SPAC Executive and from other investors, respectively, on June 23, 2023 and $2.5 million each received from the SPAC Executive and from other investors, respectively, earlier in June 2023. The remaining $7.1 million of the Pre-Closing Financings was received subsequent to June 30, 2023, in July 2023, after the SEC declared the S-4 effective with $4.5 million received from the SPAC Executive and $2.6 million received from other investors. See Note 14 for a subsequent events update.

The Company’s fiscal year begins on January 1 and ends on December 31.

2. Summary of Significant Accounting Policies

Basis of Reporting

The condensed consolidated financial statements are prepared in accordance with U.S. GAAP, and pursuant to the rules and regulations of the SEC. In the opinion of management, the information furnished herein reflects all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. Results for interim periods should not be considered indicative of results for the full year.

The unaudited condensed consolidated financial statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2022 consolidated financial statements and should be read in conjunction with the notes to consolidated financial statements which appear herein.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Electriq, its wholly-owned subsidiaries and its 80% owned subsidiary for which it has controlling interest. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s revenues, expenses, assets and liabilities are primarily denominated in U.S. dollars, and as a result, the Company has adopted the U.S. dollar as its functional and reporting currency.

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists. Through June 30, 2023, the Company has incurred recurring losses from operations and negative operating cash flows, and as of June 30, 2023 has recorded an accumulated deficit and a working capital deficit of $98,504,784 and $25,861,351, respectively. In December 2022, the Company received a notice from its major customer, Kohler Co. (“White-Label Provider”) of its intent to terminate its contract. While the Company has continuously asserted that it has not breached the agreement, on May 19, 2023, it entered into a settlement with the customer. As a result, the Company experienced a significant decline in revenue during the three and six months ended June 30, 2023, which is consistent with its revised forecast for the year ending December 31, 2023. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The continuation of the Company as a going concern is dependent upon improving its profitability through the introduction of new products and service offerings, including the successful execution of its sustainable communities network and

10

microgrid offerings from customer agreements entered into in 2022 and 2023, as well as the continuing financial support from its stockholders or other debt or capital sources. The Company is currently evaluating strategies to obtain the additional required funding in 2023 for its future operations. These strategies include, but are not limited to, obtaining equity financing, issuing debt or entering into financing arrangements. For example, as reflected in Note 1, funds received as part of the Pre-Closing Financings and Notes Conversion Agreements. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing.

These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities and reported expenses that may result if the Company is not able to continue as a going concern.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions include the useful lives of property and equipment; allowances for doubtful accounts; inventory; stock-based compensation; warrants; derivatives; preferred stock; Simple Agreement for Future Equity (“SAFE”) notes; convertible notes; income taxes; and reserves for warranties.

Comprehensive Loss

The Company applies Accounting Standards Codification Topic (“ASC”) Topic 220 (Reporting Comprehensive Income) which requires that all items that are recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. For the three and six months ended June 30, 2023 and 2022, the Company had no unrealized gains or losses.

Segment Information

ASC 280-10, Segment Reporting (“ASC 280-10”), establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. During the three and six months ended June 30, 2023 and 2022, the Company sold its integrated energy storage systems through its partners and operated as one segment. Therefore, the consolidated information disclosed herein also represents all the financial information related to the Company’s operating segment.

Inventory

Inventory consists entirely of finished goods. The Company’s reserve for inventory obsolescence and slow-moving items was $1,348,621 and $976,881 as of June 30, 2023 and December 31, 2022, respectively. Inventory deposits consist of prepayments to vendors to secure an adequate supply of required future inventory purchases for a limited period of time, as needed. Associated with the settlement with the White-Label Provider, as described in Note 7, during the three months ended June 30, 2023, the Company wrote-off $2,657,281 of specific White-Label Provider related inventory deposits, resulting in a one-time charge to other expense, net, as when the inventory is returned, as per the settlement agreement, the Company will no longer be able to utilize the deposits.

11

Revenue Recognition

Revenues are recognized in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customers, in an amount the Company expects in exchange for those goods or services. The Company has contracts with customers which cover the products and services to be delivered, and specify the prices for products and services.

The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue. The main performance obligations are the provisions of the following: 1) delivery of the Company’s products; 2) installation of Company’s products; and 3) ad-hoc engineering services.

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer.

Product net revenue includes sales of energy storage systems and sales of installed energy storage solutions to homeowners.

The Company sells energy storage systems to installers and distributors, for which revenues are recognized at a point in time when control is transferred to the installer or distributor in accordance with the shipping terms, which, in most cases, is upon shipment at the Company’s warehouse shipping dock.

The Company sells installed energy storage solutions to homeowners through licensed installer subcontractors. The licensed installers were determined to be acting as agents on our behalf in these arrangements. Installations typically take up to three months to complete; however, there have been instances where the installation process has extended beyond three months. Revenues from the sale and installation of energy storage solutions are recorded as one performance obligation, as the solutions provided to the homeowners are not distinct in the context of the contract and are recorded following the input method over the life of the project. For each performance obligation satisfied over time, revenue is recognized by measuring the progress toward complete satisfaction of that performance obligation and is applied following a single method of measuring progress that must be applied consistently for similar performance obligations. Total revenue recognized from sales of our installed energy storage solutions was $4,658 and $287,222 in the three months ended June 30, 2023 and 2022, respectively, and $27,185 and $327,782 in the six months ended June 30, 2023 and 2022, respectively, and is included in product net revenue. See Note 3.

Ad-hoc engineering services are recognized at a point in time as the specified service is delivered to the customer.

On March 13, 2023, the Company entered into a multi-year agreement with EverBright, LLC, a subsidiary of a major U.S. clean-energy company, to provide the Company financing to support the implementation of sustainable community networks throughout California. The provider company, founded by one of the largest investors in clean energy infrastructure, provides a platform that designs, proposes and finances solar and energy storage projects nationwide. The agreement provides the Company with the exclusive right to install systems for the first 8,000 customers that execute qualifying power purchase agreements under the sustainable community networks program. Following the 30-month anniversary of the arrangement, either party may terminate this agreement upon 60 days prior notice to the other party. The agreement provides that the Company will design and propose systems for approval by the clean-energy company based upon customer agreements with each customer. Upon approval by the clean-energy company, each system is then installed by the Company at a purchase price specified in the agreement, with the clean-energy company, as the purchaser of the system, making progress payments to the Company after achievement of certain milestones. The Company’s providers’ expertise in the

12

energy sector and their software platform will enable the Company to jointly provide potential grid services and expand access to more communities. This arrangement includes multiple performance obligations, including installed systems, grid services and software license revenues. Revenue from installed systems will be recognized over time following the output method, as systems are installed after control has transferred to the customer. Grid services revenue will be recognized over time as the services are performed. Software license revenue is not significant to the arrangement. There were no revenues generated on this arrangement during the three and six months ended June 30, 2023 or in any prior periods. The Company is currently in the project qualification approval and installation stages of implementation for several residential customers in Santa Barbara, California, and expects to begin recognizing revenue on this arrangement in the three months ending September 30, 2023.

Revenues are recorded net of estimated allowances and discounts based upon historical experience and current trends at the time revenue is recognized. The Company has elected to exclude sales tax from the transaction price.

The Company has elected to adopt the practical expedient which allows goods and services which are immaterial in the context of the contract to become part of other performance obligations in an arrangement.

Contract costs

As a practical expedient, the Company expenses as incurred costs to obtain contracts as the amortization period would have been one year or less. These costs include our internal sales force and are recorded within sales and marketing expense in the Company’s condensed consolidated statements of operations.

Net Income (Loss) Per Share

The Company accounts for net income (loss) per share in accordance with ASC 260-10, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the condensed consolidated statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

The Company calculated basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered its pre-2023 preferred stock, as defined in Note 9, to be a participating security as the holders share equally in dividends with any other class or series of capital stock of the Company, in addition to being entitled to receive cumulative dividends payable only if/when declared by the Board of Directors at a dividend rate payable in preference and priority to the holders of common stock.

Under the two-class method, basic net income (loss) per share attributable to common stockholders was calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders was not allocated to the pre-2023 preferred stock as the holders of such preferred stock do not have a contractual obligation to share in losses, which is consistent with the if-converted method of calculation. Diluted net income (loss) per share attributable to common stockholders was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, pre-2023 convertible preferred stock, stock options, convertible debt, SAFE notes, cumulative mandatorily redeemable Series B preferred stock and warrants to purchase pre-2023 convertible preferred stock and common stock were considered potentially dilutive securities, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders for periods reported prior to June 30, 2023, as their effect was anti-dilutive in those prior periods. In periods in which the Company reports a net loss attributable to all classes of common stockholders, diluted net loss per share attributable to all classes of common stockholders is the same as basic net loss per share attributable to all classes of common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. The Company reported net losses attributable to common stockholders for the three and six months ended June 30, 2022.

13

The shares underlying the following outstanding instruments are excluded from the calculation of weighted average diluted shares because their inclusion would have been anti-dilutive for the three and six months ended June 30:

The Company reported net income attributable to common stockholders for the three and six months ended June 30, 2023. The following reconciles the weighted average number of shares of common stock outstanding—basic to the weighted average number of shares of common stock outstanding—diluted, as used in the calculation of net income per share attributable to common stockholders—basic and diluted in the Company’s condensed consolidated statements of operations:

Construction in Process

The Company accounts for assets under development for future revenue generation as part of construction in process. These systems take up to three months to construct in a steady state, from start to finish, up to the receipt of a “permission-to-operate” (“PTO”) a system that is required in order to start billing a customer for services to be provided. These assets will be placed in service to begin depreciation once a completed PTO is received.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 also amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The new standard is effective for non-public entities in fiscal years beginning after December 15, 2023, and interim periods within those years. The Company does not expect the adoption of this new accounting pronouncement to have a material impact on the condensed consolidated financial statements.

The Company expects it would qualify as an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

14

3. Revenue

The Company’s net revenue was comprised of the following:

For the three and six months ended June 30, 2023 and 2022, all sales were to customers in North America.

As of June 30, 2023 and December 31, 2022, gross accounts receivable from customers was $141,222 and $347,852, respectively, before allowances.

Deferred revenues consist of contract liabilities for advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term based on the period in which revenues are expected to be recognized. As of June 30, 2023 and December 31, 2022, the Company had recorded $80,164 and $192,012, respectively, in accrued expenses and other current liabilities, with the long-term balance of $436,860 as of both June 30, 2023 and December 31, 2022 in other long-term liabilities, as shown in the condensed consolidated balance sheets. The Company’s activity in deferred revenue was comprised of the following for the six months ended June 30:

Estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied at the end of the reporting period are as follows:

15

4. Property and Equipment, net

Property and equipment, net, consist of the following as of:

Depreciation and amortization of property and equipment of $40,460 and $41,533 was recorded for the three months ended June 30, 2023 and 2022, respectively, and $80,816 and $87,908 was recorded for the six months ended June 30, 2023 and 2022, respectively.

5. Indebtedness

On December 23, 2022, the Company entered into an amended and restated securities purchase agreement (the “SPA”) with the SPAC Executive described in Note 1 above, which provided for the SPAC Executive’s obligation to provide funding to the Company up to a maximum amount of $8.5 million, provided that the Company had satisfied the conditions for closing under the SPA or the SPAC Executive had waived those conditions. On March 22, 2023, the Company entered a first amendment to the SPA with the SPAC Executive. Pursuant to the SPA, and the first amendment to the SPA, the Company issued to the SPAC Executive two secured convertible promissory notes (the “SPAC Executive Notes”) in the aggregate amount of $8.5 million. The initial $5.0 million funding under the SPA was received on December 30, 2022. The remaining $3.5 million funding was received from the SPAC Executive on March 30, 2023. The SPAC Executive Notes issued bear interest at a simple rate of 14% per annum, payable quarterly in cash. Funding under the securities purchase agreement were subject to certain conditions.

The SPAC Executive Notes are secured, and are payable in full 24 months following the issuance of the notes. The SPAC Executive Notes are senior to all current and future indebtedness of the Company, except they are subordinated to the Company Revolver and pari passu to certain Company stockholder debt. The notes are also senior to certain Company stockholder debt; provided that such Company stockholder debt can be paid at maturity assuming no event of default has occurred under the SPAC Executive Notes. If not converted in connection with the merger agreement described in Note 1 above, the SPAC Executive Notes will be assumed by the new Electriq entity resulting from the merger.

The SPAC Executive has the right but not the obligation to convert the outstanding principal and unpaid accrued interest on the convertible notes into shares of common stock of the Company or its successor in interest in the event of (i) a future issuance of equity securities for the purpose of raising capital of at least $20 million; (ii) an acquisition of the Company or its successor, whether by asset purchase, merger or share purchase (an “Acquisition Transaction”); (iii) certain capital markets transactions, including initial public offering (“IPO”), direct listing, or SPAC-related transaction (a “Capital Markets Transaction”); or (iv) upon maturity if the SPAC Executive Note remains outstanding. Further, feature (v) states that if an Acquisition Transaction occurs before the repayment or conversion of the SPAC Executive Notes into conversion shares, the Company will pay to the SPAC Executive at the closing of the Acquisition Transaction if the SPAC Executive elects not to convert the SPAC Executive Notes in connection with such Acquisition Transaction an amount equal to any unpaid accrued interest plus two times the outstanding principal amount of the SPAC Executive Notes. Other than at maturity, the conversion price is 95% of the relevant consideration per share. With respect to conversion at maturity, the price per share is to be obtained by

16

dividing $275.0 million by the number of outstanding shares of common stock of the Company. SPAC Executive will be entitled to demand prepayment in cash in connection with any Capital Markets Transaction. The SPAC Executive Notes will have events of default that are customary for similar instruments.

The Company has evaluated each of the features and has concluded that the Capital Market Transaction is the most predominant outcome of all the possible features of this instrument, as the Company is currently in negotiations to enter into a SPAC transaction expected to close in the next three months. As consummation of a merger with a SPAC is in the Company’s control, management believes that ASC 480 is not applicable until the merger occurs. As the SPAC Executive Notes are not accounted for under ASC 480, the Company continued its assessment to determine the nature of the host and the accounting for the embedded features under other relevant guidance. The SPAC Executive Notes included one embedded conversion feature for which ASC 815 required the Company to bifurcate and separately account for the conversion feature as an embedded derivative, and carry the embedded derivative on its balance sheet at fair value and account for any unrealized changes in fair value as a component of the results of operations. Since feature (v) described above would include a large premium, it is not considered to be clearly and closely related to the debt host. The fair value of the derivative liability as of June 30, 2023 was de minimis, as the factors underlying the bifurcated conversion feature giving rise to the derivative treatment have a low probability of occurrence.

On June 8, 2023, a Notes Conversion Agreement was executed by and among the Company, TLG and the SPAC Executive whereby the parties have agreed that simultaneous with the closing of the merger described in Note 1 above, pursuant to the terms and conditions of the Merger Agreement, the SPAC Executive Notes will automatically convert into securities of the new public entity, upon which the SPA and the SPAC Executive Notes will be terminated including any rights of conversion set forth therein, and shall be cancelled. SPAC Executive also agreed that $8,500,000, the currently outstanding aggregate principal amount of the SPAC Executive Notes, and all accrued but unpaid interest on the SPAC Executive Notes shall automatically convert into securities of the new public entity simultaneously with the closing of the merger.

On November 2, 2021, the Company borrowed $2,000,000 bearing interest at 10% per annum. Interest expense of $33,472 was recorded in 2021 and added to the principal balance of the loan. The loan was repayable in twelve monthly installments of $178,775, representing both interest and principal, beginning in January 2022. As of June 30, 2023 and December 31, 2022, the balance was $0 and $177,297, respectively.

In June 2022, the Company borrowed $11,200,000, of which $5,100,000 was borrowed from management or significant equity investors, bearing simple interest at 2%, accrued monthly. The loans were repayable in twelve months. The amount owed was equal to (i) the balance outstanding and all accrued interest, plus (ii) a one-time prepayment fee equal to 6% of the balance outstanding.

On June 8, 2023, additional Notes Conversion Agreements were executed between the Company and various noteholders whereby the noteholders have agreed that the currently outstanding aggregate principal amounts of the notes, included in loans payable, totaling approximately $7.8 million, and all accrued but unpaid interest on the notes of approximately $2.3 million shall automatically convert into securities of the Company, upon the execution of these agreements. Conversions of approximately $10.1 million of loans payable, including accrued interest (exclusive of the SPAC Executive Notes), resulted in the issuance of 166,585,379 shares of Electriq common stock, including additional shares of Electriq common stock issued to noteholders as an incentive to convert, and 66,644,737 shares of Electriq cumulative mandatorily redeemable Series B preferred stock as an incentive prior to Closing. See further discussion surrounding the cumulative mandatorily redeemable Series B preferred stock in Note 8.

The Company determined the total fair value received of $21.1 million of funds received in June 2023 for the Pre-Closing Financings and Notes Conversion Agreements for each transaction was equivalent to the cash amount paid by the investors in exchange for the stock (i.e., $11.0 million in Pre-Closing Financings and $10.1 million in Notes Conversion Agreements). See further discussion in Notes 8 and 10.

17

During June 2023, all remaining loans payable balances that were not included in the Notes Conversion Agreements, including a total remaining cumulative principal balance of approximately $3.4 million, plus accrued interest, were repaid to noteholders that elected not to convert their respective notes.

As of June 30, 2023, all outstanding loans payable of $11.2 million were either converted or repaid. The only outstanding Company indebtedness as of June 30, 2023 was the $8.5 million in convertible SPAC Executive Notes.

The following summarizes the maturities of the convertible note payable as of June 30, 2023:

During the year ended December 31, 2021, the Company executed SAFE arrangements. The SAFE notes are not mandatorily redeemable, nor do they require the Company to repurchase a fixed number of shares. The Company determined the SAFE notes contained a liquidity event provision that embodied an obligation indexed to the fair value of the Company’s equity shares and could require the Company to settle the SAFE obligation by transferring assets or cash. Accordingly, the Company recorded the SAFE notes as a liability under ASC 480 and re-measures fair value at the end of each reporting period, with changes in fair value reported in operations.

The fair value of the SAFE notes was estimated using a probability weighted value method based on the total present value of cash flows, utilizing a 20% discount rate, plus the additional upside from the fixed price conversions for each of the scenarios. The unobservable inputs for the fixed price conversions were based on probabilities that the SAFE notes would convert upon either a (i) financing, (ii) liquidity event due to a sale, or (iii) liquidity event from going public. Decreases in the fair value of SAFE notes resulted in remeasurement gains of $16,750,000 and $16,490,000 for the three and six months ended June 30, 2023, respectively. The decreases in the fair value of SAFE notes as of June 30, 2023 were primarily the result of the fair value of equity in an initial public offering scenario based on estimated TLG proceeds to existing Electriq stockholders (excluding current cumulative mandatorily redeemable Series B preferred stock and common stock financing round) of $275 million and discounted to present value, as compared to prior valuations which considered $495 million of estimated TLG proceeds. The fixed price conversions under the various scenarios were calculated using the following assumptions:

Between May 2021 and October 2021, the Company issued a series of SAFE notes in an aggregate principal amount of $8,906,788 to investors, of which $7,229,245 were issued to management or significant equity investors, which provide the investors with a right to obtain shares of preferred stock upon the occurrence of certain events. The fair value of the SAFE notes on the date of issuance was determined to equal the proceeds received by the Company. As of June 30, 2023 and December 31, 2022, the fair value of the SAFE notes were $14,670,000 and $22,750,000, respectively. For the three months ended June 30, 2023 and 2022, the Company recorded a gain of $8,430,000 and a loss of $6,194,000, respectively, and for the six months ended June 30, 2023 and 2022, the Company recorded a gain of $8,080,000 and a loss of $8,131,000, respectively, within other expense (income) in the condensed consolidated statements of operations related to fair value adjustments for these SAFE notes.

18

In November 2021, the Company issued a second series of SAFE notes in an aggregate principal amount of $16,300,000 to investors, of which $15,000,000 were issued to significant equity investors. Additionally, warrants to purchase shares of common stock were issued contemporaneous with several of these issued SAFE notes. These warrants provided the SAFE investors with the ability to obtain shares of common stock of the Company equal to the amount of the SAFE investment divided by a defined exercise price. See Note 12. As of June 30, 2023 and December 31, 2022, the fair value of the SAFE notes were $20,440,000 and $28,850,000, respectively. For the three months ended June 30, 2023 and 2022, the Company recorded a gain of $8,320,000 and a loss of $6,241,000, respectively, and for the six months ended June 30, 2023 and 2022, the Company recorded a gain of $8,410,000 and a loss of $8,148,000, respectively, within other expense (income) in the condensed consolidated statements of operations related to fair value adjustments for these SAFE notes.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following as of:

Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various factors, including the Company’s historical warranty costs, warranty claim lag, and sales. The following table provides a reconciliation of the activity related to the Company’s warranty reserve for the six months ended June 30:

The provision for warranty expense is included within cost of goods sold in the condensed consolidated statements of operations.

7. Commitments and Contingencies

Right of use (“ROU”) assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception a lease exists. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate, unless the rate implicit in the lease is readily determinable. Lease assets also include any upfront lease payments made and exclude lease incentives. Lease terms include options to extend or terminate leases. For purposes of determining the lease term used in the measurement of operating lease ROU assets and operating lease liabilities, we include the non-cancelable period of the lease together with those periods covered by the option to extend the lease if we are reasonably certain to exercise that option, the periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option, and the periods covered by the option to extend (or to not terminate) the lease in which exercise of the option is controlled by the lessor. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have elected to separate lease and non-lease components.

19

The Company leases various warehouse and office spaces under non-cancelable lease agreements. Certain of these leases have renewal options, provide for future rent escalations and also oblige the Company to pay the cost of maintenance, insurance and property taxes. Leases with an initial term of 12 months or less are not recognized in the condensed consolidated balance sheets.

On January 1, 2022, the Company modified its existing short-term lease for warehouse and office space in California to extend the term and obtain additional warehouse space. The modification was accounted for as part of the adoption of ASC 842 as of that date. This lease has 5 separate 1 year renewal options, of which the first three have been deemed to be reasonably certain of exercise and are considered in the ROU asset and corresponding lease liability. The total minimum lease payments committed over its 4 year non-cancelable lease term is approximately $1.7 million. The discount rate used for this lease was the Company’s incremental borrowing rate of 19.0%, as an implicit rate is not readily determinable in the lease.

On January 19, 2022, the Company entered into a new lease in West Palm Beach, Florida for office space with approximately $1.4 million in total minimum lease payments committed over its 5-year non-cancelable lease term. There is an option to extend the lease for five more years; however, we are not reasonably certain to exercise this option, so the non-cancelable lease term was determined to be 5 years. The lease commencement date was November 7, 2022 upon completion of certain improvements by the landlord. The discount rate used for this lease was the Company’s incremental borrowing rate of 19.0%, as an implicit rate is not readily determinable in the lease.

On September 23, 2022, the Company entered into a new 5-year lease in Oxnard, California for warehouse and storage space with approximately $0.8 million in total minimum lease payments committed over its 5-year non-cancelable lease term. There is an option to extend the lease for two more years; however, we are not reasonably certain to exercise this option, so the non-cancelable lease term was determined to be 5 years. The lease commencement date was on November 1, 2022 upon completion of certain improvements by the landlord. The discount rate used for this lease was the Company’s incremental borrowing rate of 19.0%, as an implicit rate is not readily determinable in the lease.

On May 24, 2023, the Company entered into a new 39-month lease in San Leandro, California for warehouse and storage space with approximately $1.1 million in total minimum lease payments committed over its 39-month non-cancelable lease term. This lease does not contain any lease renewal option. The lease commencement date was on June 27, 2023 when the Company was provided physical access to the property to enable our immediate movement of assets into the leased facility. The discount rate used for this lease was the Company’s incremental borrowing rate of 19.0%, as an implicit rate is not readily determinable in the lease.

As of June 30, 2023, the weighted average remaining lease term for all leases was 3.6 years. Future annual minimum lease payments under operating leases as of June 30, 2023 were as follows:

20

The Company has reported $3,718,370 of ROU assets, $590,764 of lease liability in accrued expenses and other current liabilities, and $2,460,026 in other long-term liabilities as of June 30, 2023, as compared to $3,241,705, $347,131, and $2,058,734, respectively, as of December 31, 2022. Operating lease cost for the three months ended June 30, 2023 and 2022 was $349,406 and $157,467, respectively, of which $154,982 and $99,336 was included in cost of goods sold and $194,424 and $58,131 was included in general and administrative. Operating lease cost for the six months ended June 30, 2023 and 2022 was $669,846 and $314,012, respectively, of which $298,839 and $205,272 was included in cost of goods sold and $371,007 and $108,740 was included in general and administrative in the condensed consolidated statements of operations.

From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. As disclosed in Note 2, the Company received a notice from White-Label Provider in December 2022 of its intent to terminate its contract with Electriq, claiming that the Company had breached its agreement with it. While the Company has continuously asserted that it had not breached the agreement, on May 19, 2023, the Company entered into a settlement with the White-Label Provider. As part of the settlement agreement and mutual release, the Company is to receive all home storage systems and additional component parts of the White-Label Provider’s inventory, as the White-Label Provider has elected to exit the home storage market. These units will be returned to the Company on an as-is basis, and shipping costs will be split equally between the parties to the arrangement. The Company has until July 31, 2023 to remove the units from a leased White-Label Provider facility without incurring further costs and penalties. This settlement agreement will be accounted for as a gain contingency under ASC 450. Accordingly, the Company will record the financial impact of the gain contingency in its financial statements for the three months ending September 30, 2023 upon receipt of the inventory units to be returned from the White-Label Provider. As described in Note 2, the Company wrote off $2,657,281 of specific White-Label Provider related inventory deposits during three months ended June 30, 2023, resulting in a one-time charge to other expense, net, as when the inventory is returned, as per the settlement agreement, the Company will no longer be able to utilize the deposits. As of June 30, 2023, aside from the gain contingency, management believes any such matters would not be material to the Company’s financial position or annual results of operations.

8. Cumulative Mandatorily Redeemable Series B Preferred Stock

On June 7, 2023, the Company increased the authorized shares of preferred stock by 410,000,000 shares, to 3,340,121,789 authorized shares of preferred stock, $0.0001 par value per share, to accommodate a new class of Series B preferred stock. Upon issuance of this new class of cumulative mandatorily redeemable Series B preferred stock, shares issued will be classified as a liability in accordance with ASC 480.

As disclosed in Note 5, on June 8, 2023, Notes Conversion Agreements were executed between the Company and various noteholders whereby the noteholders have agreed to convert $10.1 million of loans payable, including accrued interest (exclusive of the SPAC Executive Notes), resulted in the issuance of 66,644,737 shares of Electriq cumulative mandatorily redeemable Series B preferred stock as an incentive prior to closing of the Business Combination (the “Closing”).

As disclosed in Note 1, with respect to subscription agreements signed in June 2023, including the $18.1 million of Pre-Closing Financings, a total of $11.0 million of Pre-Closing Financings was received through June 30, 2023. The total $11.0 million of Pre-Closing Financings funded as of June 30, 2023 resulted in the issuance of 72,368,420 shares of Electriq cumulative mandatorily redeemable Series B preferred stock as an incentive prior to Closing.

The Company determined the total fair value received for each transaction to be the cash amount paid by the investors in exchange for the stock. The Company utilized a third-party valuation specialist to determine the fair value of the cumulative mandatorily redeemable Series B preferred stock. The fair value calculation was based on a variety of

21

assumptions, including the use of a market yield to discount the future payout to present value and applying a discount related to the lack of marketability, which resulted in a fair value of cumulative mandatorily redeemable Series B preferred stock per share. The Company allocated the fair value to the cumulative mandatorily redeemable Series B preferred stock based on the percentage or proportion it represented within the total fair value received, with the remaining fair value allocated to the common stock. This was calculated by subtracting the fair value of the Series B Preferred Stock from the total fair value received.

The shares of cumulative mandatorily redeemable Series B preferred stock issued in connection with the financing transactions referenced in Note 1 have been reflected in the Company’s condensed consolidated balance sheets as liabilities at fair value pursuant to ASC 480. From and after the date of issuance of any cumulative mandatorily redeemable Series B preferred stock, dividends payable solely in the form of shares (or fractions thereof) of cumulative mandatorily redeemable Series B preferred stock shall accrue on each outstanding share (or fractional share) of cumulative mandatorily redeemable Series B preferred stock at the rate per annum of 15% of the cumulative mandatorily redeemable Series B preferred stock original issuance price plus the amount of any previously accrued and unpaid dividends, compounded annually, on each such share (the “Series B Preferred Accruing Dividends”). The Series B Preferred Accruing Dividends shall accrue from day-to-day, whether or not declared, and shall be cumulative. Such Series B Preferred Accruing Dividends shall be payable only when and if declared by the Board of Directors and the Company shall be under no obligation to declare such Series B Preferred Accruing Dividends. If the preferred stockholders do not receive a dividend (i.e., the board of directors does not declare a dividend) in a given period, then the undeclared dividend is accumulated. The issuer is obligated to pay any accumulated undeclared dividends upon liquidation and, in some cases, upon early redemption of the preferred stock. The Series B Preferred Accruing Dividends shall not be paid in cash and shall be paid only in the form of shares (or fractions of shares) of cumulative mandatorily redeemable Series B preferred stock equal to (A) the Series B Preferred Accruing Dividends accrued and unpaid as of the relevant cumulative mandatorily redeemable Series B preferred stock dividend payment date divided by (B) the cumulative mandatorily redeemable Series B preferred stock original issue price, which was defined as $.07601 per share. The Series B Preferred Accruing Dividends shall be calculated and compounded annually and in arrears on each anniversary of the date on which the first share of cumulative mandatorily redeemable Series B preferred stock was issued.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of each share (or fractional share) of cumulative mandatorily redeemable Series B preferred stock then outstanding shall be entitled to be paid out of the assets of the Company available to be paid out to its stockholders. The issued and outstanding cumulative mandatorily redeemable Series B preferred stock shall be subject to mandatory redemption upon the date which is the third anniversary of the cumulative mandatorily redeemable Series B preferred stock original issue date (“Mandatory Redemption Date”). On the Mandatory Redemption Date, each share (or fractional share) of cumulative mandatorily redeemable Series B preferred stock (including shares of cumulative mandatorily redeemable Series B preferred stock issued in payment of or payable in respect of Series B Preferred Accruing Dividends, whether or not declared) shall be redeemed by the Company. At the election of the holder, the redemption amount is payable either in (i) cash equal to the Series B redemption amount, which is the original issue price plus any Series B Preferred Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon; or (ii) such number of fully paid and non-assessable shares of common stock as is determined by dividing the cumulative mandatorily redeemable Series B preferred stock redemption price by the fair market value of a share of common stock as of the Mandatory Redemption Date.

The terms of the cumulative mandatorily redeemable Series B Preferred stock require the issuer to pay the original issue price of the preferred stock plus cumulative dividends, whether or not declared, upon redemption in shares of cumulative mandatorily redeemable Series B preferred stock. This is a paid-in-kind dividend feature, and it is not discretionary as there is no other choice other than to get the dividend in shares of cumulative mandatorily redeemable Series B preferred stock. Based on the above, the Company shall accrete the dividends as an increase to the carrying amount of the cumulative mandatorily redeemable Series B preferred stock pursuant to ASC 480, despite the fact that dividends have not been declared. This results in accretion of the dividend similar to the amortization of interest on a zero-coupon bond. The carrying value of the cumulative mandatorily redeemable Series B preferred stock is accreted to its redemption value over the three year period ending on the redemption date. The cumulative mandatorily redeemable Series B preferred stock

22

qualifies as a mandatorily redeemable financial instrument as it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur. Pursuant to the respective preferred stock agreements, the issued and outstanding cumulative mandatorily redeemable Series B preferred stock (including a cumulative dividend, payable in kind, of 15% per share, plus any accrued and unpaid dividends on each such share) shall be subject to mandatory redemption by the issuer on the third anniversary of their original issue date in the form of either cash or an equivalent value in shares of common stock.

The original fair value allocated to cumulative mandatorily redeemable Series B Preferred stock issued prior to June 30, 2023 was $6,786,202 and was net of an initial discount of $3,778,798. For both the three and six months ended June 30, 2023, total interest expense recorded to increase the carrying value of the cumulative mandatorily redeemable Series B preferred stock liability was $127,104 comprised of $81,146 of the 15% Series B Preferred Accruing Dividends and $45,958 of accretion of discount. As of June 30, 2023, the carrying value of the cumulative mandatorily redeemable Series B Preferred stock liability was $6,913,306 including the cumulative original issuance price of $6,786,202 plus cumulative Series B Accruing Dividends and accretion of discount of $81,146 and $45,958, respectively.

9. Mezzanine Equity

On August 5, 2021, the Company increased the authorized shares of preferred stock, $0.001 par value, to 2,930,121,789 shares, which includes 2,121,539,537 shares of Seed Preferred, 210,977,985 shares of Seed-1 Preferred, and 597,604,267 shares of Seed-2 Preferred (cumulatively referred to as “pre-2023 preferred stock”).

During the three and six months ended June 30, 2023, no preferred stock warrants were exercised. During the three and six months ended June 30, 2022, preferred stock warrants were exercised and 80,792,496 shares of Seed Preferred were issued in exchange for proceeds of $693,000, as well as a reduction in warrants liability of $9,932,991 for a total of $10,625,991. As of June 30, 2023 and December 31, 2022, the Company had 1,372,152,604 shares of Seed Preferred, 210,977,985 shares of Seed-1 Preferred, and 597,604,267 shares of Seed-2 Preferred that were issued and outstanding.

As of June 30, 2023 and December 31, 2022, the Company has recorded mezzanine equity at historical cost, which was $34,792,203. The fair value of mezzanine equity was calculated using significant unobservable inputs (Level 3), and as of June 30, 2023 and December 31, 2022, the fair value of mezzanine equity was estimated to be $161,947,417 and $304,205,838, respectively.

The shares of preferred stock include voting rights based on the number of shares of common stock the holders would receive upon conversion.

The holders of pre-2023 preferred stock are entitled to dividends, which shall accumulate on each outstanding share of pre-2023 preferred stock at the rate per annum of 8% of a base amount equal to the sum of (i) the initial conversion price of approximately $0.0117 per share of Seed Preferred, approximately $0.0023 per share of Seed-1 Preferred, and approximately $0.0046 per share of Seed-2 Preferred, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the pre-2023 preferred stock (“Seed OIP”), and (ii) the amount of any previously accumulated and compounded dividends on such share. Dividends on pre-2023 preferred stock shall only be payable when declared by the Company’s Board of Directors, a dividend on common stock is declared, or conversion of the underlying pre-2023 preferred stock to common stock, none of which has occurred. Further, dividends shall be payable if a Deemed Liquidation Event occurs or upon an IPO resulting in at least $100,000,000 of gross proceeds, neither of which is deemed probable. During the three months ended June 30, 2023 and 2022, dividends in the amount of $473,499 and $423,507, respectively, were accumulated. During the six months ended June 30, 2023 and 2022, dividends in the amount of $932,949 and $831,439, respectively, were accumulated. As of June 30, 2023 and December 31, 2022, the cumulative accumulated dividends were $5,599,612 and $4,666,663, respectively, which are not recognized in the condensed consolidated statements of changes in stockholders’ deficit, and condensed consolidated balance sheets.

23

Further, if the Company declares, pays or sets aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of common stock payable in shares of common stock), the holders of the pre-2023 preferred stock shall receive a dividend on each outstanding share of pre-2023 preferred stock in an amount at least equal to the sum of (i) the amount of the aggregate accumulate dividends not previously paid and (ii) an amount equal on a per-share basis to the dividend declared, paid or set aside on shares of any other class or series of capital stock of the Company.

Each share of pre-2023 preferred stock is convertible, at the option of the holder, at any time, and without payment of any additional consideration, into fully paid shares of the Company’s common stock. The conversion price is equal to the Seed OIP. However, the pre-2023 Seed Preferred shares include an anti-dilution clause whereby if at any time after the original issue date the Company issues additional Shares of common stock without consideration or for a consideration per share less than the applicable pre-2023 preferred conversion price in effect immediately prior to such issuance or deemed issuance, then the applicable seed preferred Conversion Price shall be reduced, concurrently with such issue, from approximately $0.0117 per share of Seed Preferred to approximately $0.0091 per share of seed preferred. The pre-2023 Seed Preferred shares include an anti-dilution factor of approximately 1.288 per share. The optional conversion feature is not required to be bifurcated from the preferred stock since the conversion feature into another form of equity is clearly and closely related to the pre-2023 preferred stock.

Upon either (a) the closing of the sale of the Company’s common stock to the public for a price of at least $0.10 per share in an IPO that results in gross proceeds of at least $100,000,000 whereby the Company’s common stock is listed on the Nasdaq, the New York Stock Exchange, or another exchange approved by the Board of Directors, or (b) the occurrence of an event, specified by vote or written consent of (i) the holders of at least a majority of the outstanding shares of pre-2023 preferred stock and (ii) the Company’s largest pre-2023 preferred stockholder, then all outstanding shares of pre-2023 preferred stock shall automatically be converted into shares of common stock, at the then effective pre-2023 preferred stock conversion rate. The conversion price is equal to the Seed OIP. The mandatory conversion features are not required to be bifurcated from the pre-2023 preferred stock since the Company determined the nature of the host is equity-like and the conversion options would not require bifurcation.

In the event of a liquidation, dissolution, or winding up of the Company, holders of pre-2023 preferred stock are entitled to be paid out of the assets of the Company available for distribution to its stockholders, or in the event of a Deemed Liquidation Event, preferred stockholders are entitled to be paid out of the consideration payable to stockholders or out of Available Proceeds, both before any payment to holders of common stock and in an amount equal to the Seed OIP plus any accruing, but unpaid dividends (the “Seed PS Liquidation Preference”). As of June 30, 2023, the liquidation preference of Seed Preferred was $21,156,225, Seed-1 Preferred was $566,473 and Seed-2 Preferred was $3,209,121, for a total of $24,931,819. The carrying amount of pre-2023 preferred stock is greater than the Seed PS Liquidation Preference due to the warrant fair values which were added to the carrying amount of pre-2023 preferred stock upon exercise, partially offset by the accumulated dividends.

If upon such liquidation, dissolution, or winding up of the Company, or Deemed Liquidation Event, the assets of the Company available for distribution to its stockholders are not sufficient to satisfy the Seed PS Liquidation Preference, the holders of shares of pre-2023 preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

24

In the event of a liquidation, dissolution, or winding up of the Company, after satisfying the Seed PS Liquidation Preference, the holders of shares of the common stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, or, in the case of a Deemed Liquidation Event, the holders of shares of common stock shall be entitled to be paid out of the consideration payable to stockholders or out of the Available Proceeds in an amount equal to approximately $0.0117 per share (the “Common Stock Liquidation Amount”).

If upon any such liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, after satisfaction of the Seed PS Liquidation Preference, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of common stock the full amount to which they shall be entitled under the Common Stock Liquidation Amount, the holders of shares of common stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

In the event of any liquidation, dissolution or winding up of the Company, after the payment in full of the Seed PS Liquidation Preference and the Common Stock Liquidation Amount the remaining assets of the Company available for distribution to its stockholders or, in the case of a Deemed Liquidation Event, the consideration not payable to the holders of shares of preferred pursuant to the Seed PS Liquidation Preference and the holders of shares of common stock pursuant to the Common Stock Liquidation Amount or the remaining Available Proceeds, as the case may be, shall be distributed among the holders of the shares of preferred stock and common stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock immediately prior to such liquidation, dissolution or winding up of the Company.

Deemed Liquidation Events are defined as (1) a merger or consolidation, (2) the sale, lease, transfer, exclusive license or other disposition, whether in a single or series of related transactions, of substantially all the assets of the Company taken as a whole, (3) the sale or transfer by the Company or its stockholders of more than 50% of the voting power of the Company in a single or series of related transactions other than in a transaction or series of transactions effected by the Company primarily for financing purposes.

In the event of a Deemed Liquidation Event involving a consolidation or a transfer of substantially all the assets of the Company, if the Company does not effect a dissolution of the Company under the law within ninety (90) days after such Deemed Liquidation Event, then (i) the Company shall send a written notice to each holder of pre-2023 preferred stock no later than the ninetieth (90th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of pre-2023 preferred stock; and (iii) if the holders of at least a majority of the then outstanding shares of pre-2023 preferred stock so request in a written instrument delivered to the Company not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Company shall use the consideration received by the Company for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Company), together with any other assets of the Company available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (“Available Proceeds”), on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of pre-2023 preferred stock in accordance with the liquidation preference noted below.

If the Deemed Liquidation Event results in a liquidation, dissolution, or winding up of the Company, the consideration shall be allocated to the pre-2023 preferred and common stockholders in accordance with the terms of the Certificate of Incorporation applicable to the respective liquidation event. The pre-2023 preferred stockholders, through their representation on the Board of Directors, Deemed Liquidation Event provisions, and liquidation and dissolution provisions, could elect to liquidate the Company in a Deemed Liquidation Event, where net cash settlement could be required pursuant to the articles of the Certificate of Incorporation and therefore, redemption of the pre-2023 preferred stock would be considered outside of the Company’s control and its common stockholders. While the Certificate of Incorporation states

25

that pre-2023 preferred stockholders and common stockholders are entitled to be paid out of the consideration payable or out of Available Proceeds, holders of each class of shares may not always be entitled to the same form of consideration. The pre-2023 preferred stockholders could force the pre-2023 preferred shares to be redeemed upon the occurrence of a Deemed Liquidation Event, including change of control or merger, that is not solely within the control of the Company. Consequently, the pre-2023 preferred stock has been classified in Mezzanine Equity.

10. Stockholders’ Deficit

On June 7, 2023, the Company increased the authorized shares of common stock, $0.0001 par value, to 4,600,000,000 shares.

As disclosed in Notes 1 and 5, on June 8, 2023, Notes Conversion Agreements were executed between the Company and various noteholders whereby the noteholders have agreed to convert $10.1 million of loans payable, including accrued interest (exclusive of the SPAC Executive Notes), which resulted in the issuance of 166,585,379 shares of Electriq common stock, including 33,317,076 incentive shares of common stock issued as an incentive prior to Closing.

As disclosed in Note 1, with respect to subscription agreements signed in June 2023, including the $18.1 million of Pre-Closing Financings, a total of $11.0 million of Pre-Closing Financings was received through June 30, 2023. This resulted in the issuance of an additional 180,892,332 shares of Electriq common stock, including 36,178,466 incentive shares of common stock issued as an incentive prior to Closing.

As disclosed in Note 8, the Company determined the total fair value received for each transaction to be the cash amount paid by the investors in exchange for the stock. The Company utilized a third-party valuation specialist to determine the fair value of the common stock and the cumulative mandatorily redeemable Series B preferred stock issued based on the relative fair values in order to allocate the fair value of the consideration received to the shares issued. The fair value calculation was based on a variety of assumptions, including the use of a market yield to discount the future payout to present value and applying a discount related to the lack of marketability, which resulted in a fair value of common stock and cumulative mandatorily redeemable Series B preferred stock per share. The Company allocated the fair value to the cumulative mandatorily redeemable Series B preferred stock based on the percentage or proportion it represented within the total fair value received, with the remaining fair value allocated to the common stock. This was calculated by subtracting the fair value of the Series B preferred stock from the total fair value received to determine the fair value of common stock. The Company has concluded that the common stock issued should be classified as a component of Stockholders’ deficit in the Condensed Consolidated Balance Sheets. Subsequent changes in fair value of common stock issued are not recognized as long as the contract continues to be classified as a component of Stockholders’ deficit.

On September 27, 2015, the Company’s Board of Directors authorized and approved the adoption of the 2015 Equity Incentive Plan effective January 29, 2016. Subsequently, the plan was amended, the most recent of which was on March 12, 2020, allowing an aggregate of 360,917,134 shares to be issued. The plan shall terminate ten years after the plan’s adoption by the Board of Directors. As of June 30, 2023, an aggregate of 414,884,688 stock options were granted to date, 55,711,814 shares have been forfeited or expired to date and are included in the shares available to be granted and an aggregate total of 4,223,848 shares are still available to be granted under the plan.

During the six months ended June 30, 2023 and 2022, the Board of Directors approved the grant of 5,500,000 and 11,750,000 stock options, respectively, to the Company’s employees, executives and consultants valued at $317,270 and $547,333, respectively, or an average of $0.0577 and $0.0465 per share, respectively. The term of the options is approximately ten years, and the vesting period is four years.

26

In applying the Black-Scholes option pricing model, the Company used the following assumptions during the first six months of:

The following table summarizes the stock option activity for the six months ended June 30, 2023:

The following table presents information relating to stock options as of June 30, 2023:

As of June 30, 2023, 18,261,146 stock options had been exercised, but had not yet vested. If the option holder leaves, the Company has the right to purchase back all unvested exercised options at the initial exercise price, which as of June 30, 2023 would be $107,038. As of June 30, 2023 and December 31, 2022, there were 53,696,879 and 105,636,923 unvested shares, respectively, with a weighted average grant date fair value of $0.0555 and $0.0656 per share, respectively.

The stock-based compensation expense related to option grants was $1,280,436 and $339,821 during the three months ended June 30, 2023 and 2022, respectively, and $2,796,252 and $477,828 during the six months ended June 30, 2023 and 2022, respectively, and is included in general and administrative in the condensed consolidated statements of operations. As of June 30, 2023, the remaining stock-based compensation expense related to unvested option grants was $2,537,832, which is expected to be recognized over a weighted average remaining period of 2.7 years.

As of June 30, 2023 and December 31, 2022, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $7,341,670 and $14,319,711, respectively, and $5,925,539 and $6,662,522, respectively. For the six months ended June 30, 2023, the total intrinsic value of the stock options exercised was $162,188.

27

The Company and its Chief Executive Officer (“CEO”) have an agreement whereby the CEO is protected from dilution arising from the issuance of stock or convertible loans. The CEO’s ownership percentage is to remain at 6%. As of June 30, 2023, all required shares had been issued to the CEO in accordance with this agreement.

11. Warrants

The Company uses the guidance in ASC 480 to determine its accounting for warrants. The valuation of the warrant liabilities, both preferred stock warrants and common stock warrants, was made using the option-pricing method and the following assumptions as of June 30:

Common stock warrants allow the holder to purchase common stock. The common stock warrants are classified as liabilities under ASC 480 as they have the right to purchase shares of common stock of the Company for a variable number of shares.

In connection with the issuance of certain SAFE notes in 2021, the Company contemporaneously issued warrants to purchase shares of common stock. These warrants are exercisable any time after issuance and have a life of 2 years from the date of issuance. These warrants provide the respective SAFE investors with the ability to obtain a variable number of shares of common stock of the Company equal to the amount of the SAFE investment divided by a defined exercise price. The Company recorded the warrants as a liability under ASC 480 and re-measured the fair value at the end of the reporting period, with changes in fair value reported in operations. As of June 30, 2023 and December 31, 2022, the fair value of the common stock warrants was $4,818,186 and $14,114,411, respectively. Decrease in the fair value of warrants to purchase shares of common stock as of June 30, 2023 was primarily the result of the fair value of equity in an IPO scenario based on estimated SPAC proceeds of $275 million and discounted to present value, as compared to prior valuations which considered $495 million of estimated SPAC proceeds, as well as reduced remaining time value until the warrants expire. During the three and six months ended June 30, 2023 and 2022, none of the common stock warrants were exercised. As of June 30, 2023, the common stock warrants were convertible into 371,468,806 shares of common stock. For the three months ended June 30, 2023 and 2022, the Company recorded a gain of $10,510,256 and a loss of $6,739,675, respectively, and for the six months ended June 30, 2023 and 2022, the Company recorded a gain of $9,296,225 and a loss of $7,163,583, respectively, within other expense (income) in the condensed consolidated statements of operations related to fair value adjustments for common stock warrants.

Preferred stock warrants allow the holder to purchase Seed Preferred stock. The preferred stock warrants are classified as liabilities under ASC 480 as the underlying shares into which the warrant is exercisable are contingently redeemable and classified as mezzanine equity.

During June 2019, the Company issued warrants to purchase shares of its Seed Preferred stock to existing investors for assistance in fundraising. The warrants were exercisable any time after issuance and had a life of 3 years from the date of issuance. As of June 30, 2023 and December 31, 2022, there were no remaining warrants outstanding to purchase shares of Seed Preferred stock. During the three and six months ended June 30, 2023, there were no preferred stock warrants exercised. During the three and six months ended June 30, 2022, warrants were exercised and 80,792,496 shares of Seed Preferred stock were issued.

28

For the three months ended June 30, 2023 and 2022, the Company recorded losses of zero and $2,923,134, respectively, and for the six months ended June 30, 2023 and 2022, the Company recorded losses of zero and $3,515,845, respectively, within fair value adjustments in the condensed consolidated statements of operations related to fair value adjustments for preferred stock warrants and expired warrants. During 2022, the number of shares of Seed Preferred stock to be received upon exercise of warrants was variable, changing based upon the number of shares of common stock then issued and issuable upon conversion of Seed Preferred. There was no Seed Preferred stock issuable under warrants as of June 30, 2023.

12. Fair Value

As of June 30, 2023 and December 31, 2022, the Company had financial instruments which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3). Significant changes in the inputs could result in a significant change in the fair value measurements. See each respective footnote for information on the assumptions used in calculating the fair value of financial instruments. See Notes 5 and 11 for disclosures related to the decline in fair value of SAFE notes and common stock warrant liabilities that resulted in unrealized fair value adjustment gains recognized in other expense (income) in the condensed consolidated statements of operations for the three and six months ended June 30, 2023. The following table sets forth the Company’s financial instruments that were measured at fair value using Level 3 inputs on a recurring basis for the six months ended June 30, 2023:

The following table sets forth the Company’s financial instruments that were measured at fair value using Level 3 inputs on a recurring basis for the six months ended June 30, 2022:

There were no transfers into or out of Level 3 financial instruments during the six months ended June 30, 2023 and 2022.

13. Income Taxes

The Company did not incur income tax expense for the three or six months ended June 30, 2023 and 2022.

Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases used for income tax purposes and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.

The Company has evaluated the realizability of its deferred tax assets and based on an evaluation of all available evidence, both objective and subjective, it has concluded that presently it is more likely than not that the deferred tax assets will not be utilized in the foreseeable future. Therefore, a full valuation allowance was established against the deferred tax assets as of June 30, 2023 and December 31, 2022.

29

14. Subsequent Events

The Company has evaluated all subsequent events through August 11, 2023, the date the condensed consolidated financial statements were available to be issued and noted the following items requiring disclosure.

Subsequent to June 30, 2023, through the date of this report, the Company issued 5,775,000 shares of common stock from stock option exercises in exchange for $38,548.

With respect to subscription agreements signed in June 2023, $7.1 million of a total of $18.1 million of Pre-Closing Financings was received from the SPAC Executive in the amount of $4.5 million and from other investors in the amount of $2.6 million on July 12, 2023 ($1.0 million) and July 13, 2023 ($6.1 million).

On July 12, 2023, related to the Merger Agreement described in Note 1, the SEC declared the S-4 effective. The Business Combination closed on July 31, 2023 and the newly merged public entity, Electriq Power Holdings, Inc., began trading on the New York Stock Exchange on August 1, 2023 under the ticker symbol ELIQ.

At the merger closing, pursuant to the terms of the Merger Agreement and after giving effect to the redemptions of TLG Class A common stock by public stockholders of TLG:

On July 23, 2023, TLG and Electriq entered into an agreement (the “Forward Purchase Agreement”) with (i) Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”) and Meteora Select Trading Opportunities Master, LP (“MSTO”) (with MSOF, MCP, and MSTO collectively referred to as “Seller”) for an OTC Equity Prepaid Forward Transaction. Pursuant to the terms of the Forward Purchase Agreement, the Seller purchased 3,534,492 shares of TLG common stock from third parties through a broker in the open market (“Recycled Shares”). On July 31, 2023, 251,194 additional shares of New Electriq common stock were issued to Seller pursuant to the terms of the FPA Funding Amount PIPE Subscription Agreement entered into in connection with the Closing. The Forward Purchase Agreement provides that $3,000,000 (the “Prepayment Shortfall”) will be paid by Seller to TLG not later than one local business day following the Closing (which amount shall be netted from the Prepayment Amount). Seller in its sole discretion may sell Shares at any time following the Trade Date at prices (i) at or above $6.67 during the first six months following the Closing and (ii) at any sales price thereafter, without payment by Seller of any Early Termination Obligation until the earlier of such time as the proceeds from the such sales equal 100% of the Prepayment Shortfall (such sales, “Shortfall Sales,” such Shares, “Shortfall Sale Shares,”). A sale of Shares is only (a) a “Shortfall Sale,” subject to the terms

30

and conditions herein applicable to Shortfall Sale Shares, when a Shortfall Sale Notice is delivered under the Forward Purchase Agreement, and (b) an Optional Early Termination, subject to the terms and conditions herein applicable to Terminated Shares, when an OET Notice (as defined below) is delivered under the Forward Purchase Agreement, in each case the delivery of such notice in the sole discretion of the Seller.

The Forward Purchase Agreement provides that Seller will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product of (i) the Number of Shares as set forth in a Pricing Date Notice and (ii) the redemption price per share as defined in Section 9.2(a) of the Amended and Restated Certificate of Incorporation of TLG in effect prior to consummation of the Business Combination, as amended, less (y) the Prepayment Shortfall. TLG paid to Seller separately the Prepayment Amount required under the Forward Purchase Agreement directly from TLG’s Trust Account maintained by Continental Stock Transfer and Trust Company that held the net proceeds of the sale of the units in TLG’s IPO and the sale of private placement warrants (the “Trust Account”), except that to the extent the Prepayment Amount payable to Seller is to be paid from the purchase of Additional Shares by Seller pursuant to the terms of its FPA Funding Amount PIPE Subscription Agreement, such amount will be netted against such proceeds, with Seller being able to reduce the purchase price for the Additional Shares by the Prepayment Amount. For the avoidance of doubt, any Additional Shares purchased by Seller will be included in the Number of Shares for its Forward Purchase Agreement for all purposes, including for determining the Prepayment Amount.

The Company expects to account for the Forward Purchase Agreement as a derivative instrument in accordance with the guidance in ASC 480-10. The instrument is subject to re-measurement at each balance sheet date, with changes in fair value recognized in the statements of operations. The ability of the Company to receive any of the proceeds from the Forward Purchase Agreement is dependent upon factors outside the control of the Company. The Company established the fair value of the forward purchase contract derivative on the date of the Closing, with amounts included in net loss as a change in fair value of forward purchase contract derivative. The estimated fair value of the forward purchase contract derivative was calculated using a Black Scholes option pricing model and used significant assumptions including the risk free rate and volatility. Given the limited trading history of the Company, the Company utilized the volatility of peer group of public companies. Future estimates of trading prices were based on volatility assumptions that impact the estimated share price and Meteora’s corresponding sales in the open market.

31

Exhibit 99.2

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

The following discussion and analysis provides information which management of Electriq Power Holdings, Inc. (together with its consolidated subsidiaries, the “Company,” “Electriq,” “we,” “us” and “our”) believes is relevant to an assessment and understanding of Electriq’s results of operations and financial condition. This discussion and analysis should be read together with the section of our Registration Statement on Form S-4 (File No. 333-268349), which was declared effective the the Securities and Exchange Commission on July 12, 2023 (the “S-4”), entitled “Summary Unaudited Pro Forma Condensed Combined Financial Information.” This discussion and analysis should also be read together with the section of the S-4 entitled “Information About Electriq” and Electriq’s unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 and June 30, 2022 included elsewhere in the S-4. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. See the section entitled “Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors—Risks Related to Electriq” or elsewhere in the S-4 consolidated subsidiaries.

Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Electriq’s consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. Except as otherwise indicated, capitalized terms used herein and not otherwise defined shall have the meanings in the S-4.

Overview

Electriq’s mission is to design, assemble and deploy residential energy storage solutions to shape our world’s environmental and economic future that are prudent (acting with or showing care and thought for the future), panoramic (integrated energy storage solutions across geographies) and serve all demographics with parity (enable access to clean energy for all). Electriq’s energy storage system (“PowerPod”), with its proprietary software and modular design, offers stakeholder benefits through the entire value chain: Homeowners receive energy resiliency that works with solar power systems, the electrical grid and home energy management systems and allows them to transition between modes of operation though a proprietary app; installers are able to enjoy an overall efficient installation through Electriq’s modular design and proprietary installation and commissioning app; and asset owners who own multiple systems are offered an array of metrics that allow them to monitor the systems in their fleet. Electriq’s turnkey solution also gives homeowners the ability to participate in automated demand response as well as other grid services (collectively “Grid Services”), which can offset implementation costs and improve grid reliability. Further, Electriq’s solution is certified to meet the Open Automated Demand Response (“OpenADR”) industry standard, providing enhanced interoperability for a variety of available demand response programs. Areas with dense geographic deployments of energy storage systems are also able to boost the transmission and distribution benefits of these systems through Virtual Power Plants.

We sell our integrated energy storage systems through a network of channel partners, including solar & electrical distributors and installation companies, utility companies, municipalities, community choice aggregators, homebuilders and sustainable solutions developers, as well as through partnerships with large strategic corporations where they rebrand our products as white-label.

Business Combination and Public Company Costs

On November 13, 2022, we entered into the Merger Agreement with TLG, which was amended on December 23, 2022, March 22, 2023 and June 8, 2023. The Business Combination was completed on July 31, 2023. At the Closing, Merger Sub merged with and into Electriq, with Electriq surviving such merger as a wholly-owned subsidiary of TLG. The separate corporate existence of Electriq ceased and the Electriq equityholders became equityholders of TLG, which changed its name to Electriq Power Holdings, Inc. While the legal acquirer in the Merger Agreement is TLG, for financial accounting and reporting purposes under GAAP, Electriq is the accounting acquirer and the Business Combination will be accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Electriq in many respects. Under this method of accounting TLG will be treated as the “acquired” company for financial reporting purposes. For accounting purposes, Electriq is deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Electriq (i.e., a capital transaction involving the issuance of stock by TLG for Electriq capital stock). Accordingly, the consolidated assets, liabilities and results of operations of Electriq will become the historical consolidated financial statements of New Electriq, and TLG’s assets, liabilities and results of operations will be consolidated with Electriq beginning on the date of the Closing. Operations prior to the Business Combination will be presented as those of Electriq in future reports.

The net assets of TLG will be recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded.

As part of the Merger, Electriq equityholders received aggregate merger consideration, consisting of 27,500,000 shares of TLG’s common stock, par value $0.0001 per share, at an assumed value of $10.00 per share or $275,000,000, plus 3,528,750 additional shares of TLG common stock, being equal to the quotient obtained by dividing (x) the amount of equity raised by Electriq in any equity, debt or similar investments obtained by Electriq prior to closing of the Merger in connection with a private capital raise, by (y) $8.00. In addition, holders of Electriq’s Series B Cumulative Redeemable Preferred Stock, par value $0.0001 per share received 1,411,500 shares of TLG’s Series A Cumulative Redeemable Preferred Stock, par value $0.0001 per share, being equal to the number of shares of Electriq cumulative preferred stock outstanding immediately prior to the closing of the Merger multiplied by the Exchange Ratio (as defined in the Merger Agreement). The TLG preferred stock has a cumulative dividend, payable in kind, of 15% per share, plus any accrued and unpaid dividends on each such share, and is subject to mandatory redemption on the third anniversary of the original issue date of such shares, payable either in cash or in TLG common stock, at the option of the holder. As part of the merger consideration, holders of Electriq’s options not exercised prior to the Merger received replacement options to purchase shares of TLG common stock based on the value of the merger consideration per share of Electriq common stock.

In June 2023, certain investors entered into subscription agreements with Electriq to purchase shares of Electriq common stock for $18.1 million, including (i) $10.0 million from John Michael Lawrie, the Chief Executive Officer of TLG and Chairman of the TLG board of directors, (ii) $4.5 million from an affiliate of an existing Electriq stockholder, (iii) $2.5 million in the aggregate from funds managed by GBIF Management Ltd. and another Electriq stockholder, and (iv) $1.1 million from new Electriq investors. In addition, on June 8, 2023, certain noteholders of Electriq entered into subscription agreements with Electriq pursuant to which such investors converted approximately $10.1 million of Electriq notes, including accrued interest (excluding the Lawrie Notes), into shares of Electriq common stock plus additional shares of Electriq common stock and Electriq cumulative preferred stock as an incentive.

In connection with the Pre-Closing Financings and Pre-Closing Loan Conversion, Mr. Lawrie, the Additional Investor, the Pre-Closing Electriq Investors and the Electriq noteholders received shares of Electriq common stock and shares of Electriq cumulative preferred stock as an incentive for their investment. Upon conversion in the Merger, the shares of Electriq common stock and Electriq cumulative preferred stock received in the Electriq Incentive converted into shares of TLG common stock and shares of TLG preferred stock.

In June and July 2023, certain investors entered into subscription agreements with TLG to purchase 650,000 shares of TLG common stock for $6.5 million, including (i) $5.0 million from Mr. Lawrie for 500,000 shares of TLG common stock and (ii) $1.5 million from other Electriq investors to purchase 150,000 shares of TLG common stock. In connection with the Closing Financings, Mr. Lawrie and the other Electriq investors received, as an incentive for their investment, 250,000 shares and 75,000 shares, respectively, of TLG preferred stock at closing of the Merger. In addition, Mr. Lawrie entered into a subscription agreement to purchase up to 300,000 shares of TLG common stock at $10.00 per share for up to $3.0 million. To the extent Mr. Lawrie is required to purchase any shares of TLG common stock pursuant to the Post-Closing Lawrie Investment, Mr. Lawrie will receive up to 150,000 shares of TLG preferred stock as an incentive (one (1) share of TLG preferred stock for every two (2) shares of TLG common stock Mr. Lawrie purchases pursuant to the Post-Closing Lawrie

Investment). The Post-Closing Lawrie Investment is only required to be funded 90 days after closing of the Merger to the extent the total funded in the Pre-Closing Financings, the Closing Financings, any amounts remaining in the trust account at closing of the Merger and any additional amounts raised by TLG from any other sources is less than $28.0 million in the aggregate.

In addition, Mr. Lawrie signed an agreement on June 8, 2023 to convert his two secured convertible promissory notes in the aggregate amount of $8.5 million into 1,062,500 shares of TLG common stock and 425,000 shares of TLG preferred stock. At the closing of the Merger, the Sponsor (i) relinquished and cancelled, for no consideration, an additional 3,270,652 shares of its TLG Class F common stock and all of the 4,666,667 private placement warrants received in connection with TLG’s IPO and (ii) converted approximately $7.6 million of working capital loans into approximately 756,635 shares of TLG common stock and 378,318 shares of TLG preferred stock. The remaining $1.5 million of working capital loans were converted into 1,000,000 warrants with terms identical to the terms of the Sponsor’s private placement warrants at TLG’s IPO.

As a consequence of the Business Combination, we have become the successor to an SEC-registered and NYSE-listed company, which will require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, and legal and administrative resources, including increased audit, compliance and legal fees.

Recent Developments

On August 18, 2022, we signed an agreement with the municipality of Santa Barbara, California (the “Municipality”) whereby we are able to provide behind-the-meter solar-microgrid to residential and small commercial energy consumers through PPAs with promotional information and support from the Municipality. This arrangement includes multiple performance obligations, including installed systems, grid services and software license revenues. There were no revenues generated on this arrangement during the three or six months ended June 30, 2023 or in any prior periods. Once revenues are generated pursuant to this arrangement, revenue from installed systems will be recognized over time following the output method, as systems are installed after control has transferred to the customer. Grid services revenue will be recognized over time as the services are performed. Software license revenue is not significant to the arrangement. We are currently in the project qualification approval and installation stages of implementation for several residential customers in Santa Barbara, California, and have begun the installations of energy storage systems during June 2023. We expect to begin recognizing revenue on this arrangement in the three months ending September 30, 2023.

On September 8, 2022, we signed an agreement to be a preferred supplier of residential batteries with a national solar financier. This arrangement includes one performance obligation, installed energy storage solutions, as the solutions to be provided to the homeowners are not distinct in the context of the arrangement. We are currently in the site audit stage for several residential customers and no revenue has been recognized on this arrangement during the three or six months ended June 30, 2023 or in any prior period. We expect to begin recognizing revenue on this arrangement in the second half of the year ending December 31, 2023.

On December 12, 2022, a customer, Kohler Co., that had accounted for 87% of our revenue for the year ended December 31, 2022 (hereinafter referred to as the “White-Label Provider”) provided notice of its intent to terminate its contract with us, claiming that we had breached our agreement with the White-Label Provider. While we have continuously asserted that we have not breached the agreement, on May 19, 2023, we entered into a settlement with the White-Label Provider. As part of the settlement agreement and mutual release, we are to receive all home storage systems and additional component parts of the White-Label Provider’s inventory, as the White-Label Provider has elected to exit the home storage market. These units will be returned to us on an as-is basis, and shipping costs will be split equally between the parties to the arrangement. We will have until July 31, 2023 to remove the units from a leased White-Label Provider facility without incurring further costs and penalties. This settlement agreement will be accounted for as a gain contingency under ASC 450. Accordingly, we will record the financial impact in our financial statements for the three months ending September 30, 2023 upon receipt of the inventory units to be returned from the White-Label Provider. We wrote off $2,657,281 of specific White-Label Provider related inventory deposits during the three months ended June 30, 2023, resulting in a one-time charge to other expense, net, as when inventory is returned, as per the settlement agreement, we will no longer be able to utilize the deposits. Related to this matter, our reserve for inventory obsolescence and slow-moving items increased from $976,881 as of December 31, 2022 to primarily due to a reserve for enclosures that we have procured in our inventory for the White-Label Provider, which rebrands and sells our product as white-label with its own branded enclosures. In light of the settlement, we have not and will not generate any revenue in 2023 or thereafter from the White-Label Provider. As a result, we experienced a significant decline in revenue during the

three and six months ended June 30, 2023, which is consistent with our revised forecast for the year ending December 31, 2023. However, in light of our efforts to diversify our customer base and our planned expansion into programmatic agreements with sustainable community networks focused on deploying energy storage systems in geographic concentrations, we believe that the relative significance of this agreement to our business will have limited impact in future periods.

On December 23, 2022, we entered into an amended and restated securities purchase agreement (as amended on March 22, 2023, and as may be further amended from time to time, the “SPA”) with Mr. John Michael Lawrie, Chairman, President and Chief Executive Officer of TLG, which obligated Mr. Lawrie to provide funding to us up to a maximum amount of $8.5 million, subject to our fulfillment (or the waiver by Mr. Lawrie) of various conditions for closing under the SPA. Pursuant to the SPA, we issued two secured convertible promissory notes to Mr. Lawrie (the “Lawrie Notes”) in the aggregate amount of $8.5 million. The initial $5.0 million of funding under the SPA was received on December 30, 2022. The remaining $3.5 million was received from Mr. Lawrie on March 30, 2023. The proceeds of the Lawrie Notes have been, and will continue to be, used for general working capital purposes.

The Lawrie Notes bear interest at a simple rate of 14% per annum, payable on a quarterly basis in cash. The Lawrie Notes are payable in full 24 months after the date of issuance of the initial Lawrie Note. As of June 30, 2023, the fair value of the derivative liability related to the conversion option accounted for under ASC 815 was de minimis, as the factors underlying the bifurcated conversion feature giving rise to the derivative treatment have a low probability of occurrence. The following constitute events of default under the Lawrie Notes: (i) any default in the payment of principal, interest or other amounts due and payable under the Lawrie Notes(s); (ii) our failure to observe or perform any other covenant or agreement in the Lawrie Notes or any of the other transaction documents entered into in connection with the Lawrie Notes (the “Transaction Documents”); (iii) our breach or default under any of the Transaction Documents or any other material agreement with Lawrie; (iv) our breach of any representation or warranty made by us under the Lawrie Notes or the other Transaction Documents; (v) either us or any of our subsidiaries becomes subject to bankruptcy; (vi) any other indebtedness in excess of $250,000 or incur any additional indebtedness; (vii) if our common stock is listed on an exchange or the OTC Markets, our failure to comply with the rules of the applicable trading market; (viii) any judgment against us in excess of $250,000; (ix) our failure to reserve a sufficient number of shares of common stock for issuance upon any conversion of the Lawrie Notes; (x) if our common stock is registered under the Exchange Act, our failure to make any filing with the SEC on a timely basis or satisfy the current information requirements of Rule 144 promulgated under the Securities Act; (xi) our failure to maintain Mr. Lawrie’s secured interest under the terms of the security agreement to be entered into with him; (xii) the occurrence of any Material Adverse Effect (as such term is defined in the SPA); or (xiii) our failure to observe or perform the covenant related to use of proceeds from the Lawrie Notes.

Mr. Lawrie will have the right but not the obligation to convert the outstanding principal and unpaid accrued interest on the Lawrie Notes into shares of common stock of Electriq or its successor in interest (the “Conversion Shares”) in the event of (i) a future issuance of equity securities for the purpose of raising capital of at least $20.0 million (an “Equity Financing Conversion”); (ii) an acquisition of Electriq, whether by asset purchase, merger or share purchase (an “Acquisition Transaction Conversion”); (iii) by certain capital markets transactions, including an IPO, direct listing or SPAC-related transaction (a “Capital Markets Transaction Conversion”); or (iv) upon maturity, if any of the Lawrie Notes remain outstanding (a “Maturity Conversion”). The number of Conversion Shares will be determined by the outstanding interest and principal of the Lawrie Notes and the conversion price. The latter shall be (i) 95% of the lowest price per share of shares sold in the event of an Equity Financing Conversion; (ii) 95% of the per share price paid in an acquisition of Electriq in the event of an Acquisition Transaction Conversion; (iii) 95% of the price per share as listed before trading in an IPO, the fair value per share provided to the designated market maker prior to any direct listing in the event of a Capital Markets Transaction Conversion; or (iv) the price per share is to be obtained by dividing $275.0 million by the number of outstanding shares of common stock of Electriq immediately prior to a Maturity Conversion. If an acquisition of Electriq occurs before repayment or conversion, Electriq will pay the accrued unpaid interest plus two times the outstanding principal amount.

As described above, at the Merger closing the Lawrie Notes were converted into equity securities of TLG in accordance with the terms of the Notes Conversion Agreement.

On March 13, 2023, we entered into a multi-year agreement with EverBright, LLC, a subsidiary of a major U.S. clean-energy company, to provide financing to support the implementation of sustainable community networks throughout California. The provider company, founded by one of the largest investors in clean energy infrastructure in the United States, provides a platform that designs, proposes and finances solar and energy storage projects nationwide. The agreement provides us the exclusive right to install systems for the first 8,000 customers that execute qualifying power purchase agreements under the sustainable community networks program. Following the 30 month anniversary of the arrangement, either party may terminate this agreement upon 60 days’ prior notice to the other party. The agreement provides that Electriq will design and propose systems for approval by the clean-energy company based upon customer agreements with each customer. Upon approval by the clean-energy company, each system is then installed by Electriq at a purchase price specified in the agreement, with the clean-energy company, as the purchaser of the system, making progress payments to Electriq after achievement of certain milestones. Our provider’s expertise in the energy sector and the provider’s software platform will enable us to jointly provide potential grid services and expand access to more communities. This arrangement includes multiple performance obligations, including installed systems, grid services and software license revenues. Revenue from installed systems will be recognized over time following the output method, as systems are installed after control has transferred to the customer. Grid services revenue will be recognized over time as the services are performed. Software license revenue is not significant to the arrangement. There were no revenues generated on this arrangement during the three or six months ended June 30, 2023. We are currently in the project qualification approval and installation stages of implementation for several residential customers in Santa Barbara, California, and expect to begin generating revenue on this arrangement in the three months ending September 30, 2023.

On April 27, 2023, we announced the signing of an agreement with SLO Climate Coalition (SLOCC) to deliver affordable, sustainable, and resilient energy to San Luis Obispo County, California residents through fully financed residential solar-plus-storage microgrids. Through the program’s SLOCC-vetted PPA, called the “PoweredUp Network,” all San Luis Obispo County homeowners, regardless of means, will have access to a turnkey, distributed home energy solution, including smart battery storage. We are currently preparing marketing materials for revenue-generating leads in this market and expect to begin installations upon identifying and completing project qualification approvals of San Luis Obispo County homeowner customers during the second half of the year ending December 31, 2023.

On June 8, 2023, a Third Amendment to Merger Agreement was executed by TLG and Electriq.

On June 8, 2023, a Notes Conversion Agreement was executed between Electriq, TLG and Mr. Lawrie whereby the parties have agreed that simultaneous with the closing of the Merger, pursuant to the terms and conditions of the Merger Agreement, the Lawrie Notes will automatically convert into securities of the new public entity, upon which the SPA and the Lawrie Notes will be terminated including any rights of conversion set forth therein, and shall be cancelled. As described above, at the Merger closing the Lawrie Notes were converted into equity securities of TLG in accordance with the terms of the Notes Conversion Agreement.

On June 8, 2023, Notes Conversion Agreements were executed between Electriq and various noteholders whereby the noteholders have agreed that the currently outstanding aggregate principal amounts of the Notes totaling approximately $7.8 million, and all accrued but unpaid interest on the Notes of approximately $2.3 million automatically converted into securities of Electriq, upon the execution of these agreements.

With respect to subscription agreements signed in June 2023, including the $18.1 million of Pre-Closing Financings, a total of $11.0 million of Pre-Closing Financings was received from Mr. Lawrie in the amount of $5.5 million and from other investors in the amount of $5.5 million, including $3.0 million each received from Mr. Lawrie and from other investors, respectively, on June 23, 2023 and $2.5 million each received from Mr. Lawrie and from other investors, respectively, earlier in June 2023. The remaining $7.1 million of the Pre- Closing Financings was received after the SEC declared the registration statement effective from the SPAC Executive in the amount of $4.5 million and from other investors in the amount of $2.6 million on July 12, 2023 ($1.0 million) and July 13, 2023 ($6.1 million).

On July 12, 2023, related to the merger agreement described in Note 1, the SEC declared the S-4 effective. The Business Combination closed on July 31, 2023 and the newly merged public entity, Electriq Power Holdings, Inc., began trading on the New York Stock Exchange on August 1, 2023 under the ticker symbol ELIQ.

At the Closing, pursuant to the terms of the Merger Agreement and after giving effect to the redemptions of TLG Class A common stock by public stockholders of TLG:

Forward Purchase Agreement

On July 23, 2023, TLG and Electriq entered into an agreement (the “Forward Purchase Agreement”) with (i) Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”) and Meteora Select Trading Opportunities Master, LP (“MSTO”) (with MSOF, MCP, and MSTO collectively referred to as “Seller”) for an OTC Equity Prepaid Forward Transaction. Pursuant to the terms of the Forward Purchase Agreement, the Seller purchased 3,534,492 shares of TLG common stock from third parties through a broker in the open market (“Recycled Shares”). On July 31, 2023, 251,194 additional shares of New Electriq common stock were issued to Seller pursuant to the terms of the FPA Funding Amount PIPE Subscription Agreement entered into in connection with the closing of the Business Combination (the “Closing”). Capitalized terms used but not otherwise defined in this section shall have the meanings ascribed to such terms the Forward Purchase Agreement.

The Forward Purchase Agreement provides that $3,000,000 (the “Prepayment Shortfall”) will be paid by Seller to TLG not later than one local business day following the Closing (which amount shall be netted from the Prepayment Amount). Seller in its sole discretion may sell Shares at any time following the Trade Date at prices (i) at or above $6.67 during the first six months following the Closing and (ii) at any sales price thereafter, without payment by Seller of any Early Termination Obligation until the earlier of such time as the proceeds from the such sales equal 100% of the Prepayment Shortfall (such sales, “Shortfall Sales,” such Shares, “Shortfall Sale Shares,”). A sale of Shares is only (a) a “Shortfall Sale,” subject to the terms and conditions herein applicable to Shortfall Sale Shares, when a Shortfall Sale Notice is delivered under the Forward Purchase Agreement, and (b) an Optional Early Termination, subject to the terms and conditions herein applicable to Terminated Shares, when an OET Notice (as defined below) is delivered under the Forward Purchase Agreement, in each case the delivery of such notice in the sole discretion of the Seller.

The Forward Purchase Agreement provides that Seller will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product of (i) the Number of Shares as set forth in a Pricing Date Notice and (ii) the redemption price per share as defined in Section 9.2(a) of the Amended and Restated Certificate of Incorporation of TLG in effect prior to consummation of the Business Combination, as amended, less (y) the Prepayment Shortfall.

TLG paid to Seller separately the Prepayment Amount required under the Forward Purchase Agreement directly from TLG’s Trust Account maintained by Continental Stock Transfer and Trust Company that held the net proceeds of the sale of the units in TLG’s IPO and the sale of private placement warrants (the “Trust Account”), except that to the extent the Prepayment Amount payable to Seller is to be paid from the purchase of Additional Shares by Seller pursuant to the terms of its FPA Funding Amount PIPE Subscription Agreement, such amount will be netted against such proceeds, with Seller being able to reduce the purchase price for the Additional Shares by the Prepayment Amount. For the avoidance of doubt, any Additional Shares purchased by Seller will be included in the Number of Shares for its Forward Purchase Agreement for all purposes, including for determining the Prepayment Amount.

Seller agreed to waive any redemption rights that it had under TLG’s Amended and Restated Certificate of Incorporation with respect to any TLG common stock purchased through the FPA Funding Amount PIPE Subscription Agreement and any Recycled Shares in connection with the Business Combination, that would require redemption by TLG of the shares of TLG common stock. Such waiver may have reduced the number of shares of TLG common stock redeemed in connection with the Business Combination, and such reduction could alter the perception of the potential strength of the Business Combination. The Forward Purchase Agreement has been structured, and all activity in connection with such agreement has been undertaken, to comply with the requirements of all tender offer regulations applicable to the Business Combination, including Rule 14e-5 under the Exchange Act.

The Company accounts for the Forward Purchase Agreement as a derivative instrument in accordance with the guidance in ASC 480-10. The instrument is subject to re-measurement at each balance sheet date, with changes in fair value recognized in the statements of operations. The ability of the Company to receive any of the proceeds from the Forward Purchase Agreement is dependent upon factors outside the control of the Company. The Company established the fair value of the forward purchase contract derivative on the date of the Closing, with amounts included in net loss as a change in fair value of forward purchase contract derivative. The estimated fair value of the forward purchase contract derivative was calculated using a Black Scholes option pricing model and used significant assumptions including the risk free rate and volatility. Given the limited trading history of the Company, the Company utilized the volatility of peer group of public companies. Future estimates of trading prices were based on volatility assumptions that impact the estimated share price and Meteora’s corresponding sales in the open market.

FPA Funding Amount PIPE Subscription Agreement

On July 23, 2023, TLG entered into a subscription agreement (the “FPA Funding Amount PIPE Subscription Agreement”) with Meteora.

Pursuant to the FPA Funding Amount PIPE Subscription Agreement and in connection with the Forward Purchase Agreement, and on the terms of and subject to the conditions set forth in the FPA Funding Amount PIPE Subscription Agreement, Meteora agreed to subscribe for and purchase, and TLG agreed to issue and sell to Meteora, on the Closing Date, an aggregate of a number of shares of TLG Common Stock up to the Maximum Number of Shares as set forth in the Forward Purchase Agreement (the “Subscribed Shares”) less the number of Recycled Shares, as defined in the Forward Purchase Agreement, provided, however, that Meteora shall not be required to purchase an amount of shares of TLG Common Stock, such that following the issuance of the Subscribed Shares, its ownership would exceed 9.9% ownership of the total shares of TLG Common Stock outstanding immediately after giving effect to such issuance unless Meteora at its sole discretion waives such 9.9% ownership limitation.

Capital Raise

As conditions to closing, the Merger Agreement required that : (i) within 72 hours after TLG receives comments from the SEC on Amendment No. 3 to TLG’s Form S-4, Electriq shall receive net cash proceeds of at least $3,000,000 from the sale of equity securities to Mr. Lawrie and net cash proceeds of at least $3,000,000 from the sale of equity securities to third parties, and within 24 hours after the SEC declares the registration statement effective, Electriq shall receive net cash proceeds of at least $4,500,000 from the sale of equity securities to Mr. Lawrie and net cash proceeds of at least $1,500,000 from the sale of equity securities to third parties, (ii) Electriq shall have converted an aggregate amount of $10,130,000, including accrued interest, of Shareholder Notes (as defined in the Merger Agreement) from management or significant equity investors that are currently included in loans payable into equity securities of Electriq and (iii) TLG or Electriq shall have received net cash proceeds from the sale of equity securities to Mr. Lawrie of at least $5,000,000 and net cash proceeds from the sale of equity securities to third parties of at least $1,500,000.

Key Factors and Trends Affecting our Business

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of the S-4 titled “Risk Factors.”

Increasing Deployment of Renewables

Deployment of renewable energy resources has accelerated over the last decade, and today, wind and solar have become lower-cost fuel sources. We expect the cost of generating renewable energy to continue to decline and deployments of energy storage solutions to increase. As renewable energy sources of energy production represent a larger proportion of energy generation, grid instability rises due to their intermittency, which can be addressed by energy storage solutions.

Concentration risk

We expect to derive a large portion of our revenue from energy storage solutions sales associated with sustainable community networks and microgrid programs. If we are unable to enter such contracts on a timely basis and, in the case of sustainable community networks programs, we are unable to obtain project financing, acquire customers, achieve milestones on financing arrangements and install solutions on a timely basis, our growth, revenue and results of operations may not meet our projections.

Supply Chain

Global supply chain disruptions have impacted the economy in 2021 and 2022, including the availability and cost of labor, as well as the supply of industrial goods. As a result, we have in certain instances experienced delays in receiving components due to microchip shortages. While we are unable to quantify the impacts of such delays, we believe that these disruptions have resulted in increased direct costs and inefficiencies in our operations during 2022. Because many of our key suppliers are located in China, we are exposed to particular risks relating to the possibility of product supply disruption and increased costs in the event of changes in the policies, laws, rules and regulations of the United States or Chinese governments, as well as political unrest or unstable economic conditions in China. The components of our energy storage systems that we purchase from China have been, and may in the future be, subject to these tariffs, which could increase our supply costs and could make our products, if successfully developed and approved, less competitive than those of our competitors whose inputs are not subject to these tariffs. We have secured or are evaluating second sources for our main components both inside and outside of China as a way to diversify our supply chain, ensure production capabilities and lower costs and mitigate any potential supplier risks. Such mitigation efforts have not resulted in new material risks, such as product quality, reliability or regulatory approval of products.

Competition

We compete with several large competitors already successful in selling energy storage solutions most notably (in alphabetical order): Enphase Energy, Generac, LG Energy Solutions, SolarEdge Technologies, SunPower and Tesla. We believe our competitive strengths including ease of installation, multiple modes of operation, adaptability, cost and availability allow us to compete well in this market. Some of our competitors have significantly greater financial capacity, product development, manufacturing capabilities, marketing resources, and name recognition than we do. However, while our competitors typically focus on the development and commercialization of hardware offerings, our software-centric approach provides value throughout the value chain, from installers, fleet managers, consumers, and utilities.

Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. If our market share declines due to increased competition, our revenue and ability to generate profits in the future may be adversely affected.

Government Regulation and Compliance

Although we are not regulated as a utility, the market for our products and services is heavily influenced by federal, state and local government statutes and regulations concerning electricity. These statutes and regulations

affect electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation. In the United States and internationally, governments continuously modify these statutes and regulations and, acting through state utility or public service commissions, regularly change and adopt different rates for commercial customers. These changes can positively or negatively affect our ability to deliver cost savings to customers.

Key Components of Results of Operations

Net Revenues

We expect to primarily generate revenues from sales of our residential energy solution, PowerPod 2, to white-label partners, distributors, installers and strategic programmatic partners. Under certain programs, revenue is also generated from installation services and other services.

Our revenue is affected by changes in the volume and average selling prices of our storage solutions, supply and demand, sales incentives and competitive product offerings. Our revenue growth is dependent on our ability to compete effectively in the marketplace by remaining cost competitive, developing and introducing new solutions that meet the changing technology and performance requirements of our customers and our ability to diversify and expand our revenue base through the implementation of programs with strategic partners.

Cost of Goods Sold and Gross Profit

Cost of goods sold is comprised primarily of product costs, warranty, supply chain and assembly personnel and logistics costs, freight costs, customs duties, inventory write-downs, product certification costs and hosting services costs related to our integrated software platform. Our product costs are impacted by component cost, unit volume and assembly processing costs. Certain costs, primarily personnel and warehouse costs, are not directly affected by sales volume.

We purchase our product components from offshore suppliers and generally negotiate product pricing with them on an annual basis, with battery cell supply locked in through December 2023. We believe our suppliers have sufficient production capacity to meet the anticipated demand for the foreseeable future, although there can be no assurances that suppliers will be able to meet our anticipated demand. In addition, shortages in the supply of certain key raw materials could adversely affect our ability to meet customer demand for our products and our gross profit.

Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, product mix, customer mix, warranty costs and sales volume.

Operating Expenses

Operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel related costs are the most significant component and include salaries, benefits, payroll taxes, commissions and stock-based compensation. Our employee headcount in our research and development, sales and marketing and general and administrative departments has grown from 31 as of June 30, 2022 to 47 as of June 30, 2023, consistent with scaling the business, and is expected to continue to grow to support expected revenue growth.

Research and Development Expenses

Research and development expenses include personnel-related expenses such as salaries, benefits and payroll taxes. Our research and development employees are engaged in the design and development of hardware and software solutions. Our research and development expenses also include design, outsourced software

development, materials for testing and evaluation and other indirect costs. We devote substantial resources to ongoing research and development programs that focus on enhancements to, and cost efficiencies in, our existing solutions and timely development of new solutions that utilize technological innovation, thereby maintaining our competitive position.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel-related expenses such as salaries, sales commissions, benefits and payroll taxes. These expenses also include travel, fees of independent consultants, trade shows, marketing and other indirect costs. The increase in sales and marketing expenses is due to an increase in the number of sales and marketing personnel and the expansion of our sales and marketing footprint, which is intended to enable us to increase our penetration into new markets.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, stock compensation expense and employee benefits related to our executive, finance, legal, human resource and operations organizations, as well as travel expenses, facilities costs and fees for professional services. Professional services consist of audit and legal costs, advisory services and other costs. Depreciation and amortization consist primarily of amortization of leasehold improvements of facilities. General and administrative expenses also include allowance for doubtful accounts in the event of uncollectible account receivables balances.

Non-Operating Expenses

Interest Expense

Interest expense consists primarily of interest on our outstanding borrowings under outstanding loans and convertible note payable.

Unrealized Fair Value Adjustments

Fair value adjustments are related to the revaluation of outstanding preferred stock warrants, common stock warrants and SAFE notes connected to the redemption features associated with these notes, at each reporting date.

Comparison of the Three Months Ended June 30, 2023 and 2022

Net Revenues

Net revenue decreased by $4.5 million, or 99%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The decrease was primarily driven by the termination of the agreement with the White-Label Provider and its related sales, which had accounted for greater than 86% of sales in the three months ended June 30, 2022, and was consistent with our revised 2023 forecast which reflects increasing revenues in the second half of the year ending December 31, 2023 upon the successful completion of installations revenues expected to be generated from our agreement with a major U.S. clean-energy company to provide financing to support the implementation of sustainable community networks throughout California.

Cost of Goods Sold

Cost of goods sold decreased by $3.8 million, or 91%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The decrease was primarily driven by a decrease in cost of energy storage system sales and associated landed costs (inbound freight & duties) due to the termination of the agreement with the White-Label Provider.

Operating Expenses

Research and Development

Research and development expense increased by $0.2 million, or 21%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to an increase in personnel related costs as a result of increased headcount.

Sales and Marketing

Sales and marketing expense was essentially flat, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. Personnel related costs, which reflects the largest expense category in sales and marketing, were essentially flat for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.