−Removed: Communications Systems, Inc.
−Removed: (herein collectively referred to as “CSI,” “our,” “we” or the “Company”) is a Minnesota corporation organized in 1969 that operates directly and through its subsidiaries located in the United States (U.S.).
−Removed: The Company maintains a website at www.commsystems.com.
−Removed: CSI’s annual reports on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K , and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on CSI’s website as soon as reasonably practicable after these documents are filed electronically with the SEC.
−Removed: To obtain copies of these reports, go to www.commsystems.com and click on “Financial Reports,” then click on “Edgar Filings” to view all of CSI’s current EDGAR reports.
−Removed: The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers, like CSI, that file electronically with the SEC.
−Removed: The SEC’s website is www.sec.gov.
−Removed: RECENT DEVELOPMENTS
−Removed: As previously reported, CSI, Helios Merger Co., a Minnesota corporation and a wholly-owned subsidiary of CSI (“Merger Sub”), and Pineapple Energy LLC, a Delaware limited liability company (“Pineapple”), have entered into an Agreement and Plan of Merger dated March 1, 2021, as amended (the “merger agreement”), pursuant to which Merger Sub will merge with and into Pineapple, with Pineapple surviving the merger as a wholly-owned subsidiary of CSI.
−Removed: The merger and the other transactions contemplated by the merger agreement are referred to collectively as the “Pineapple Merger Transaction.”
−Removed: Following the merger, CSI will be renamed “Pineapple Holdings, Inc.” and is sometimes referred to herein as the “combined company.” Immediately prior to the effective time of the merger, Pineapple will complete its acquisition of two Hawaiian solar companies, Hawaii Energy Connection, LLC (“HEC”) and E-Gear, LLC (“E-Gear”), which is sometimes referred to as the “Pre-Closing Acquisition.” Following the closing of the merger, the combined company will be focused on the growing home solar industry, primarily operating through its Pineapple, HEC and E-Gear subsidiary businesses.
−Removed: At the time the Pineapple Merger Transaction was announced, CSI stated its intention to divest substantially all its current operating and non-operating assets, including its E&S Segment business, its S&S Segment business, real estate holdings, and cash, cash equivalents, and investments.
−Removed: Consistent with that announcement, on August 2, 2021, CSI sold the two subsidiaries that operated the E&S Segment business to Lantronix, Inc.
−Removed: and, as a result, CSI disposed of its E&S Segment business as of that date.
−Removed: See “Sale of E&S Segment” below for additional details.
−Removed: A special meeting of CSI shareholders has been scheduled for Wednesday, March 16, 2022, at 10:00 a.m.
−Removed: Central Time to vote on the proposed Pineapple merger transaction, among other things.
−Removed: Beginning on February 4, 2022, the notice of the special meeting and a proxy statement/prospectus was sent to CSI shareholders as of the January 27, 2022 record date.
−Removed: Pursuant to the merger agreement, at the effective time of the merger, the outstanding Pineapple units held by members of Pineapple immediately prior to the effective time will be automatically cancelled and represent only the right to receive shares of CSI common stock.
−Removed: As Base Consideration, CSI has agreed to issue to the members of Pineapple 15.6 million shares of CSI’s common stock.
−Removed: The Base Consideration will be increased for any outstanding convertible notes issued by Pineapple in a pre-closing financing referred to as the Convertible Note Financing, which will convert into additional shares of CSI common stock at a rate of one additional share for every $2.00 in unpaid principal and accrued interest on outstanding convertible notes.
−Removed: The Base Consideration will be decreased for any outstanding indebtedness of Pineapple at the closing of the merger in excess of $22.5 million, which will reduce the Base Consideration at a rate one share for every $2.00 of excess indebtedness.
−Removed: In addition to the Base Consideration, certain members of Pineapple will receive 3.0 million shares of CSI common stock as Earnout Consideration if a funding-related condition to closing the merger is satisfied by Pineapple or waived by CSI and certain Pineapple members may receive up to an additional 10.0 million shares of CSI common stock as Earnout Consideration upon the occurrence of milestones specified in the merger agreement.
−Removed: In addition, in connection with the Pineapple Merger Transaction, on September 15, 2021, CSI entered into a securities purchase agreement with certain investors, referred to as the PIPE Investors, to make a $32.0 million private placement investment referred to as the PIPE Offering.
−Removed: Under the terms of the securities purchase agreement, for their $32.0 million investment, the PIPE Investors will receive shares of newly authorized CSI Series A convertible preferred stock convertible at a price of $3.40 per share into CSI common stock, together with five-year warrants to purchase an additional $32.0 million of common shares at that same price.
−Removed: The PIPE Offering is expected to close immediately following the consummation of the merger.
−Removed: Thus, the PIPE Investors will invest in the combined company and will not be entitled to any cash dividends prior to the effective time or to the CVRs issued to CSI shareholders as of the close of the business day immediately preceding the effective time.
−Removed: The combined company will use the proceeds from the PIPE Offering to fund the cash portion of the purchase price to acquire Hawaii Energy Connection, LLC and E-Gear, LLC assets, to
−Removed: repay $4.5 million of Pineapple’s $7.5 million term loan from Hercules, for transaction expenses, and for working capital to support Pineapple’s growth strategy of acquiring leading local and regional solar installers around the United States.
−Removed: It is expected that the Pre-Closing Acquisition, the merger and the PIPE Offering will close sequentially on the same date.
−Removed: If the merger is approved and the merger is consummated, the shareholders of CSI as of the close of the business day immediately preceding the effective time of the merger will receive one contractual non-transferable contingent value right, or CVR, per share of CSI common stock then held by them.
−Removed: The CVRs will be governed by a CVR agreement by and among CSI, a Rights Agent and a CVR Holders’ Representative.
−Removed: The rights and obligations of the CVR agreement will become the rights and obligations of the combined company after the closing of the merger.
−Removed: Under the CVR agreement, holders of the CVRs will be entitled to receive a portion of the proceeds of any divestiture, assignment or other disposition of all assets of CSI or its subsidiaries that are related to CSI’s pre-merger business, assets and properties that occur during the 24-month period following the closing of the merger.
−Removed: The foregoing description of the merger and merger agreement, the PIPE Offering and the securities purchase agreement, and the CVR and CVR agreement, do not purport to be complete and are each qualified in their respective entirety by reference to the merger agreement, the securities purchase agreement and the CVR agreement, respectively.
−Removed: In addition, see Part I – Item 1A – Risk Factors:
−Removed: If the merger is approved by CSI shareholders and the merger is consummated, the combined company will be subject to the risks set forth under Item 1A – Risk Factors – “Risks Related to the Combined Company Following Consummation of the Merger.”
−Removed: If the merger is not approved by CSI shareholders or the merger is not consummated for any other reason, CSI will be subject to the risks set forth under Item 1A – Risk Factors – “Risks Related to CSI Following Termination of the Merger.”
−Removed: SALE OF SUTTLE BUSINESSS
−Removed: was a significant component of CSI’s business since 1969.
−Removed: As a key element of the Company’s strategic plan, however, the Company sold substantially all of Suttle’s business, assets and operations pursuant to two separate transactions occurring in 2019 and 2020 that were previously reported.
−Removed: See Note 4 of the Notes to the Consolidated Financial Statements, “Discontinued Operations.”
−Removed: As a result of the Suttle sale, unless otherwise noted, all information in this Form 10-K about Suttle will be discussed and presented as discontinued operations and the Company will report its remaining business operations as continuing operations as described below.
−Removed: SALE OF E&S SEGMENT
−Removed: On August 2, 2021, the Company and Lantronix, Inc.
−Removed: (“Lantronix”) completed the sale by CSI to Lantronix of all of the issued and outstanding stock of CSI’s wholly owned subsidiary, Transition Networks, Inc., and the entire issued share capital of its wholly owned subsidiary, Transition Networks Europe Limited (collectively with Transition Networks, Inc., the “TN Companies”), pursuant to a securities purchase agreement dated April 28, 2021 (“E&S Sale Transaction”).
−Removed: See Note 4 of the Notes to the Consolidated Financial Statements, “Discontinued Operations.”
−Removed: As a result of the E&S Sale Transaction, unless otherwise noted, all information in this Form 10-K about the E&S Segment will be discussed and presented as discontinued operations and the Company will report its remaining business operations as continuing operations as described below.
−Removed: OVERVIEW OF CURRENT CSI OPERATIONS
−Removed: Following the E&S Sale Transaction, the Company classifies its business operations into one segment, its Services & Support segment.
−Removed: The Services & Support segment is comprised of CSI’s JDL Technologies, Inc.
−Removed: (“JDL Technologies” or “JDL”) and Ecessa Corporation (“Ecessa”) businesses.
−Removed: JDL is based in Fort Lauderdale, Florida, and Ecessa is based in Minnetonka, Minnesota.
−Removed: Services & Support (“S&S”) provides technology solutions that address prevalent IT challenges, including network resiliency, security products and services, network virtualization, and cloud migrations, IT managed services, wired and wireless network design and implementation, and converged infrastructure configuration, deployment and management .
−Removed: The Services & Support segment includes the business operations of IVDesk, which was purchased in November 2020.
−Removed: Services & Support’s 2021 sales were $7,483,000 compared to 2020 sales of $8,777,000.
−Removed: Project and product revenue totaled $1,168,000 in 2021 or 16% of segment sales compared to $5,120,000 in 2020 or 58% of this segment’s sales.
−Removed: Services revenues increased to $6,315,000 in 2021 from $3,657,000 in 2020.
−Removed: As noted within this Form 10-K, we have classified the operations of the E&S Segment as discontinued operations for 2021 and 2020.
−Removed: Non-allocated general and administrative expenses are separately accounted for as “Other” in the Company’s segment reporting.
−Removed: Additionally, any indirect general and administrative costs previously allocated to Suttle and the E&S Segment are also included in “Other.” Intersegment revenues are eliminated upon consolidation.
−Removed: Markets and Marketing
−Removed: Services & Support differentiates itself from its competitors by continuously adopting and adapting to changes in available IT services, ensuring it continues to provide new and innovative solutions to its clients and prospective clients.
−Removed: This ensures this business segment remains well qualified to help clients with their use of technology and IT resources to meet business objectives and regulatory requirements.
−Removed: Services & Support partners with clients to provide complete support for their information technology environments, from servers to software applications, from the network-level down to the desktop level.
−Removed: Under a typical managed services agreement, S&S provides virtual Chief Information Officer (“CIO”) services to client management, deploys, manages, secures, and supports each client’s IT systems and services, provides helpdesk support to the client’s user community, and adds value to the client’s business by enabling the client to focus instead on its core competencies.
−Removed: Services & Support’s key avenues for delivering on this commitment, and its competitive advantages, include on-premise managed services operations center and secure, state-of-the-art hosted datacenter and partnerships with industry leading solution providers.
−Removed: The managed services operations center leverages the best available tools, applications, practices, and resources to deliver a consistent, quality customer experience.
−Removed: Services & Support holds the MSP Trustmark credential from CompTIA TM and is a member of the MSP Alliance TM .
−Removed: Services & Support’s portfolio of technology solutions reflects the regular introduction of new technologies and delivery methodologies and the increasing demand among businesses for innovative solutions to strengthen their respective competitive edges and address prevailing IT challenges.
−Removed: With its team of professionally certified engineers, more than 250 years of technical experience, and talented leadership, S&S develops IT solutions that effectively meet these demands.
−Removed: To sustain its leading-edge position, S&S also maintains robust partnerships with strategic manufacturers and is a 3CX VoIP Gold Partner, HP Enterprise Gold Partner, Microsoft Gold Partner, eMDs Solution Provider, and Citrix Silver level Solutions Service Provider.
−Removed: In 2021, Services & Support aggressively targeted its primary vertical markets of healthcare, financial services, commercial business and education.
−Removed: Services & Support continues to serve as a trusted partner to its healthcare clients, offering SD-WAN devices and an array of services that address HIPAA Security Rule and Privacy Rule compliance requirements, including its flagship cloud-based service, HIPAA FastTrack TM , which enables healthcare providers to achieve compliance with the complex requirements of the HIPAA.
−Removed: Services & Support’s managed services practice supports clients ranging from single-office providers, to multi-location regional specialists, to their regulated suppliers and business associates.
−Removed: Financial Services:
−Removed: Services & Support provides a variety of solutions to the financial services industry.
−Removed: Most notably in the areas of SD-Wan and Network Redundancy which provides a never down network to many local and regional banks and our hosted cloud desktop solution which CPA firms both large and small have adopted to ensure their agents have consistent and secure access to their industry solutions and sensitive client data.
−Removed: Services & Support provides support and service to a diverse commercial client set.
−Removed: In 2021, Services & Support continued to place emphasis on an expanded set of security solutions layered on top of its Cloud-Based IT Managed Services.
−Removed: This enabled Services & Support to provide an even more secure total solution that included security awareness testing and training of client end users which has become increasingly important as threats to an organization’s security are focused more and more on end users as the weakest link.
−Removed: During 2020, Services & Support continued to support a multi-year project to provide wireless network services and datacenter upgrades for several hundred public K-12 schools in Florida.
−Removed: Most of the Company’s work on this project was completed in 2020.
−Removed: The education vertical remains an important element of Services & Support's overall market strategy.
−Removed: Much of the Company’s historical revenue from the education sector has been derived from a school district in Florida.
−Removed: The Company has substantially completed its work on this project and was not selected as the primary vendor on the next multi-year project for this school district but was selected as the secondary vendor for structured cabling and enterprise networking.
−Removed: JDL continued to provide certain data center support services in 2021.
−Removed: Products and Services
−Removed: As a managed service provider and value-added reseller, Services & Support specializes in delivering technology solutions that free organizations to focus on the strategic business activities and core competencies critical to their financial success.
−Removed: Services & Support’s technology solutions encompass an extensive range of networking, virtualization, cloud, cybersecurity, and infrastructure services, most of which are available under JDL managed services contracts and a proprietary offering with Ecessa’s SD-WAN device which provides Never Down ® networks.
−Removed: By deploying automatic failover and leveraging up to 25 communication links ranging from MPLS (multiprotocol label switching), lower cost broadband, cable, satellite, microwave or cellular 5G/4G/LTE, Ecessa’s SD-WAN devices guarantee network and Internet uptime.
−Removed: As technology continues its move to the cloud, JDL aggressively markets its portfolio of cloud-based service offerings and SD-WAN devices to healthcare and commercial business.
−Removed: Its HIPAA FastTrack TM and Security FastTrack TM services, available in the JDL Cloud powered by Citrix, have won awards for product innovation, just as Services & Support has been recognized in the industry as a leading Managed Service Provider.
−Removed: Services & Support engineers are trained and certified in the newest cloud and other technology solutions.
−Removed: Managed Services:
−Removed: Services & Support continues to refine its Managed Services offering as the industry matures taking it from a traditional remote management model to a hosted service offering that grants Services & Support greater control, enables tighter service level agreements and increases margins while providing clients with a more service rich, cost effective, and secure environments for their IT systems.
−Removed: Services & Support serves a diverse base of clients with locations throughout the United States, offering managed service programs designed specifically for the healthcare and commercial markets.
−Removed: These robust programs meet HIPAA compliance standards and, while the majority of clients are supported remotely, independent of geographic borders, Services & Support is also able to provide on-site network management and help desk support for key enterprise clients in the South Florida, Atlanta, Georgia, and Minneapolis/St.
−Removed: Paul, Minnesota markets.
−Removed: Services & Support’s managed services include network management, availability assurance, event alerting and incident management services;
−Removed: server, workstation, mobile device, and other asset management services;
−Removed: security services including software patching, firewall, antivirus, anti-malware, and cybersecurity intrusion detection and prevention services;
−Removed: help desk support for client users;
−Removed: SIP-trunking, voice over IP and office management services;
−Removed: migration, conversion and vendor management;
−Removed: and technical consulting services and training.
−Removed: Cloud Solutions:
−Removed: With widespread adoption of cloud solutions on the rise, Services & Support continues to focus on these solutions as key offerings with significant revenue growth potential.
−Removed: Azure® cloud solutions, wireless as a service, infrastructure as a service, and Citrix® as a service (sold as Services & Support FastTrack) are among Services & Support’s most successful cloud offerings, with others including backup, storage, voice over IP, firewall and email as cloud or hosted services.
−Removed: The benefits to clients are numerous and include vertical and horizontal scalability, internal bandwidth conservation, and simplification of IT management within client organizations, while Services & Support benefits from substantial economies of scale and standardization.
−Removed: All Services & Support cloud offerings are billable as monthly recurring revenue under its managed service model, and Services & Support is committed to bringing the benefits of cloud services to all clients.
−Removed: Network Services:
−Removed: Services & Support’s roots are in network services, and these services remain central to its role as a managed service provider and value-added reseller.
−Removed: The Services & Support team has extensive experience and professional certifications in assessing, architecting, designing, and implementing wired and wireless networks as well as entire technology infrastructures.
−Removed: Networking services also include network infrastructure as a service, network design and deployment, network and endpoint security, SD-WAN and SASE offerings, edge security, network optimization, and device installation/configuration services.
−Removed: Virtualization:
−Removed: Whether hosted on premise, in Services & Support’s private cloud, or on third-party platforms such as Azure or Amazon Web Services (“AWS®”), using virtualization across an organization’s IT environment delivers greater agility, mobility and efficiency.
−Removed: Services & Support’s virtualization engineers assess, design, deploy, and manage virtualization programs that are designed to ensure user access to any workload, anytime, anywhere, on any device.
−Removed: Services & Support’s virtualization services encompass network infrastructure, security, desktops, servers, applications, storage, and any combination thereof, including connectivity and software licensing.
−Removed: As Services & Support clients continue to adopt virtualization, they experience the economies of scale, reduced capital requirements, enhanced security, and disaster recovery protections that are inherent in virtualized environments.
−Removed: The Company expects the Managed Services market will continue to grow significantly over the next several years, and as a result will attract additional competitors, becoming an even more competitive industry.
−Removed: In response to these factors, Services & Support’s focus is to quickly adapt to the changing needs of its clients through the adoption and productizing of new IT Service technologies as they become available.
−Removed: An example of this was the addition of several security services to the Services & Support portfolio in 2021 including Microsoft 365’s Workforce Modernization which includes a suite of solutions designed to enhance security and flexibility from the workstation to cloud hosted applications.
−Removed: By ensuring Services & Support continuously evaluates the services we offer with a
−Removed: focus on the changing market, we are able to provide a better range of services to our clients and prospects while increasing their reliance upon us as their IT service provider.
−Removed: Outstanding customer orders and contracts for Services & Support products and services were approximately $2,800,000 at March 1, 2022 and $4,333,000 at March 1, 2021.
−Removed: The Company does not consider current outstanding orders and contracts as a significant indicator of longer-term future results.
+Added: Pineapple Energy Inc.’s (herein collectively referred to as “Pineapple,” “PEGY,” “our,” “we” or the “Company”) vision is to power the energy transition through grass-roots growth of solar electricity paired with battery storage.
+Added: The Company is a growing domestic operator and consolidator of residential and commercial solar, battery storage, and grid services solutions.
+Added: Our strategy is focused on acquiring, integrating, and growing leading local and regional solar, storage, and energy services companies nationwide.
+Added: Pineapple today is primarily engaged in the sale, design, and installation of photovoltaic solar energy systems and battery storage systems through its Hawaii-based Hawaii Energy Connection (“HEC”) and New York-based SUNation Solar Systems (“SUNation”) entities.
+Added: We install systems that provide clean, reliable solar energy typically at savings relative to traditional utility offerings.
+Added: Our primary customers are residential homeowners.
+Added: We also provide solar energy systems to commercial owners and other municipal customers.
+Added: Through its E-Gear, LLC (“E-Gear”) business, Pineapple also develops, manufactures, and sells patented edge-of-grid energy management software and hardware technology, such as energy management control devices.
+Added: These products allow homeowners to get the most out of their installed photovoltaic solar energy systems and utility grid support benefits.
+Added: Our primary customers for this technology are energy services companies and other utilities.
+Added: Corporate History
+Added: Pineapple is a Minnesota corporation organized in 1969 that operates directly and through its subsidiaries located in the United States (“U.S.”).
+Added: On March 28, 2022, the Company completed its previously announced merger transaction with Pineapple Energy LLC (“Pineapple Energy”) in accordance with the terms of that certain Agreement and Plan of Merger dated March 1, 2021, as amended by an Amendment No.
+Added: 1 to Merger Agreement dated December 16, 2021 (collectively the “merger agreement”), by and among the Company, Helios Merger Co., a Delaware corporation and a wholly-owned subsidiary of the Company (the “Merger Sub”), Pineapple Energy LLC, a Delaware limited liability company, Lake Street Solar LLC as the Members’ Representative, and Randall D.
+Added: Sampson as the Shareholders’ Representative, pursuant to which Merger Sub merged with and into Pineapple Energy, with Pineapple Energy surviving the merger as a wholly-owned subsidiary of the Company (the “merger”).
+Added: Following the closing of the merger (the “Closing”) the Company changed its name from Communications Systems, Inc.
+Added: to Pineapple Holdings, Inc.
+Added: and commenced doing business using the Pineapple name, and subsequently, on April 13, 2022, changed its name to Pineapple Energy Inc.
+Added: In addition, on March 28, 2022 and immediately prior to the closing of the merger, Pineapple Energy completed its acquisition (“HEC Asset Acquisition”) of substantially all of the assets of two Hawaii-based solar energy companies, HEC and E-Gear.
+Added: On November 9, 2022, the Company purchased the equity of New York-based SUNation Solar Systems, Inc.
+Added: and five of its affiliated entities (collectively “SUNation”).
+Added: Pursuant to the merger agreement, the Company is working to divest its legacy operations and operating assets.
+Added: The Company is actively pursuing the sale of its JDL Technologies, Inc.
+Added: (“JDL”) and Ecessa Corporation (“Ecessa”) businesses and has met the criteria to report the operations of these businesses as discontinued operations.
+Added: See Note 7 of the Notes to the Consolidated Financial Statements, “Discontinued Operations.” As a result, unless otherwise noted, all information in this Form 10-K related to the JDL and Ecessa businesses will be discussed and presented as discontinued operations and the Company will report its remaining business operations as continuing operations.
+Added: Our strategy is designed to provide customers with sustainable energy security by leveraging our people, technology, and processes to deliver solutions that improve the performance, increase the reliability, and reduce the cost of energy.
+Added: Key elements of our strategy include:
+Added: Capitalizing on the opportunity for industry and regional consolidation.
+Added: Residential solar is a fragmented industry, with over 4,000 contractors nationwide.
+Added: We believe the Sunrun-Vivint merger in 2020 started an era of consolidation and the positive impact of scale-expansion.
+Added: According to Wood Mackenzie, as of 2022 Q2, 70%+ of the residential solar market is served by a regional or local installer.
+Added: We believe there is a tremendous opportunity for a consolidator to rapidly scale its business and become one of the most recognized brands in the industry through acquiring, integrating, and growing leading local and regional solar sales and installation companies.
+Added: Leverage and continue to lower our customer acquisition costs through referral programs.
+Added: We already have what we believe are premier referral rates, with over 50% of installed jobs in 2022 coming from referrals or repeat customers.
+Added: We believe that our existing HEC and SUNation portfolio companies form a foundation to drive improved referral performance across the network of companies we acquire, further increasing our referral rates and lowering our overall customer acquisition cost.
+Added: Continue to grow our operations to achieve economies of scale.
+Added: Residential solar is like many industries in that cost-of-goods-sold is a significant expense, and companies with greater scale can enjoy significantly lower costs throughout their equipment supply chain.
+Added: As we grow both organically and through acquisitions, we expect to lower the costs of acquiring key input products such as modules, inverters, and electrical balance-of-systems components, which we anticipate should allow us to accelerate growth through lower pricing and enhanced profit margins.
+Added: With scalable shared services (e.g., accounting, HR, policy, marketing, legal, IT), we believe our current approach of organic growth enhanced by acquisitions will lead to profitability and cash generation.
+Added: We are also able to help our customers access various options to finance their acquisition of a solar system through referrals to a variety of solar finance companies.
+Added: Explore potential opportunities outside of solar to become a one-stop shop for consumers’ home and energy needs.
+Added: As we continue to grow our customer base, we may have new opportunities for incremental revenue by cross-selling ancillary market products such as more energy storage, smart appliance, energy management software, comfort and lighting and security markets.
+Added: We believe that the following key strengths of our business position us to execute on our M&A roll-up strategy and to distinguish us from competitors.
+Added: Customer centric approach in market, leading to competitive customer acquisition costs.
+Added: Pineapple seeks to put the customer above all else.
+Added: Pineapple installers complete offerings in-house as full-service installers to have total control of the customer experience.
+Added: Pineapple offers transparent, clear sales agreements and has invested in digital tools to support customers along the installation journey.
+Added: Pineapple installers are active in their local communities to build a trusted brand.
+Added: These activities lead to satisfied customers, as demonstrated by a high average referral rate and favorable online reviews, helping to lower future customer acquisition costs.
+Added: A leading vendor for cutting-edge product offerings.
+Added: We are a leading vendor for cutting-edge product offerings from Enphase, Tesla, FranklinWH, and other large solar product providers.
+Added: As an experienced operator in the residential solar industry, we have built relationships with these large solar product providers.
+Added: Seasoned and experienced management team.
+Added: We have a strong leadership team, with deep experience in residential solar and M&A.
+Added: Our founder and chief executive officer previously led various marketing, digital, product, and customer experience functions at the two largest U.S.
+Added: residential solar companies.
+Added: Our senior executive in charge of products and technology has more than a decade of experience in residential solar development, manufacturing, and sales.
+Added: Our chief financial officer has previously scaled a business unit of a public company and was a key M&A finance leader.
+Added: Our Products and Services
+Added: The primary product we offer to customers is a photovoltaic solar energy system, which is almost always installed on the roof, although can at times be ground mounted.
+Added: Solar panels, also called modules, generate direct-current electricity when they are struck by sunlight.
+Added: This direct current (“DC”) is sent to an inverter, which converts the DC electricity into alternating-current (“AC”) electricity, which is the type of electricity that is needed to provide power to outlets and run home appliances and equipment The AC flows from the inverter to the home’s main electrical panel, where it is then used to supply the home’s current power needs.
+Added: If there is a shortfall, the home draws the remainder needed from the traditional utility connection, often referred to as the “grid.” If the home system has excess production, the surplus is usually exported back to the grid.
+Added: Residential solar systems typically provide cost savings to customers because the system’s roof-panels generate power from the sun instead of customer’s needing to purchase power from the utility.
+Added: In addition, customers generally receive tax incentives and credits for the excess generation provided back to the utility.
+Added: Battery storage is an increasingly important piece of our offering.
+Added: Lithium-ion batteries store excess solar generated electricity on the residential premises, as opposed to sending it back to the grid.
+Added: This can generate economic benefits in markets with utility time-of-use (“TOU”) rates, whereby a homeowner is compensated at a low rate during the day for sending solar to the grid but would be charged a high rate in the evening for drawing electricity from the grid.
+Added: In TOU markets, customers can store their excess power during the day and then utilize the stored power at night, thus saving money.
+Added: An equally important benefit of pairing a battery with solar is that a battery will keep powering a customer’s home during a grid outage.
+Added: A solar system alone will not continue providing a home with electricity if the grid is down as the utility company establishes automatic disconnects to ensure that no live current is sent back into the grid for safety reasons.
+Added: When a battery is added, the system can automatically and nearly-instantaneously become a self-contained micro-grid during an outage.
+Added: The home can continue utilizing the electricity generated by the panels, as well as electricity stored in the battery when the sun is not shining.
+Added: In addition, the excess production from the panels during the day can be used to recharge a battery that was depleted overnight.
+Added: In the Hawaiian market we also offer energy management control devices on solar systems that are paired with batteries.
+Added: This is an emerging part of the business, but soon we believe we will be able to help homeowners generate ongoing revenue streams by
+Added: aggregating their batteries into a fleet, thus creating a “virtual power plant” and selling grid services to the utility.
+Added: We have proprietary technology in this area, strong relationships with regulators and utilities, and are participating in ongoing requests for proposals around this opportunity.
+Added: Residential Customers Agreements
+Added: The majority of Pineapple revenue (92% of 2022 consolidated revenue) comes from photovoltaic solar energy systems and batteries for residential homeowners.
+Added: The size of our residential installations vary by location.
+Added: In 2022, the average system size was 6.8 kilowatts for HEC customers in Hawaii and 11.6 kilowatts for SUNation customers in Long Island, New York.
+Added: Historically, most residential homeowners have chosen to own their home system rather than pursue a third-party ownership model.
+Added: Pineapple believes that it has historically been best for customers to own their own systems, but recognizes that some customers do not want to own their systems.
+Added: We will continue exploring whether adding lease or purchase power agreement (“PPA”) options would be beneficial to homeowners going forward.
+Added: For customers pursuing the home ownership model, these customers typically pursue loan financing, although a small proportion pay in cash.
+Added: Pineapple assists customers in obtaining loan financing options through our relationships with diverse funding sources.
+Added: Under these loan financing agreements, there is typically no down-payment or upfront cost to the homeowner.
+Added: A “dealer fee” is typically rolled into the principal balance, and that amount is amortized over the tenure of the loan.
+Added: Customers will pay for this amount financed plus a finance charge through a monthly payment to a financing supplier.
+Added: Under the customer loan scenario, Pineapple receives cash payments from the loan company upon completion of various milestones during the installation process.
+Added: In the solar installation market, we compete with companies that offer products like ours.
+Added: Some of these companies have greater financial resources, operational experience, and technical capabilities than we do.
+Added: When bidding for solar installation projects, however, our current experience suggests that there is no clear dominant or preferred competitor in the markets in which we compete.
+Added: We do not believe that any competitor has more than 25% of market share in the regions in which we operate.
+Added: We compete with other solar installers on pricing, service, warranty, and the ability to arrange financing.
+Added: We also compete, on a cost basis, with traditional utilities that supply electricity to our potential customers and with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies.
+Added: Our advantage over traditional utilities is that we offer customers the opportunity to create their own electricity and reduce dependency on the traditional electrical grid.
+Added: We compete with these traditional utilities primarily based on price (cents per kilowatt hour), predictability of future prices, the backup power capabilities of our battery storage solution and the ease by which customers can switch to electricity generated by our solar energy systems.
+Added: We believe we are a strong competitor, but the marketplace is comprised of many companies.
+Added: There are over 4,000 residential solar sales and installation companies in the U.S., and most residential solar sales are competitive with customers receiving quotes from multiple companies.
+Added: We also compete with (i) companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies and (ii) solar companies with business models that are like ours.
+Added: Some customers might choose to subscribe to a community solar project or renewable subscriber program with these companies or their utilities, instead of installing a solar energy system on their home, which could affect our sales.
+Added: Additionally, some utilities offer generation portfolios that are increasingly renewable in nature.
+Added: We believe that we compete favorably with these companies based on our unique multi-channel approach and differentiated customer experience.
+Added: We also face competition from:
+Added: purely sales organizations that acquire customers and then subcontract out the installation of solar energy systems;
+Added: from those installation businesses that seek financing from external parties;
+Added: from large construction companies and utilities;
+Added: and from sophisticated electrical and roofing companies.
+Added: Intellectual Property
+Added: We hold registered trademarks for, among others, “Pineapple Energy Inc,” “Hawaii Energy Connection,” “SUNation Solar Systems, Inc.,” “Sungevity,” and “Horizon Solar Power.” These trademarks are important to our regional branding and growth strategy.
+Added: We hold patents related to E-Gear technologies.
+Added: While these patents are an important part of our intellectual property, we are not overly dependent on any of these patents.
+Added: Government Regulation
+Added: We are not regulated as a public utility in the U.S.
+Added: under applicable national, state, or other local regulatory regimes where we conduct business.
+Added: To install systems, we obtain interconnection permission from the applicable local primary electric utility.
+Added: Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to us and/or our customers.
+Added: In almost all cases, interconnection permissions are issued based on a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies.
+Added: As such, no additional regulatory approvals are required once interconnection permission is given.
+Added: Our operations are subject to stringent and complex federal, state, and local laws, including regulations governing the occupational health and safety of our employees and wage regulations.
+Added: For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“OSHA”), the U.S.
+Added: Department of Transportation (“DOT”), and comparable state laws that protect and regulate employee health and safety.
+Added: We endeavor to maintain compliance with applicable DOT, OSHA, and other comparable government regulations.
+Added: Government Incentives
+Added: Federal, state, and local government bodies provide incentives, including rebates, tax credits, and other financial incentives, to catalyze customer acceptance of solar energy as an alternative to utility-provided power.
+Added: Some of the most significant federal incentives are expected to come from the Inflation Reduction Act of 2022 (“IRA”).
+Added: In August 2022, President Biden signed the IRA.
+Added: Among other provisions, the IRA extended the Investment Tax Credit (“ITC”) for homeowners.
+Added: Qualifying homeowners who purchase a residential solar energy system and/or energy storage system can receive a 30% tax credit, returning a material portion of purchase price to homeowners.
+Added: This 30% tax credit lasts until 2033 before stepping down to 26% in 2033, 22% in 2034, and 0% in 2035, unless extended again by Congress.
+Added: Since its inception in 2005, the ITC has already been extended three times.
+Added: At the state and local level, one of the key polices in place in many states that have enabled the growth of distributed solar is net metering.
+Added: Net metering provides significant value to certain customers with solar energy systems for the electricity generated by their systems but not directly consumed on site.
+Added: Net metering allows a customer to pay the local electric utility only for power usage net of excess production from the customer's solar energy system.
+Added: Customers receive a credit for the energy an interconnected solar energy system generates in excess of that needed by the home or business, which is provided to the electrical grid.
+Added: In addition to net metering, many states have enacted programs to further compensate homeowners who generate their own clean electricity for their contributions to society via their production of carbon-free renewable electricity.
+Added: The mechanisms can vary, but solar renewable energy certificates (“SREC”) or production credits are two of the more common paths.
+Added: More than half of the states, and many local jurisdictions, have established property tax incentives for renewable energy systems that include exemptions, exclusions, abatements, and credits.
+Added: Approximately 30 states and the District of Columbia have adopted a renewable portfolio standard (and eight other states have some voluntary goal) that requires regulated utilities to procure a specified percentage of total electricity delivered in the state from eligible renewable energy sources, such as solar energy systems, by a specified date.
Human Capital
As of March 31, 2023, the Company employed 255 people.
−Removed: Of this number, 31 were employed within the Services & Support segment, and 8 in corporate general and administrative positions.
We consider our relations with our employees to be good.
None of our employees are currently represented by a labor union.
−Removed: The Company’s employees are critical to the Company’s ability to execute the strategic direction and transactions approved by the CSI board of directors, including the continued operation of the S&S segment, the Company’s efforts to pursue and consummate the Pineapple Merger Transaction and related transactions, and the Company’s divestiture of substantially all its current operating and non-operating assets as part of CSI’s previously stated intention.
−Removed: Despite the uncertainties presented by the proposed Pineapple Merger Transaction and related transactions, the Company aims to attract and retain qualified personnel and provides wages and benefits that are competitive locally to reward employees for performance.
+Added: The Company aims to attract and retain qualified personnel and provides wages and benefits that are competitive locally to reward employees for performance.
The Company values innovation, inclusion and diversity, safety and engagement as they attract, develop, and retain the best talent.
−Removed: We have adopted a diversity statement that is posted on our website at https://www.commsystems.com/corporate-governance/communications-systems-inc-diversity-inclusion-statement/.
The health and safety of our employees is a top priority of our leaders.
−Removed: In response to the COVID-19 pandemic, we instituted temporary office closures, implemented shelter-in-place orders and restrictions and instituted a mandatory work from home policy for substantially all office employees, and instituted social distancing work rules for operations personnel that continued to work in our facilities to satisfy customer orders.
We believe the Company has generally been successful implementing proactive measures to protect the health and safety of its employees while maintaining business continuity and high levels of service to our customers.
+Added: Available Information
+Added: The Company maintains a website at www.pineappleenergy.com.
+Added: Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available
+Added: free of charge on our website as soon as reasonably practicable after these documents are filed electronically with the Securities and Exchange Commission (“SEC”).
+Added: To obtain copies of these reports, go to www.ir.pineappleenergy.com and click on “Financial Info,” then click on “Financial Results” to view all of our current EDGAR reports.
+Added: The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers, like Pineapple, that file electronically with the SEC.
+Added: The SEC’s website is www.sec.gov.
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.