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Item 1. Business

2024-04-09 compared with 2023-03-30 · 482 added, 128 removed, 23 unchanged (96% of the section changed)

Company Overview

The Company is a leading owner and operator of distributed solar energy assets across the United States, offering subscription-based services to more than 72,000 customers with the March 2023 SEMTH Acquisition discussed below and making renewable energy more accessible to everyone.

The Company generates revenues primarily through the sale of electricity generated by its residential solar energy systems to homeowners pursuant to long-term agreements that obligate the Company’s subscribers to make recurring monthly payments, and the servicing of those agreements for other institutional owners of residential solar energy systems.

The Company holds subsidiary fund companies that own and operate portfolios of residential solar energy systems.

The solar energy systems are subject to solar lease agreements ("SLAs") and power purchase agreements ("PPAs", together with the SLAs, "Customer Agreements") with residential customers who benefit from the production of electricity produced by the solar energy systems.

Spruce Power (formerly known as XL Fleet Corp.) is a leading owner and operator of distributed solar energy assets across the United States (the “U.S.”), offering subscription-based services to approximately 75,000 home solar assets and customer contracts, making renewable energy more accessible to everyone.

Our mission is to provide our customers with clean, affordable solar energy systems and an extraordinary customer experience.

We are engaged in the ownership and maintenance of home solar energy systems for homeowners in the U.S.

We provide clean, solar energy typically at savings compared to traditional utility energy.

Our primary customers are homeowners and our core solar service offerings generate revenues primarily through (i) the sale of electricity generated by our home solar energy systems to homeowners pursuant to long-term agreements, which requires our subscribers to make recurring monthly payments, (ii) third party contracts to sell solar renewable energy credits (“ SRECs”) generated by the solar energy systems for fixed prices and (iii) the servicing of those agreements for other institutional owners of home solar energy systems.

In addition, we generate cash flows and earn interest income from an investment through a master lease agreement.

We hold subsidiary fund companies that own and operate portfolios of home solar energy systems, which are subject to solar lease agreements (“SLAs”) and power purchase agreements (“PPAs”, together with the SLAs, “Customer Agreements”) with home solar customers who benefit from the production of electricity generated by the solar energy systems.

The solar energy systems may qualify for subsidies, renewable energy credits and other incentives as provided by various states and local agencies.

These benefits have generally been retained by the Company's subsidiaries that own the systems, with the exception of the investment tax credit under Section 48 of the Internal Revenue Code ("IRC"), which were generally passed through to the various financing partners of the solar energy systems.

The Company also engages in the energy efficiency and solar loan servicing business.

The Company offers services which include asset management services and operating and maintenance services for residential solar photovoltaic projects, in addition to, loan servicing support that allows residential consumers to finance energy efficiency home improvements and residential solar energy systems.

In addition to providing management services to its own portfolio, the Company also provides management services to over 7,500 systems owned by other companies.

These services include (i) billing and collections, (ii) account management services, (iii) financial reporting, (iv) homeowner support and (v) maintenance monitoring and dispatch.

These benefits have generally been retained by our subsidiaries that own the solar energy systems, with the exception of the investment tax credit (“ITC”) under Section 48 of the Internal Revenue Code as amended, (the “IRC”), which were generally passed through to the various financing partners of the solar energy systems.

Our business offers services which include asset management services and operating and maintenance services for home solar energy systems.

In addition to providing management services to our portfolio, we also provide portfolio management services through our Spruce Pro platform to approximately 5,000 systems owned by other companies, which include (i) billing and collections, (ii) account management services, (iii) financial reporting, (iv) homeowner support and (v) maintenance monitoring and dispatch.

Corporate History and Background

On December 21, 2020 (the “Closing Date”), Pivotal Investment Corporation II, a special purpose acquisition company incorporated on March 20, 2019 (“Pivotal”), consummated a business combination pursuant to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger Agreement”), by and among Pivotal, PIC II Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger Sub”), and XL Hybrids, Inc., a Delaware corporation (“Legacy XL”).

Pursuant to the terms of the Merger Agreement, a business combination between Pivotal and Legacy XL was affected through the merger of Merger Sub with and into Legacy XL, with Legacy XL surviving as the surviving company and as a wholly-owned subsidiary of Pivotal (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”).

On the Closing Date, and in connection with the closing of the Business Combination (the “Closing”), Pivotal Investment Corporation II changed its name to XL Fleet Corp ("XL Fleet").

Under the XL Fleet name, the Company was historically a provider of fleet electrification solutions for commercial vehicles in North America, offering its systems for vehicle electrification (the “Drivetrain” segment) and through its energy efficiency and infrastructure solutions business, including offering and installing charging stations to enable customers to effectively and cost-effectively develop the charging infrastructure required for their electrified vehicles (the “XL Grid” segment).

The XL Grid segment included World Energy Efficiency Services, LLC (“World Energy”) after its acquisition in May 2021.

In the first quarter of 2022, the Company initiated a strategic review of its overall business operations which included assessing its offerings, strategy, processes and growth opportunities.

As a result of the strategic review, in the first quarter of 2022 the Company made the following decisions relating to a restructuring of its Drivetrain business:

(i) the elimination of a substantial majority of the Company’s hybrid drivetrain products;

(ii) the elimination of its Plug-In Hybrid Electric Vehicles (“PHEV”) products;

(iii) the reduction in the size of the Company’s workforce by approximately 50 employees;

(iv) the closure of the Company’s production center and warehouse in Quincy, IL;

(v) the closure of the Company’s engineering activities in its Boston office;

and (vi) the termination of the Company’s partnership with eNow.

Following the strategic review, the Company announced its decision to pursue transformational mergers and acquisition (“M&A”) opportunities, enabled by a significant cash balance resulting from the Company’s go-public transaction completed in December 2020.

As a result of these efforts, on September 9, 2022, the Company acquired 100% of the membership interests of Spruce Holding Company 1 LLC, Spruce Holding Company 2 LLC, Spruce Holding Company 3 LLC, and Spruce Manager LLC (collectively and together with their subsidiaries, “Legacy Spruce Power”) for $32.6 million which consisted of cash payments of $61.8 million less cash and restricted cash acquired of $29.2 million.

With the acquisition of Legacy Spruce Power, the Company also assumed $542.5 million of long-term debt .

In November 2022, the Company changed its corporate name from “XL Fleet Corp” to “Spruce Power Holding Corporation”.

Additionally, the Company changed its ticker symbol from “XL” to “SPRU.”

Discontinued Operations

With the completion of the acquisition of Legacy Spruce Power, the Company announced that it would analyze strategic alternatives related to its Drivetrain business.

In December 2022, the Company announced that it was exiting its Drivetrain business and would be selling a portion of the business for an immaterial amount to Shyft Group USA (“Shyft”) which closed on January 1, 2023.

Shyft bought certain technical equipment and assumed the Company’s Wixom, Michigan facility and also offered employment to certain engineers and other sales personnel.

Shyft also assumed completion of the Company’s pilot development agreement with the Department of Defense related to vehicle hybridization (with the Company retaining rights to potential future royalties from the program).

The Company also announced that it had sold certain battery inventory and its legacy hybrid technology to RMA Group, an automotive and equipment supplier in Southeast Asia.

As of December 31, 2022, the Company had ceased Drivetrain operations and began to restructure most of its related Corporate functions.

The Company also began reviewing the operations of its XL Grid business to evaluate its strategic fit with Spruce Power.

In the fourth quarter of 2022, the Company entered into a non-binding letter of intent (“LOI”) for the sale of World Energy for an immaterial amount, with the divestiture closing in January 2023 and the Company ceased XL Grid operations after the closing of the divestiture.

Both the Drivetrain and XL Grid operations are presented as discontinued operations.

Company Strategy

The Company believes that the combination of Spruce Power’s existing Customer Agreements' subscriber-base proven servicing platform, together with the Company’s capital resources and relationships gives it the ability to take advantage of rapid growth in distributed solar, energy storage and electric vehicle adoption while creating a path to more predictable revenues, profits and cash flow for the Company’s shareholders.

As described above, over the past several quarters, the Company’s Management and Board of Directors conducted a comprehensive review of the Company’s existing business as well as potential acquisitions that could accelerate growth and increase profitability.

Based on that review, as well as learnings from the operation of the XL Grid segment, the Company determined to refocus its business on providing subscription-based solutions to homeowners for rooftop solar and servicing of assets and customers to other owners of similar portfolios.

In addition, offering consumer power products such as energy storage, EV chargers and other energy-related products would yield greater value for the Company’s shareholders.

Key elements of the Company’s new corporate strategy include:

Leveraging the Spruce Power platform to become a leading provider of subscription-based solutions for distributed energy resources – Spruce Power has more than a decade of experience owning and operating rooftop solar systems, and the Customer Agreements associated with those systems, as well as energy efficiency upgrades.

The Company believes that Spruce Power’s proven platform for managing residential solar can be extended to other categories of distributed energy resources.

Through leveraging the Spruce Power platform, the Company intends to grow its revenues by providing subscription-based solutions for rooftop solar, energy storage, EV chargers and other energy-related products, as well as the servicing and management of those systems, to homeowners and small businesses.

Over the last 18 months, Spruce Power has focused on delivering best-in-class customer service, with investment into process and platform improvement for on-site monitoring, customer billing and working with qualified partners for field services.

Profitably growing return on assets by focusing on channels with below-average customer acquisition cost – The Company will seek to grow its subscriber revenues by focusing on the channels that have below-average customer acquisition costs and the ability to increase return on assets, including:

acquiring existing systems from other companies or investment funds, selling additional services to existing subscribers, selling services to new customers online and partnering with selected independent installers to provide a subscription-based solution for their customers.

Increasing shareholder value by delivering predictable revenues, profits and cash flow – By focusing on subscription-based solutions with long-term customer agreements, and the adjacent businesses of servicing and managing those systems, the Company will seek to generate consistent revenues, profits and cash flow.

Historically, we provided fleet electrification solutions for commercial vehicles in North America, offering our systems for vehicle electrification (the “Drivetrain” business) and through our energy efficiency and infrastructure solutions business, offering and installing charging stations to enable customers develop the charging infrastructure required for their electrified vehicles (the “XL Grid” business).

In the first quarter of 2022, we initiated a strategic review of our overall business operations, which included assessing our offerings, strategy, processes and growth opportunities.

As a result of the strategic review, we made the following decisions relating to the restructuring of our Drivetrain business in the first quarter of 2022:

(i) the elimination of a substantial majority of our hybrid drivetrain products;

(ii) the elimination of our plug-in hybrid electric vehicles products;

(iii) the reduction in the size of our workforce by approximately 50 employees;

(iv) the closure of our production center and warehouse in Quincy, IL;

(v) the closure of engineering activities in our Boston office;

and (vi) the termination of our partnership with eNow.

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Following the strategic review, we decided to pursue transformational mergers and acquisition (“M&A”) opportunities, which included the implementation of a process to institutionalize the M&A effort and resulted in the formation of an investment committee comprised of senior members of our executive team (“Management”) and members of our Board of Directors.

The objective of the investment committee was to continue the exploration of value-generative opportunities in the decarbonization and energy transition ecosystem, focused on three core requirements:

(i) a business that makes an impact on decarbonization, (ii) a leader in an established, growing market segment and (iii) a company that generates positive earnings before interest, taxes, depreciation and amortization (“EBITDA”).

As a result of these efforts, on September 9, 2022, we acquired 100% of the membership interests of Legacy Spruce Power, which was one of the largest privately held owner and operator of home solar energy systems in the U.S.

at the time of the transaction, with approximately 51,000 customer subscribers as of December 31, 2022.

For reference, on December 21, 2020 (the “Closing Date”), Pivotal Investment Corporation II (“Pivotal”), a special purpose acquisition company (“SPAC”) incorporated on March 20, 2019, consummated a business combination pursuant to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger Agreement”), by and among (i) Pivotal, PIC II Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger Sub”) and (ii) XL Hybrids, Inc., a Delaware corporation (“Legacy XL”).

Pursuant to the terms of the Merger Agreement, a business combination between Pivotal and Legacy XL was effected through the merger of Merger Sub with and into Legacy XL, resulting in Legacy XL as the surviving company and a wholly-owned subsidiary of Pivotal.

On the Closing Date, Pivotal changed its name to XL Fleet Corp (“XL Fleet”).

In November 2022, following the acquisition of Legacy Spruce Power, we changed our corporate name from “XL Fleet Corp.” to “Spruce Power Holding Corporation.” Additionally, we changed our ticker symbol from “XL” to “SPRU.”

With the completion of the acquisition of Legacy Spruce Power, we analyzed strategic alternatives related to our Drivetrain business, and subsequently in December 2022, set plans to exit our Drivetrain business and sold a portion of the business to Shyft Group USA (“Shyft”), which closed in January 2023.

Shyft also (i) acquired certain technical equipment and assumed our Wixom, Michigan facility, (ii) offered employment to certain engineers and sales personnel and (iii) assumed completion of our pilot development agreement with the Department of Defense related to vehicle hybridization, wherein we retained the rights to potential future royalties from the program.

We also sold certain battery inventory and our legacy hybrid technology to RMA Group, an automotive and equipment supplier in Southeast Asia, during the fourth quarter of 2022.

Furthermore, we assessed the operations of our XL Grid business to evaluate its strategic fit with Legacy Spruce Power, and in the fourth quarter of 2022, we entered into a non-binding letter of intent for the sale of World Energy Efficiency Services, LLC (“World Energy”).

The divestiture of World Energy closed in January 2023, and we subsequently ceased our XL Grid business.

On March 28, 2023, we were notified by the NYSE that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual (the “NYSE Manual”) because the average closing price of our common stock was less than $1.00 over a consecutive 30 day trading period.

As a result, on October 6, 2023, we filed an Amendment to our Second Amended and Restated Certificate of Incorporation (the “Amended Certificate of Incorporation”) to effect a 1-for-8 reverse stock split of our issued and outstanding shares of common stock, par value $0.0001 per share (the “Reverse Stock Split”).

On November 17, 2023, we received a notice from the NYSE confirming we regained compliance with the continued listing standards set forth in the NYSE Manual.

In the first quarter of 2023, we completed the acquisition of all issued and outstanding interests in SS Holdings 2017, LLC and its subsidiaries (“SEMTH”) from certain funds managed by HPS Investment Partners, LLC, pursuant to a membership interest purchase and sale agreement as of that date (the “SEMTH Acquisition”).

The SEMTH related asset includes a 20-year use rights to customer payment streams of approximately 22,500 home SLAs and PPAs (the “SEMTH Master Lease”).

Subsequently on August 18, 2023, we acquired approximately 2,400 home solar assets and contracts, with an average remaining contract life of approximately 11 years, from a publicly traded, regulated utility company (the “Tredegar Acquisition”).

With the completion of the SEMTH and Tredegar Acquisitions, we have, in the aggregate, 12 portfolios of rooftop solar Customer Agreements with a combined capacity of approximately 426 MWdc.

In the aggregate, as of December 31, 2023, we offered subscription-based services and owned the cash flows from approximately 75,000 home solar assets and customer contracts.

Corporate Strategy

We believe the combination of our existing subscriber-base and proven servicing platform related to our Customer Agreements, together with our capital resources and relationships, gives us the ability to take advantage of rapid growth in distributed solar and battery storage services, while creating a path to more predictable revenues, profits, and cash flow for our shareholders.

Our corporate strategy has three key elements:

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Leveraging the Spruce Power platform to become a leading provider of subscription-based solutions for distributed energy resources

We have more than a decade of experience owning and operating rooftop solar systems, as well as energy efficiency upgrades.

We believe our proven platform for managing home solar can be extended to other categories of distributed energy resources, and by leveraging our platform, we intend to grow our revenues by providing subscription-based solutions for rooftop solar and energy storage and other future energy-related products to homeowners and businesses, including commercial and industrial (“C&I”) solar developers.

We are focused on delivering best-in-class customer service, with investment into process and platform improvement for on-site monitoring, customer billing and working with qualified partners for field services.

Profitably growing return on assets by focusing on channels with the lowest customer acquisition cost

We seek to grow our subscriber revenues by focusing on those channels that have lowest customer acquisition costs and the ability to increase return on assets, including acquiring existing systems from other companies or investment funds, selling additional services to existing subscribers, selling services to new customers online and partnering with selected independent installers to provide a subscription-based solution for their customers.

Increasing shareholder value by delivering predictable revenues, profits and cash flow

By focusing on subscription-based solutions with long-term customer contracts, we seek to generate consistent revenues, profits and cash flow.

Customer Operations

Spruce Power has over ten years of experience servicing rooftop solar systems including servicing both the over 72,000 systems (with the March 2023 SEMTH Acquisition) from its own portfolios and over 7,500 systems owned by third parties.

The Company’s in-house capabilities include:

customer billing and collections, cash administration, account management services, homeowner support, maintenance monitoring and dispatch, and portfolio accounting and financial reporting.

The Company has made progress in elevating its customer service and continues to invest resources in its goal of becoming best-in-class.

Spruce Power’s in-house customer operations is intended to position the Company to be able to leverage existing relationships to expand beyond solar to comprehensive home energy management.

The Company believes that Spruce Power’s customer operations infrastructure has created a scalable opportunity where it is able to improve profitability through growth with lower incremental operational costs.

We have more than a decade of experience servicing rooftop solar systems, including servicing approximately 75,000 home solar systems and customer contracts from our own portfolios and approximately 5,000 systems owned by third parties.

A noteworthy differential is our in-house capabilities which include customer billing and collections, account management services, customer support, systems monitoring and maintenance, and portfolio accounting and financial reporting.

We have made progress in elevating our customer service and continue to invest resources in our goal of becoming best-in-class customer experience.

Our in-house capabilities and operations infrastructure has established a scalable platform where we are able to continually improve profitability through growth while reducing incremental operational costs.

Corporate Development

Spruce Power’s growth strategy is different than other public third-party asset owner organizations.

Spruce Power does not sell new solar systems directly to consumers and does not have its own sales force.

Spruce Power has a dedicated corporate development team that has historically been successful in acquiring high quality portfolios of solar systems that are already in operations and have long-term contracts with the homeowners.

Spruce Power’s in-house M&A team acquires operating residential solar energy systems “in-bulk” from other companies.

This approach has positioned Spruce Power to achieve step change growth while minimizing its customer acquisition costs.

In furtherance of its growth strategy, on March 23, 2023, the Company completed the acquisition of all the issued and outstanding interests in SS Holdings 2017, LLC and its subsidiaries ("SEMTH" and the “SEMTH Acquisition”) from certain funds managed by HPS Investment Partners, LLC (“HPS”), pursuant to a Membership Interest Purchase And Sale Agreement (“Purchase Agreement”) dated as of March 23, 2023.

The SEMTH assets include 20-year use rights to the customer payment stream of approximately 22,500 residential solar leases and power purchase agreements.

The Company acquired SEMTH for approximately $23 million of cash, net of cash received, and assumed $125 million of outstanding senior indebtedness held by SS Holdings 2017, LLC, and its subsidiaries at the close of the acquisition.

Since 2019, with the acquisition of SEMTH in March 2023, Spruce Power has acquired 11 rooftop solar portfolios' Customer Agreements with a combined capacity of approximately 285 MWdc over 54,000 systems.

Spruce Power’s corporate development team additionally brings significant experience in renewable energy credit markets, a critical area of expertise in residential solar power markets that allows additional value creation alongside Spruce Power’s acquisition strategy.

Our corporate growth strategy provides a unique differential from our competitors.

While our competitors lose future long-term value creation for short-term cash flow by selling new solar systems outright directly to consumers, we focus on long-term positive cash flow.

We have a dedicated corporate development M&A team that has historically been successful in acquiring high quality portfolios of solar energy systems that are already in operation and have existing long-term contracts with homeowners.

Our in-house M&A team acquires operating home solar energy systems “in-bulk” from other companies, and such approach has enabled us to achieve step-change growth while minimizing our customer acquisition costs.

Our corporate development M&A team also brings significant experience in renewable energy credit markets, and other tax incentives programs, which enables additional value creation alongside our acquisition strategy.

Distributed solar generation is a capital-intensive, evolving business with numerous industry participants.

While Spruce Power’s solar generation portfolios are currently contracted, Spruce Power may compete in the future primarily on the basis of price of electricity, quality of service and low/no carbon energy.

Spruce Power considers the long-term contracted profile of its solar generation assets, among other strengths discussed below, as competitive advantages.

Distributed solar generation is a growing industry in the United States and diverse in terms of industry structure.

As such, there is a wide variation in terms of the capabilities, resources, nature and identity in the companies Spruce Power competes with depending on the market.

While our solar generation portfolios are currently contracted, we may compete in the future primarily on the basis of price of electricity, quality of service and low/no carbon energy.

We consider the long-term contracted profile of our solar generation assets, among other strengths discussed below, as competitive advantages.

Distributed solar generation is a growing industry in the U.S.

and diverse in terms of industry structure, and as such, there is a wide variation in terms of the capabilities, resources, nature and identity in the companies we compete with depending on the market.

In residential distributed solar generation, customers’ needs are met through long-term bilateral contracts, which supply power and maintenance services.

In addition, Spruce Power competes with other companies to acquire operating portfolios of residential solar energy systems with stable contracted cash flows.

Spruce Power considers its primary competitors for opportunities in North America as other solar companies with vertically integrated business models, existing solar servicing companies, purely finance focused organizations, and regulated utility holding companies.

Spruce Power believes that it is well-positioned to execute its strategy over the long term based on the following competitive strengths:

Spruce Power management and operational expertise.

Spruce Power believes it benefits from Management's seasoned experience in industry (renewables, utilities, and financial services), corporate development (M&A) and customer focused, cost-efficient operations.

We also compete with other companies to acquire operating portfolios of home solar energy systems with stable contracted cash flows.

We consider our primary competitors for opportunities in North America as other solar companies with vertically integrated business models, existing solar servicing companies, purely finance focused organizations and regulated utility holding companies.

We believe we are well-positioned to execute our strategy over the long term based on the following competitive strengths:

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Our management and operational expertise

We benefit from our Management’s seasoned experience in industry (renewables, utilities and financial services), corporate development (M&A) and customer focused, cost-efficient operations.

Contracted assets with stable cash flows

The contracted nature and diversification of off-takers in Spruce Power's portfolio of residential solar assets supports stable long-term cash flows.

Residential solar assets in Spruce Power's portfolio are contracted under long-term contracts that generally provide for lease payments or production-based power purchase payments over the contract term.

Spruce Power’s solar residential asset portfolios have a total weighted average remaining contract term of approximately 13 years as of December 31, 2022.

The contracted nature and diversification of off-takers in our portfolio of home solar assets supports stable long-term cash flows.

Home solar assets in our portfolio are contracted under long-term contracts, which generally provide for lease payments or production-based power purchase payments over the contract term.

Our home solar asset portfolios have a total weighted average remaining contract term of approximately 12 years as of December 31, 2023.

Newer, well-maintained portfolio

Approximately 65% of Spruce Power's portfolio, based on expected contributions to cash generated, of residential solar energy systems have been operating on average for fewer than 8 years.

Because its portfolio of projects are relatively new relative to their expected useful life and use industry-standard technology, Spruce Power believes that it will achieve the expected levels of performance.

Based on expected contributions to cash generated, approximately 50% of our portfolio of home solar energy systems have been operating on average for fewer than 9 years.

Due to the portfolio of our projects being in the first half of their expected useful life and using industry-standard technology, we believe the projects will achieve the expected levels of performance.

Geographic and resource diversification

With the March 2023 SEMTH Acquisition, Spruce Power’s portfolio of over 72,000 systems is geographically diverse across 18 states in the United States which reduces exposure to localized weather events, natural disasters, regional underperformance, and adverse regulatory actions providing a more stable stream of cash flows over the long term than a non-diversified portfolio.

With the SEMTH and Tredegar Acquisitions, our portfolio of approximately 75,000 home solar systems and customer contracts is geographically diverse across 18 states in the U.S., which reduces exposure to localized weather events, natural disasters, regional underperformance, and adverse regulatory actions and provides a more stable stream of cash flows over the long term when compared to a non-diversified portfolio.

Flexible customer service platforms

Spruce Power utilizes scalable, cost-effective customer service platforms and systems in its operations which support efficient integration and service of acquired portfolios and third party owned portfolios.

These platforms also provide customers with self-service options to make payments and select other services.

We utilize scalable, cost-effective customer service platforms and systems in our operations, which support efficient integration and service of acquired portfolios and third party owned portfolios.

These service platforms also provide our customers with self-service options to make payments and other services.

Competitiveness of renewable energy

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Solar technology is improving as solar cell efficiencies improve and installation costs are declining.

The Company’s revenue is impacted by seasonal weather patterns as the amount of electricity its solar energy systems produce is dependent in part on the amount of sunlight where the assets are located.

Less daylight hours in winter months and adverse weather conditions will reduce the output of solar energy systems.

Customers purchase electricity under PPAs and SLAs.

As PPA revenue is recognized when generated based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the PPAs, the associated revenue is impacted by seasonality.

For SLAs, revenue is recognized on a straight-line basis over the contract term as the obligation to provide continuous access to the solar energy system is satisfied and accordingly is not impacted by seasonality.

Intellectual Property

Generally, the Company’s residential solar business is not dependent on intellectual property.

As needed, the Company relies on intellectual property laws, primarily a combination of copyright and trade secret laws in the U.S., as well as license agreements and other contractual provisions, to protect any proprietary technology.

The Company also relies on registered trademarks to protect its brands.

Generally, the solar installation business is not dependent on intellectual property.

Within our residential business, we utilize licensed software, which enables our organization to efficiently manage thousands of customer portfolios.

The success of our business depends, in part, on our ability to maintain and protect our proprietary information, license agreements and other contractual provisions, processes and know-how.

Human Capital Management

The Company’s mission is to power our customers’ clean and efficient energy use, for a stable future.

The Company believes that starts with its employees.

The Company’s culture is built upon its values of coordination, being purpose-driven where work is results oriented.

The Company has invested in talent management and employee engagement initiatives consistently, fostering a culture of belonging and execution.

The Company has implemented several training programs, including an internally designed Spruce University training program to foster an environment of learning, employee development and longer-term internal career paths.

Continued Learning:

To create a culture of learning, purpose, diversity, and opportunity, the Company's leaders must never stop looking to improve.

That is why the Company has committed to training its Senior Leadership twice a year with programs to promote teamwork, accountability, and development of young leaders.

In addition, the Company grants access to staff training programs within our internal Spruce University program to cover the foundations of solar energy, management skills, professional communication, and our own business and company history.

Investing in our employees is investing in the Company’s future.

A Place of Belonging:

The Company believes for any workforce to be satisfied with a purpose and direction on the job, they must feel they belong here.

The Company works towards creating an environment that is inclusive, creative, and humble.

To keep employees engaged and working towards the Company’s objectives, the Company works to meet their basic needs and provide opportunities for them to be represented.

Since the Company’s beginnings, a team was formed with purpose to represent each area of the Company so that programs and initiatives that are pursued provide equal amounts of benefits to staff.

Annually, the Company conducts a climate survey to measure its results, in addition to holding quarterly Town Halls where Management shares its strategies, goals, and achievements.

Human Capital:

As of December 31, 2022, the Company had 318 full time employees, including 169 employees from Spruce Power, 107 employees from Drivetrain operations and 42 employees at World Energy.

Spruce Power's employees are primarily located in Denver, Colorado and Houston, Texas.

In addition, the Company works with independent contractors and consultants.

No employees are covered by collective bargaining agreements and the Company has not experienced any work stoppages.

Supporting Employee Welfare:

In addition to providing employees competitive wages to support everyday living, the Company also offers employees access to comprehensive benefits for medical, dental and vision.

Employees also have access to retirement savings through the Company’s 401k plan with a guaranteed match from the Company to those participating.

With our mission of “Powering Our Customers’ Clean and Efficient Energy use, for a Sustainable Future”, we believe that starts with our employees.

We aim to attract top talent by building a culture upon our values of coordination, purpose-driven and results oriented.

We make investments in talent management and employee engagement initiatives, in order to foster a culture of belonging and inclusion.

As of December 31, 2023, we had 142 full time employees primarily located in Denver, Colorado and Houston, Texas.

As of December 31, 2023, no employees were covered by collective bargaining agreements, and we have not experienced any work stoppages.

To develop, attract and retain personnel, we establish an environment of learning, purpose, diversity and opportunity and our leadership continually looks for ways to improve.

We do this by implementation of several training programs, which includes our internally developed educational platform, Spruce University, to nurture an environment of learning, employee development and talent retention.

Bi-annually, we are committed to enhancing our senior leadership with curriculums to promote and develop teamwork and accountability.

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Attraction and retention of key employees contributes to our ability to remain competitive, and we have comprehensive rewards programs to help ensure we are compensating and rewarding our employees in line with market practice, providing a competitive benefits program, paid time off, retirement 401(k) matching, education assistance, internally developed trainings, and flexibility through programs like our floating holidays.

Our ongoing support of our employees’ financial, health and wellness needs will continue to be essential.

Government Regulations

Although the Company is not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where it conducts business, the Company competes primarily with regulated utilities.

As a result, the Company maintains a team that focuses on the key regulatory and legislative issues impacting the entire industry.

The Company obtains interconnection permission from the applicable local primary electric utility.

Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to the Company and/or its customers.

In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies.

Although we are not regulated as a public utility in the U.S.

under applicable federal, state, or other local regulatory regimes where we conduct business, we compete primarily with regulated utilities.

As a result, we maintain a team that focuses on the key regulatory and legislative issues impacting the entire industry.

Interconnection permission from any applicable local primary electric utility is already granted upon acquisition of existing home solar systems.

Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility to our customers upon initial installation.

In almost all cases, interconnection permissions are issued on the basis of a standard process which has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies.

As such, no additional regulatory approvals are required once interconnection permission is given.

The Company's collection activities are regulated in various states in which it operates.

As such, the Company obtains and maintains collection agency licenses in the states in which it operates as required by law and is subject to regulatory examination of such collection activities on a regular basis.

Our collection activities are regulated in various states in which they operate.

As such, we obtain and maintain collection agency licenses in the states in which we operate, as required by law, and are subject to regulatory examination of such collection activities on a regular basis.

Government Incentives

Federal, state, and local government bodies provide incentives to owners, distributors, system integrators and manufacturers of solar energy systems to promote solar energy in the form of rebates, tax credits, payments for renewable energy credits associated with renewable energy generation and exclusion of solar energy systems from property tax assessments.

These incentives enable us to lower the price we charge customers for energy from, and to lease, our solar energy systems, helping to catalyze customer adoption of solar energy as an alternative to utility-provided power.

In addition, for some investors, the acceleration of depreciation creates a valuable tax benefit that reduces the overall cost of the solar energy system and increases the return on investment.

The federal government also currently offers an ITC under Section 48(a) of the IRC for the installation of certain energy properties, including solar power facilities owned for business purposes.

Inflation Reduction Act

The Inflation Reduction Act (“IRA”) was enacted August 16, 2022, which President Biden signed into law as of that date.

This legislative package includes major policy initiatives enacted to enhance the clean energy industry.

While there are numerous federal, state, and local government incentives that benefit our business, some adverse actions, interpretations or determinations of new or existing laws or regulations could have a negative impact on our business.

Congress could revise or eliminate certain provisions in the IRA that could negatively impact our business.

Federal agencies may also issue tax guidance or regulations that could negatively impact our business or prevent certain businesses from participating.

Corporate Information

The Company's principal executive offices are located at 1875 Lawrence Street, Denver, Colorado 80202, and its telephone number is (888) 390-1131.

The Company's website address is www.sprucepower.com and the information contained in, or that can be accessed through, the Company's website is not part of this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.

Our principal executive offices are located at 2000 S Colorado Blvd, Suite 2-825, Denver, Colorado, and our telephone number is (866) 777-8235.

Our website address is www.sprucepower.com and the information contained in, or that can be accessed through our website, is not part of this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.

Information Available on the Internet

The Company's internet address is www.sprucepower.com, to which the Company regularly post copies of its press releases as well as additional information about us.

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section of the Company's website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the SEC.

Our website address is www.sprucepower.com, to which we regularly post copies of our press releases as well as additional information about us.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available free of charge through the Investor Relations section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

The Company includes its web site address in this Annual Report on Form 10-K only as an inactive textual reference.

Information contained in the Company's website does not constitute a part of this report or its other filings with the SEC.

We include our website address in this Annual Report on Form 10-K only as an inactive textual reference.

Information contained on our website does not constitute a part of this report or our other filings with the SEC.

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An investment in our securities is speculative and involves a high degree of risk.

Before deciding whether to invest in our securities, you should consider carefully the risks described below, together with other information in this Annual Report on Form 10-K and the other information and documents we file with the SEC.

The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives.

As a result, the trading price of our Common Stock could decline, and you could lose all or part of your investment.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and stock price.

Risks Related to the Solar Energy Industry

The solar energy industry is an emerging market which is constantly evolving and may not develop to the size or at the rate we expect.

Demand for home solar systems may decline, cease or take longer to develop than we expect.

The distributed home solar energy market is at a relatively early stage and is a constantly evolving market.

We believe the solar energy industry is still developing and maturing, and we cannot be certain that the market will grow to the size or at the rate we expect.

Any future growth of the solar energy market and the success of our solar service offerings depend on many factors beyond our control, including recognition and acceptance of the solar service market by consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives, and our ability to provide our solar service offerings cost effectively.

If the markets for solar energy do not develop to the size or at the rate we expect, or demand for distributed home solar energy systems fails to develop sufficiently, our business may be adversely affected.

Many factors may affect the demand for solar energy systems, including the following:

• availability, substance and magnitude of solar support programs including government targets, subsidies, incentives, renewable portfolio standards and residential net metering rules;

• the relative pricing of other conventional and non-renewable energy sources, such as natural gas, coal, oil and other fossil fuels, wind, utility-scale solar, nuclear, geothermal and biomass;

• performance, reliability and availability of energy generated by solar energy systems compared to conventional and other non-solar renewable energy sources;

• availability and performance of energy storage technology, the ability to implement such technology for use in conjunction with solar energy systems and the cost competitiveness such technology provides to customers as compared to costs for those customers reliant on the conventional electrical grid;

• general economic conditions and the level of interest rates.

Solar energy has yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits, and other incentives from federal, state and local governments.

If this support diminishes materially, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected.

These types of funding limitations could lead to inadequate financing support for the anticipated growth in our business.

We cannot be certain if historical growth rates reflect future opportunities or whether growth anticipated by us will be realized.

Furthermore, growth in home solar energy depends in part on macroeconomic conditions, retail prices of electricity and customer preferences, each of which can change quickly.

Declining macroeconomic conditions, including in the job markets and residential real estate markets, could contribute to instability and uncertainty among customers and impact their financial wherewithal, credit scores or interest in entering into long-term contracts, even if such contracts would generate immediate and long-term savings.

Furthermore, market prices of retail electricity generated by utilities or other energy sources could decline for a variety of reasons, as discussed further below.

Any such declines in macroeconomic conditions, changes in retail prices of electricity or changes in customer preferences would adversely impact our business.

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Global economic conditions and any related ongoing impact of supply chain constraints, including the market for our products and services could adversely affect our results of operations

The uncertain condition of the global economy as well as the current conflict between Russia and Ukraine, including the retaliatory economic measures taken by Unites States, European, and others continue impacting businesses around the world.

The deterioration of the economic conditions or financial uncertainty to provide our services could reduce customers’ confidence and negatively affect our sales and results of operations.

Also, the recent inflationary pressures have increased the cost of energy, raw materials, and other indirect costs used in our business could adversely influence customer purchasing decisions.

We cannot predict whether or when such circumstances may change, improve, or worsen in the near future.

Our solar partners or suppliers may be unwilling or unable to fulfill their respective warranty and other contractual obligations.

Warranty claims, product liability claims or accidents against us could adversely affect our business

We agree to maintain the solar energy systems and energy storage systems installed on our customers’ homes during the length of the term of our Customer Agreements, which are typically 20 years.

We are exposed to any liabilities arising from the solar energy systems’ failure to operate properly and are generally under an obligation to ensure each solar energy system remains in good condition during the term of the Customer Agreement.

We are the beneficiary of the manufacturers’ and system installers’ warranty coverage, typically of 20 years for equipment warranties and five to ten years for workmanship warranties.

In the event that such warranty providers file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty or related maintenance obligations, we may not be adequately protected by such warranties or maintenance obligations.

Even if such warranty providers fulfill their obligations, the warranty or maintenance obligations may not be sufficient to protect us against all of our losses.

These warranties are subject to liability and other limits.

If we seek warranty protection and a warranty provider is unable or unwilling to perform its warranty obligations, whether as a result of its financial condition, its ability to act in a timely manner, or otherwise, or if the term of the warranty or maintenance obligation has expired or a liability limit has been reached, there may be a reduction or loss of protection for the affected assets, which could have a material adverse effect on our business, financial condition and results of operations.

Our failure to accurately predict future liabilities related to material quality or performance expenses could result in unexpected volatility in our financial condition.

Because of the long estimated useful life of our solar energy systems, we have been required to make assumptions and apply judgments regarding a number of factors, including our anticipated rate of warranty claims and the durability, performance and reliability of our solar energy systems.

Additionally, we discontinued our Drivetrain business, sold some of the assets relating to this business and retained warranty obligations relating to the historical business.

If our warranty reserves are inadequate to cover future warranty claims, our business, prospects, financial condition and operating results could be materially and adversely affected.

We may become subject to significant and unexpected warranty expenses as well as claims from former customers.

We made these assumptions based on the historic performance of similar solar energy systems or on accelerated life cycle testing.

Our assumptions could prove to be materially different from the actual performance of our solar energy systems, causing us to incur substantial expense to repair or replace defective solar energy systems in the future or to compensate customers for solar energy systems that do not meet their performance guarantees.

Equipment defects, serial defects or operational deficiencies also would reduce our revenue from Customer Agreements because the customer payments under such Customer Agreements are dependent on solar energy system production or would require us to make refunds under performance guarantees.

Any widespread product failures or operating deficiencies may damage our market reputation and adversely impact our financial results.

Developments in technology or improvements in distributed solar energy generation and related technologies or components may materially adversely affect demand for our offerings

Significant developments in technology, such as advances in distributed solar power generation, energy storage solutions such as batteries, energy storage management systems, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of distributed or centralized power production may materially and adversely affect demand for our offerings and otherwise affect our business.

Future technological advancements may result in reduced prices to consumers or more efficient solar energy systems than those available today, either of which may result in current customer dissatisfaction.

We may not be able to adopt these new technologies as quickly as our competitors or on a cost-effective basis.

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Due to the length of our Customer Agreements, the solar energy system deployed on a customer's residence may be outdated prior to the expiration of the term of the related Customer Agreement, reducing the likelihood of renewal of our Customer Agreement at the end of the applicable term and possibly increasing the occurrence of customers seeking to terminate or cancel their Customer Agreements or customer defaults.

If current customers become dissatisfied with the price they pay for their solar energy system under our Customer Agreements relative to prices that may be available in the future or if customers become dissatisfied by the output generated by their solar energy systems relative to future solar energy system production capabilities, or both, this may lead to customers seeking to terminate or cancel their Customer Agreements or to higher rates of customer default and have an adverse effect on our business, financial condition and results of operations.

Additionally, recent technological advancements may impact our business in ways we do not currently anticipate.

Any failure by us to adopt or have access to new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence or the loss of competitiveness of and decreased consumer interest in our solar energy services, which could have a material adverse effect on our business, financial condition and results of operations.

Our solar energy systems and energy storage systems depend heavily on suitable solar and meteorological conditions.

Seasonality fluctuations and effects of climate change could adversely affect our results of operations

The energy produced and the revenue and cash receipts generated by a solar energy system depend on suitable solar, atmospheric, and weather conditions, all of which are beyond our control.

Shifts in weather are difficult to predict and may not be immediately apparent, and the impact of these changes is difficult to quantify from period to period.

Our economic model and projected returns on our solar energy systems require achievement of certain production results from our systems and, in some cases, we guarantee these results to our consumers.

There can be no assurance we will be successful in implementing effective strategies to counter these shifts in weather.

If the solar energy systems underperform for any reason, our business could suffer.

For example, the amount of revenue we recognize in a given period and the amount of our obligations under the performance guarantees of our Customer Agreements are dependent in part on the amount of energy generated by solar energy systems under such Customer Agreements.

Furthermore, climate change could exacerbate the frequency and severity of weather events in all areas where we operate.

Climate change or other factors could also cause prevailing weather patterns to materially change in the future, making it harder to predict the average annual amount of sunlight striking each location where our solar energy systems and energy storage systems are.

Potential negative effects of climate change include, among others, a temporary decrease in solar availability in certain locations, disruptions in transmission grids and delays or reductions in new installations.

These or other effects could make our solar energy systems less economical overall or make individual solar energy systems less economical.

Any of these effects on meteorological conditions could harm our business, financial condition, and results of operations.

We typically bear the risk of loss and the cost of maintenance, repair and removal on solar energy systems that are owned by our subsidiaries and included in tax equity vehicles

We typically bear the risk of loss and are generally obligated to cover the cost of maintenance, repair, and removal for any of our solar energy systems.

Under our Customer Agreements, we agree to operate and maintain the solar energy system for a fixed fee calculated to cover our future expected maintenance costs.

If our solar energy systems require an above-average amount of repairs or if the cost of repairing the solar energy systems is higher than our estimate, we would need to perform such repairs without additional compensation.

If our solar energy systems are damaged as the result of a natural disaster beyond our control, losses could exceed or be excluded from our insurance policy limits and we could incur unforeseen costs that could harm our business and financial condition.

We may also incur significant costs for taking other actions in preparation for, or in reaction to, such events.

We purchase property insurance with industry standard coverage and limits to hedge against such risk, but such coverage may not cover our losses.

Risks Related to Our Business Operations

We are an early stage company with a history of losses, and we expect to incur significant expenses and continuing losses

We incurred net losses of approximately $65.8 million and $93.9 million for the years ended December 31, 2023 and 2022, respectively.

We believe that we will continue to incur operating and net losses through the near future.

We completed the acquisition of Legacy Spruce Power and discontinued and disposed of our legacy businesses, and as a result our future net income or loss will depend upon the implementation of our strategy to expand our new solar power business.

We expect the rate at which we will incur future losses will be impacted by the following:

• Costs which may be incurred in connection with the implementation of our business strategy;

• Costs related to our general and administrative functions to support our public company obligations;

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• Acquisition and integration of other solar energy portfolios or businesses.

Because we will incur portions of the costs and expenses from these efforts before we receive the expected incremental revenues with respect thereto, our losses in future periods are expected to be significant.

In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would have a material adverse effect on our results of operations and further increase our losses.

Our business model requires further market penetration to drive growth and a failure to acquire additional home solar portfolios would have a material adverse effect on our operating results and business and could result in our operating expenses exceeding our revenues.

It may be difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business.

In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.

Our future results depend on the successful implementation of Management’s growth strategies (including acquisition of additional home solar portfolios and the launch of new products and services) and are based on assumptions and events over which we have only partial or no control.

These initiatives and products may not generate as much revenue, cost more to bring to market and create greater liabilities than we anticipate.

We will continue to encounter risks and difficulties frequently experienced by early stage companies, including scaling up our infrastructure and headcount, and may encounter unforeseen expenses, difficulties or delays in connection with our growth.

In addition, as a result of the capital-intensive nature of our business, we may sustain substantial operating expenses without generating sufficient revenues to cover expenditures.

We may require additional financing to support the development of our business and implementation of our growth strategy

We expect to have sufficient capital for the next 12 months for our operations and strategic initiatives.

However, we may require additional capital investment in the future to fund operations and support strategic initiatives.

There can be no assurance that we will have access to the capital we need on favorable terms when required or at all.

Additional financing may not be available on terms acceptable to us.

If we are unable to obtain needed financing on acceptable terms, we may not be able to implement our business plan, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we raise additional funds through the sale of equity, convertible debt or other equity-linked securities, our shareholders' ownership will be diluted.

We may issue securities that have rights, preferences and privileges senior to our Common Stock.

We are highly dependent on the services of our Chief Executive Officer, and if we are unable to retain him or attract and retain other key employees, management or technical personnel, our ability to compete could be harmed.

Our success depends, in part, on our ability to retain our key personnel.

We are highly dependent on the services of Christian Fong, our Chief Executive Officer.

Fong is the source of many of the ideas and execution driving our company.

Fong were to discontinue his service to us due to death, disability or any other reason, we would be significantly disadvantaged.

We do not maintain, and we have no plans to maintain in the future, key man life insurance policies with respect to Mr.

Our success also depends, in part, on our continuing ability to identify, hire, attract, train, develop and retain other highly qualified personnel.

Experienced and highly skilled employees are in high demand and competition for these employees can be intense, and our ability to hire, attract and retain them depends on our ability to provide competitive compensation.

We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our global business strategy.

Any failure by Management and our employees to perform as expected may have a material adverse effect on our business, prospects, financial condition and operating results.

Management has limited experience in operating a public company.

If we fail to manage our growth effectively, we may not be able to develop, produce, make or sell our products or services successfully.

Our executive officers have limited experience in the management of a publicly traded company.

Management may not successfully or effectively manage a public company that is subject to significant regulatory oversight and reporting obligations under federal securities laws.

Management’s limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of the post-combination company.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition.

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Additionally, we may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the U.S.

The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the U.S.

may require costs greater than expected.

Competition for individuals with this experience is intense, and we may not be able to attract, integrate, train, motivate or retain additional highly qualified personnel.

The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business, prospects, financial condition and operating results.

Rising interest rates could adversely affect our financial condition

We have $646.7 million of long-term debt outstanding as of December 31, 2023, which are secured by our solar assets and the majority of which is variable rate debt.

Although we use interest rate swap contracts to mitigate the market risk associated with rising interest rates, significant increases in interest rates may still increase our cost of capital.

Servicing our debt requires a significant amount of cash to comply with certain covenants and satisfy payment obligations, and we may not have sufficient cash flow from our business to pay our substantial debt and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful

We have $646.7 million of long-term debt outstanding as of December 31, 2023, as discussed in more detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, in each case, included in this Annual Report on Form 10-K.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.

Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures to operate our business.

If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive.

Our ability to timely repay or otherwise refinance our indebtedness will depend on the capital markets and our financial condition at such time.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and negatively impact our financial condition and prospects.

Our interest rate swaps could be adversely affected if the financial institutions holding such rate swaps fail

We use derivative financial instruments, primarily interest rate swaps, to manage our exposure to interest rate risks on our syndicated term loans, which are recognized on the balance sheet at their fair values.

Our interest rate swaps are with third-party financial institutions, including Silicon Valley Bridge Bank, N.A., which is the successor to Silicon Valley Bank.

If Silicon Valley Bridge Bank, or another third-party financial institution that holds the Company’s interest rate swaps, fails to perform under the interest rate swaps, our operating liquidity and financial performance could be materially and adversely affected.

Our employees and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulations, which could have an adverse effect on our business and operating results.

We are exposed to the risk that our employees and independent contractors may engage in misconduct or other illegal activity.

Misconduct by these parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including production standards, U.S.

federal and state fraud, abuse, data privacy and security laws, other similar non-U.S.

laws or laws that require the true, complete and accurate reporting of financial information or data.

It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred.

If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, prospects, financial condition and operating results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our business, prospects, financial condition and operating results.

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Any security breach, unauthorized access or disclosure, or theft of data, including personal information, we, our third party service providers, or our suppliers gather, store, transmit or use, could harm our reputation, subject us to claims, litigation, and financial harm and have an adverse impact on our business .

In the ordinary course of business, we, our third-party service providers and our suppliers receive, store, transmit, and use data, including the personal information of customers, such as names, addresses, email addresses, credit information and other housing and energy use data, as well as the personal information of our employees.

Any unauthorized disclosure of such personal information, whether through a breach of our systems or those of our third-party service providers or suppliers by an unauthorized party, including, but not limited to hackers, threat actors, sophisticated nation-states or nation-state-supported actors, or through the personnel theft, or misuse of information, or otherwise, could harm our business.

In addition, we, our third party service providers and our suppliers may be subject to a variety of evolving threats, such as computer malware (including as a result of advanced persistent threat intrusions), ransomware, malicious code (such as viruses or worms), social engineering (including spear phishing and smishing attacks), telecommunications failures, natural disasters and extreme weather events, general hacking and other similar threats.

Cybersecurity incidents have become more prevalent and could occur on our systems and those of our third parties in the future.

Our team members who work remotely pose increased risks to our information technology systems and data, because many of them utilize less secure network connections outside our premises.

Inadvertent disclosure of confidential data or unauthorized access by a third party could result in future claims or litigation arising from damages suffered by those affected, government enforcement actions (for example, investigations, fines, penalties, audits, and inspections), additional reporting requirements and/or oversight, indemnification obligations, reputational harm, interruptions in our operations, financial loss, and other similar harms.

In addition, we could incur significant costs in complying with the multitude of federal, state, and local laws, and applicable independent security control frameworks, regarding the unauthorized disclosure of personal information.

Although we have not experienced a material information security breach in the past and have developed systems and processes to prevent or detect security breaches and protect the confidential information we receive, store, transmit, and use, we cannot assure that such measures will provide adequate security.

Finally, any perceived or actual unauthorized disclosure of such information, unauthorized intrusion, or other cyberthreat could harm our reputation, substantially impair our ability to attract and retain customers, interrupt our operations, and have an adverse impact on our business.

Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.

While we currently maintain cybersecurity insurance, such insurance may not be sufficient to cover us against claims, and we cannot be certain that cybersecurity insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Unfavorable publicity, failure to respond effectively to adverse publicity, reports published by analysts, including projections in those reports that differ from our actual results, or securities or industry analysts who do not publish or cease publishing research or reports about us could adversely affect our business .

We expect that securities research analysts will establish and publish their own periodic projections for our business.

These projections may vary widely and may not accurately predict the results we actually achieve.

Maintaining and enhancing our brand and reputation is critical to our ability to attract and retain employees, partners, customers, and investors, and to mitigate legislative or regulatory scrutiny, litigation and government investigations.

Recent negative publicity has adversely affected our brand and reputation and our stock price.

Negative publicity may result from allegations of fraud, improper business practices, employee misconduct or any other matters that could give rise to litigation and/or governmental investigations.

Unfavorable publicity relating to us or those affiliated with us has and may in the future adversely affect public perception of the entire company.

Adverse publicity and its effect on overall public perceptions of our brand, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.

Negative publicity may adversely affect our brand and reputation as well as our stock price, which may make it difficult for us to attract and retain employees, partners and customers, reduce confidence in our products and services, harm investor confidence and the market price of our securities, and invite legislative and regulatory scrutiny.

As a result, customers, potential customers, partners and potential partners may in the future fail to award us additional business or cancel or seek to cancel existing contracts or otherwise, direct future business to our competitors, and investors may invest in our competitors instead.

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Our stock price may decline if our actual results do not match the projections of these securities research analysts.

Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price could decline.

If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our stock price or trading volume could decline.

We have been named as a defendant in certain stockholder class actions, which like many litigation matters, could result in substantial damages and other related costs and may require management-level attention

Beginning on March 8, 2021, two putative class action complaints were filed in the federal district court for the Southern District of New York against us and certain of our current officers and directors.

The cases were consolidated as In re XL Fleet Corp.

Securities Litigation , Case No.

1:21-cv-02171, a lead plaintiff was appointed, and an amended consolidated complaint was filed on July 20, 2021.

The amended complaint alleges that certain public statements made by the defendants between September 18, 2020, and March 31, 2021 violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.

Our motion to dismiss the amended complaint was denied on February 17, 2022.

We reached a settlement with the plaintiffs, which is currently pending approval by the court.

On September 20, 2021, and October 19, 2021, two class action complaints were filed in the Delaware Court of Chancery against certain of our current officers and directors, and the company’s sponsor of its SPAC merger, Pivotal Investment Holdings II LLC.

The actions were consolidated, and a consolidated amended complaint was filed on January 31, 2022, alleging various breaches of fiduciary duty, and aiding and abetting breaches of fiduciary duty, for purported actions relating to the negotiation and approval of the December 21, 2020, merger and organization of Legacy XL to become XL Fleet, and purportedly materially misleading statements made in connection with the merger.

Although we believe that the allegations asserted in both actions are without merit, we are pursuing a settlement of these matters.

In 2021, we received requests for information, including a subpoena, from the SEC related to, among other things, the XL Fleet business combination with Legacy XL and the related private investment in public equity financing, the Company’s sales pipeline and revenue projections, purchase orders, suppliers, California Air Resources Board approvals, fuel economy from our Power Drive products, customer complaints, and disclosures and other matters in connection with the foregoing.

In September 2023, the SEC simultaneously filed and settled administrative proceedings alleging violations of the federal securities laws.

Specifically, t he settlement order requires that we:

(i) cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-11, and 14a-9 thereunder, and (ii) pay, a civil money penalty in the amount of $11.0 million to the SEC, which has been paid.

These legal proceedings and any other similar or related legal proceedings or investigations are subject to inherent uncertainties, and the actual costs to be incurred relating to these matters will depend upon many unknown factors.

The outcome of these legal proceedings is uncertain, and we could be forced to expend significant resources in the defense of these actions, and we may not prevail.

Monitoring and defending against legal actions is time-consuming for Management and detracts from our ability to fully focus our internal resources on our business activities, which could result in delays of our testing or our development and commercialization efforts.

In addition, we may incur substantial legal fees and costs in connection with these matters.

We are also generally obligated, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these and similar actions.

We are not currently able to estimate the possible cost to us from these matters, as these actions are currently at an early stage, and we cannot be certain how long it may take to resolve these matters or the possible amount of any damages that we may be required to pay.

It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages.

Decisions adverse to our interests in these actions could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our cash flow, results of operations and financial position.

In addition, the uncertainty of the currently pending litigation could lead to increased volatility in our stock price.

We may need to defend ourselves against patent, copyright or trademark infringement claims or trade secret misappropriation claims, which may be time-consuming and cause us to incur substantial costs

Companies, organizations, or individuals, including our competitors, may own or obtain patents, trademarks or other proprietary rights that would prevent or limit our ability to make, use, develop or sell our home solar and other products and services, which could make it more difficult for us to operate our business.

We may receive inquiries from patent, copyright or trademark owners inquiring whether we infringe upon their proprietary rights.

We may also be the subject of allegations that we have misappropriated their trade secrets or other proprietary rights.

Companies owning patents or other intellectual property rights relating to battery packs, electric motors, or electronic power management systems may allege infringement or misappropriation of such rights.

In response to a determination that we have infringed upon or misappropriated a third party’s intellectual property rights, we may be required to do one or more of the following:

• cease development, sales or use of our products that incorporate the asserted intellectual property;

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• pay substantial damages;

• obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or at all;

• redesign one or more aspects of an applicable product or service.

A successful claim of infringement or misappropriation against us could materially adversely affect our business, prospects, financial condition and operating results.

Any litigation or claims, whether valid or invalid, could result in substantial costs and diversion of resources.

If the IRS makes determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our fund investors, and our business, financial condition, and prospects may be materially and adversely affected

We and our fund investors claim the Commercial ITC or the U.S.

Treasury grant in amounts based on the fair market value of our solar energy systems.

We have obtained independent appraisals to determine the fair market values we report for claiming Commercial ITCs and U.S.

Treasury grants.

With respect to U.S.

Treasury grants, the U.S.

Treasury Department reviews the reported fair market value in determining the amount initially awarded, and the IRS may also subsequently audit the fair market value and determine that amounts previously awarded constitute taxable income for U.S.

federal income tax purposes.

With respect to Commercial ITCs, the IRS may review the fair market value on audit and determine that the tax credits previously claimed must be reduced.

If the fair market value is determined in these circumstances to be less than what we or our tax equity investment funds reported, we may owe our fund investors an amount equal to this difference (including any interest and penalties), plus any costs and expenses associated with a challenge to that valuation.

We could also be subject to tax liabilities, including interest and penalties.

If the IRS further disagrees now or in the future with the amounts we or our tax equity investment funds reported regarding the fair market value of our solar energy systems, it could have a material adverse effect on our business, financial condition, and prospects.

Risks Related to Regulation

Our business depends in part on the regulatory treatment of third-party owned solar energy systems

Retail sales of electricity by third parties such as us face regulatory challenges in some states and jurisdictions, including states and jurisdictions we intend to enter where the laws and regulatory policies have not historically embraced competition to the service provided by the vertically integrated centralized electric utility.

Some of the principal challenges pertain to whether third-party owned solar energy systems qualify for the same levels of rebates or other non-tax incentives available for customer owned solar energy systems, whether third-party owned solar energy systems are eligible at all for these incentives and whether third-party owned solar energy systems are eligible for net metering and the associated significant cost savings.

Furthermore, in some states and utility territories third parties are limited in the way they may deliver solar energy to their customers.

These regulatory constraints may, for example, give rise to various property tax issues.

Changes in law and reductions in, eliminations of or additional requirements for, benefits such as rebates, tax incentives and favorable net metering policies decrease the attractiveness of new solar energy systems to distributed home solar power companies and the attractiveness of solar energy systems to customers, which could reduce our acquisition opportunities.

Such a loss or reduction could also adversely impact our access to capital and reduce our willingness to pursue solar energy systems due to higher operating costs or lower revenues.

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Compliance with occupational safety and health requirements can be costly and noncompliance with such requirements may result in potentially significant monetary penalties, operational delays and adverse publicity.

The ongoing operations and maintenance of solar energy systems and energy storage systems requires individuals hired by us or third-party contractors, potentially including our employees, to work at heights with complicated and potentially dangerous electrical systems.

There is substantial risk of serious injury or death if proper safety procedures are not followed.

Our operations are subject to regulation under Occupational Safety and Health Administration (“OSHA”), the U.S.

Department of Transportation (“DOT”) regulations and equivalent state and local laws.

Changes to OSHA or DOT requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs.

If we fail to comply with applicable OSHA or DOT regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or limit operations.

Because individuals hired by us or on our behalf to perform ongoing operations and maintenance of our solar energy systems and energy storage systems, including third-party contractors, are compensated on a per project basis, they are incentivized to work more quickly than servicers compensated on an hourly basis.

While we have not experienced a high level of injuries to date, this incentive structure may result in higher injury rates than others in the industry and could accordingly expose us to increased liability.

Individuals hired by or on behalf of us may have workplace accidents and receive citations from OSHA regulators for alleged safety violations, resulting in fines.

Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.

A failure to comply with laws and regulations relating to interactions by us with current or prospective customers could result in negative publicity, claims, investigations and litigation and adversely affect our business.

Our business substantially focuses on Customer Agreements and transactions with residential customers.

We offer leases, loans and other products and services to consumers by contractors in our networks, who utilize sales people employed by or engaged as third-party service providers of such contractors.

We must comply with numerous federal, state and local laws and regulations that govern matters relating to interactions with residential consumers, including those pertaining to consumer protection, marketing and sales, privacy and data security, consumer financial and credit transactions, mortgages and refinancings, home improvement contracts, warranties and various means of customer solicitation.

These laws and regulations are dynamic and subject to potentially differing interpretations and various federal, state and local legislative and regulatory bodies may initiate investigations, expand current laws or regulations, or enact new laws and regulations regarding these matters.

Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, manage and use information collected from and about current and prospective customers and the costs associated therewith.

We strive to comply with all applicable laws and regulations relating to interactions with customers.

It is possible, however, these requirements may be interpreted and applied in a manner inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

We are subject to U.S.

and foreign anti-corruption and anti-money laundering laws and regulations.

We could face criminal liability and other serious consequences for violations, which could harm our business

We are subject to the U.S.

Foreign Corrupt Practices Act of 1977, as amended, the U.S.

domestic bribery statute contained in 18 U.S.C.

§ 201, the U.S.

Travel Act, the USA PATRIOT Act and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct or will conduct activities.

Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector.

We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities.

Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

We have received subpoenas from states attorneys general requesting information about our business.

These investigations could result in substantial legal fees, fines, penalties or damages and may divert Management’s time and attention from our business

We have received subpoenas from the attorneys general for the states of Connecticut, New Jersey, New York, and Texas related to filed customer complaints each of which requested a substantial number of documents to be produced by the Company.

While we are responding to these subpoenas with the assistance of counsel, it is possible that these investigations may result in a fine, penalty or injunction which may adversely affect our ability to operate in these states.

In addition, responding to these requests for production may result in the diversion of Management’s attention and cause the Company to incur legal expenses.

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Risks Related to Ownership of Our Securities

We have no current plans to declare a dividend in the foreseeable future

We have no current plans to declare any cash dividends to holders of our Common Stock in the foreseeable future.

Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

If we fail to maintain effective internal control over financial reporting, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

In connection with our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023, we concluded that there were material weaknesses in our internal control over financial reporting.

Controls and Procedures, included in Part II, for additional information regarding these matters.

We may identify other material weaknesses in our internal control over financial reporting in the future.

The existence of material weaknesses within our internal controls could harm our business, the market price of our Common Stock and our ability to retain our current, or obtain new, lenders, suppliers, key employees, alliance, and strategic partners or require the implementation of certain undertakings with the SEC.

In addition, the existence of material weaknesses in our internal control over financial reporting may affect our ability to timely file periodic reports under the Exchange Act.

The inability to timely file periodic reports could result in the SEC revoking the registration of our Common Stock, which would negatively impact our ability to remain listed on the NYSE.

Pursuant to Section 404 of the Sarbanes-Oxley Act, Management is required annually to deliver a report that assesses the effectiveness of our internal control over financial reporting.

However, for as long as we remain a “non-accelerated filer” under the rules of the SEC, our independent registered public accounting firm is not required to deliver an annual attestation report on the effectiveness of our internal control over financial reporting.

We will cease to be a non-accelerated filer if (a) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter is $75 million or more and we reported annual net revenues of greater than $100 million for our most recently completed fiscal year or (b) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter is $700 million or more, regardless of annual net revenues.

If we cease to be a non-accelerated filer, we would again be subject to the requirement for an annual attestation report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

If we are unable to maintain effective internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, we may not be able to produce accurate financial statements, and investors may therefore lose confidence in our operating results, our stock price could decline, and we may be subject to litigation or regulatory enforcement actions.

We are a “smaller reporting company” and will be able to avail ourselves of reduced disclosure requirements applicable to smaller reporting companies, which could make our common stock less attractive to investors

We are a “smaller reporting company,” as defined in the Securities Exchange Act of 1934, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “smaller reporting companies,” including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We may take advantage of these reporting exemptions until we are no longer a “smaller reporting company.” We will remain a “smaller reporting company” until (a) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter is $75 million or more and we reported annual net revenues as of our most recently completed fiscal year is $100 million or more, or (b) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter is $700 million or more, regardless of annual revenue.

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If our stock price declines, our Common Stock may be subject to delisting from the New York Stock Exchange

If the average closing price of our Common Stock is less than $1.00 per share for 30 consecutive trading days, we may receive a letter from the staff of the NYSE stating that our Common Stock will be delisted unless we are able to regain compliance with the NYSE listing criteria requiring that we maintain an average closing price for our Common Stock of at least $1.00 per share.

The average closing price of our Common Stock was below $1.00 per share for 30 consecutive trading days in 2022 and 2023, to which we received notices of non-compliance from the NYSE on October 20, 2022 and March 28, 2023.

On October 6, 2023, following stockholder approval, we filed the Amended Certificate of Incorporation to effect the Reverse Stock Split.

Although, subsequent to the Reverse Stock Split, we were able to regain compliance because the average closing price for our Common Stock was subsequently at least $1.00 per share for 30 consecutive trading days, we cannot guarantee that our stock price will continue to trade above $1.00 per share or otherwise meet the NYSE listing requirements and therefore our Common Stock may in the future be subject to delisting.

The continuing effect of the Reverse Stock Split on the market price of our Common Stock cannot be predicted with any certainty, and the history of similar reverse stock splits for companies in like circumstances is varied.

If our Common Stock is delisted, this would, among other things, substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

The price of our Common Stock may be volatile

The price of our Common Stock may fluctuate due to a variety of factors, including:

• actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;

• our failure to meet market expectations for our performance;

• mergers and strategic alliances in the industry in which we operate;

• market prices and conditions in the industry in which we operate;

• changes in laws or government regulations applicable to our business;

• substantial sales of our Common Stock;

• issuance of new or updated research reports from securities analysts;

• announcement or expectation of additional equity or debt financing efforts;

• potential or actual military conflicts or acts of terrorism;

• announcements concerning us or our competitors;

• the general state of the securities markets;

• threatened or actual lawsuits, investigations, or other legal proceedings;

• short-selling activity related to our Common Stock.

These market and industry factors may materially reduce the market price of our Common Stock, regardless of our operating performance.

In addition, we believe there has been and may continue to be substantial trading in derivatives of our Common Stock, including short selling activity or related similar activities, which are beyond our control, and which may be beyond the full control of the SEC and Financial Institutions Regulatory Authority or “FINRA”.

While the SEC and FINRA rules prohibit some forms of short selling and other activities that may result in stock price manipulation, such activity may nonetheless occur without detection or enforcement.

There can be no assurance that should there be any illegal manipulation in the trading of our stock, it will be detected, prosecuted or successfully eradicated.

Significant short selling market manipulation could cause our Common Stock trading price to decline, to become more volatile, or both.

We may issue additional Common Stock or preferred stock, including under our equity incentive plan.

Any such issuances would dilute the interest of our stockholders and likely present other risks

We may issue a substantial number of additional shares of common or preferred stock, including under our equity incentive plan.

Any such issuances of additional shares of common or preferred stock:

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• may significantly dilute the equity interests of our investors;

• may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded our Common Stock;

• could cause a change in control if a substantial number of shares of our Common Stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;

• may adversely affect prevailing market prices for our Common Stock.

We may issue additional shares of Common Stock or other equity securities without stockholder approval, which will dilute existing stockholders’ interests and may depress the market price of our Common Stock

As of December 31, 2023, we have options, restricted stock units (RSUs) and warrants outstanding to issue up to an aggregate of 1,825,181 shares of our Common Stock.

We also have the ability to issue up to 324,467,408 shares of Common Stock under our 2020 Equity Incentive Plan (the “2020 Plan”).

Pursuant to the 2020 Plan, the number of shares available for issuance automatically increases annually on the first day of each fiscal year during the period beginning with the fiscal year immediately following the fiscal year during which the 2020 Plan is first approved by the our stockholders, and ending on the second day of fiscal year 2030, in an amount equal to the lesser of:

(a) 5% of the number of outstanding shares of Common Stock on such date;

and (b) an amount determined by the plan administrator.

We may issue additional shares of Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions, or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances.

Our issuance of additional shares of Common Stock or other equity securities of equal or senior rank would have the following effects:

• our existing stockholders’ proportionate ownership interest in our will decrease;

• the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease;

• the relative voting strength of each previously outstanding share of Common Stock may be diminished;

• the market price of our shares of Common Stock may decline.

Our Certificate of Incorporation contains anti-takeover provisions that could adversely affect the rights of our stockholders

Our Certificate of Incorporation contains provisions to limit the ability of others to acquire control of our or cause us to engage in change-of-control transactions, including, among other things:

• provisions that authorize our Board of Directors, without action by our stockholders, to issue additional shares of Common Stock and preferred stock with preferential rights determined by our Board of Directors;

• provisions that permit only a majority of our Board of Directors to call stockholder meetings and therefore do not permit stockholders to call stockholder meetings;

• provisions that impose advance notice requirements, minimum shareholding periods and ownership thresholds, and other requirements and limitations on the ability of stockholders to propose matters for consideration at stockholder meetings;

• provisions limiting stockholders’ ability to act by written consent;

• a staggered board whereby our directors are divided into three classes, with each class subject to retirement and re-election once every three years on a rotating basis.

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These provisions could have the effect of depriving our stockholders of an opportunity to sell their Common Stock at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.

With our staggered Board of Directors, at least two annual or special meetings of stockholders will generally be required in order to effect a change in a majority of our directors.

Our staggered Board of Directors can discourage proxy contests for the election of our directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to gain control of our Board of Directors in a relatively short period of time.

Our Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders

Our Certificate of Incorporation provides, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any action arising under the Securities Act, as to which the Court of Chancery and the federal district court for the District of Delaware shall have concurrent jurisdiction.

Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in the Certificate of Incorporation.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that we find favorable for disputes with our or any of our directors, officers, other employees, or stockholders, which may discourage lawsuits with respect to such claims.

We cannot be certain that a court will decide that this provision is either applicable or enforceable, and if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, our may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.

Our Certificate of Incorporation provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law.

Notwithstanding the foregoing, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.

As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

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

What changed 10-K

Item 1. Business