What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-04-14 · 381 added, 245 removed, 823 unchanged (43% of the section changed)

3 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

CONSOLIDATED BALANCE SHEETS

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Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC AC COUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

‎ Shareholders of Pineapple Energy Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Pineapple Energy Inc.

and subsidiaries (the Company) as of December 31, 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 17 to the consolidated financial statements, the Company’s current financial position and the Company’s forecasted future cash flows for twelve months beyond the date of issuance of these financial statements indicate that the Company will not have sufficient cash to make the first SUNation earnout payment in the second quarter of 2024 or the first principal payment of the Long-Term Note due on November 9, 2024, factors which raise substantial doubt about the Company’s ability to continue as a going concern.

Management's plans in regards to these matters are also described in Note 17.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter - Goodwill Impairment

At December 31, 2023, the carrying value of the Company’s goodwill was $20,545,850, of which $9,829,212 and $10,716,638 were allocated to the HEC and SUNation reporting units, respectively.

As discussed in Note 2 to the consolidated financial statements, goodwill is tested for impairment at the reporting unit level, annually on October 1 or more frequently if events or circumstances indicate that an impairment may have occurred.

Management determined that a quantitative goodwill impairment analysis was required as of December 31, 2023.

The impairment test was performed by calculating the fair value of the Company’s reporting units, using a combination of an income approach and market approach.

Management engaged a third-party valuation specialist to assist with the analysis.

During the year ended December 31, 2023 no impairment was recorded.

Auditing management’s goodwill impairment test was complex and judgmental, due to the significant estimation required to determine the present value of each reporting unit’s future discounted cash flows.

The discounted cash flows were sensitive to

the projected revenue growth rates, EBITDA margins, terminal growth rates and the discount rates applied.

These significant assumptions are affected by expectations about future market and economic conditions.

There was also judgment in selecting the comparable publicly traded companies used by the Company to determine the revenue multiples under the market approach.

How the Critical Audit Matter Was Addressed in Our Audit

Our audit procedures performed to evaluate the reasonableness of management’s estimates and assumptions included assessing the methodologies used by the Company and testing the significant assumptions used in the quantitative models.

To test the fair value of the Company’s reporting units, we performed audit procedures that included the following:

 Compared the projected revenue growth rates to the Company’s historical results and industry and economic data, and compared projected EBITDA margins to historical results and industry data.

We assessed the historical accuracy of management’s prior forecasts to actual results to evaluate management’s ability to accurately forecast future revenues and gross profit.

 Involved our valuation specialists to 1) assess management’s fair value methodology, compare the terminal growth rates to external industry and economic data, and to determine an independent estimate of the discount rates and 2) evaluate the comparable public companies utilized by management under the market approach.

 Evaluated certain inputs and assumptions for consistency where they were used by management in other accounting estimates impacting the consolidated financial statements.

 Tested management’s fair value calculations for clerical accuracy.

 Performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in these assumptions.

 Assessed the appropriateness of the disclosures in the financial statements.

We have served as the Company’s auditor since 2023.

Melville, New York

April 1, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the board of directors of Pineapple Energy Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pineapple Energy Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

‎ We have audited the accompanying consolidated balance sheet of Pineapple Energy Inc.

and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of their operations and their cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

‎ Substantial Doubt About the Company’s Ability to Continue as a Going Concern

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As discussed in Note 17 to the consolidated financial statements, the Company has suffered losses and negative cash flows from operations and has negative working capital due to a note payable which matures in August 2023 that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regards to these matters are also described in Note 17.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

‎ Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Business Combinations:

Critical Audit Matter Description:

‎ As disclosed in Note 3, the Company completed several business combinations during 2022, one of which consisted of a merger between Pineapple Energy LLC (Pineapple) and Communications Systems, Inc.

(CSI), which was accounted for as a reverse merger with CSI being determined to be the legal acquirer and Pineapple being determined to be the accounting acquirer.

As part of the reverse merger, Pineapple recognized an obligation for contingent value rights (CVR’s) for the estimated fair value of certain legacy CSI assets which upon disposition, will be monetized and paid to legacy shareholders, and recognized a liability for merger earn-out shares to certain pre-merger holders of Pineapple units issuable based upon the

Company’s stock price in certain post-merger reporting periods.

In aggregate, the consideration in these business combinations, including the value of applicable contingent and non-cash consideration, was valued at more than $63 million.

The Company measured the assets acquired and liabilities assumed at fair value, which resulted in the recognition of intangible assets consisting of customer relationships, developed technology and tradenames and trademarks, and goodwill.

We identified the accounting for the business combinations, including management’s valuation of the acquired intangible assets, contingent consideration, non-cash consideration, the recorded amount of the CVR’s and merger earn-out share obligations, and the determination of the accounting acquirer in a reverse merger as a critical audit matter due to the complex nature of these items, which required the use of significant judgments and estimates on the part of management and increased audit effort, including the need to involve our valuation and business combination specialists in our audit procedures.

How We Addressed the Matter in Our Audit:

‎ The primary procedures we performed to address this critical audit matter included:

 We substantively tested, with the assistance of firm personnel with experience in the application of fair value and valuation methodologies, the appropriateness of the judgments and assumptions used in management’s estimation process for determining the fair value of the intangible assets acquired, contingent consideration, non-cash consideration and recorded amount of the CVR and merger earn-out obligation.

 With the assistance of firm personnel with experience in accounting for business combinations, we evaluated management's research and conclusions regarding the accounting treatment for the transactions.

Convertible Preferred Stock and Warrants:

Critical Audit Matter Description:

‎ As described in Note 14 to the consolidated financial statements, the Company issued $32,000,000 in shares of convertible preferred stock through a private placement.

As part of the offering, the holders of the preferred shares also received warrants.

There is considerable complexity associated with evaluating the proper classification of preferred stock and warrants.

In addition, there is considerable judgment and complexity in determining the estimated fair value of the warrants, including the use of Monte Carlo simulation and significant assumptions related to expected volatility, the risk-free rate, expected annual dividend yield and expected conversion dates.

We identified the proper accounting and valuation of the Company’s preferred stock and warrants as a critical audit matter due to the complexities and judgments involved in analyzing preferred stock and warrants for proper classification and in valuing the warrants, which required the use of significant judgments and estimates on the part of management and increased audit effort, including the need to involve our valuation and financial instrument specialists in our audit procedures.

How We Addressed the Matter in Our Audit:

Our audit procedures related to this critical audit matter included the following:

 We read the applicable agreements and compared the key terms from the agreements to management's analysis of the transaction.

 With the assistance of professionals in our firm having expertise in accounting for debt and equity instruments, we evaluated management’s conclusions regarding the balance sheet classification of the components of the convertible preferred stock and warrants through evaluation of the terms within the applicable agreements and considering the applicable generally accepted accounting standards.

 We evaluated the Company's disclosures related to the financial statement impacts of the transaction.

 We involved firm valuation specialists in evaluating the Company's valuation of the warrants, including the reasonableness of assumptions used in developing an independent calculation of the recorded amount.

We have served as the Company's auditor since 2021.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 2021 to 2023.

/s/ Baker Tilly US, LLP

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Trade accounts receivable, less allowance for

doubtful accounts of $ 108,636 and $ 0 , respectively

credit losses of $ 94,085 and $ 108,636 , respectively

Inventories, net

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OTHER ASSETS:

Right of use asset

Right of use assets

Intangible assets, net

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TOTAL OTHER ASSETS

LIABILITIES AND STOCKHOLDERS'

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

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Accrued compensation and benefits

Operating lease liability

Operating lease liabilities

Accrued warranty

Other current liabilities

Working capital note payable

Related party payables

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Billings in excess of costs and estimated earnings

Contingent value rights

Earnout consideration

Current portion of loans payable

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Loans payable and related interest - related party

Related party payables

Operating lease liability

Deferred income taxes

Operating lease liabilities

Earnout consideration

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COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS'

STOCKHOLDERS' EQUITY

Convertible preferred stock, par value $ 1.00 per share;

3,000,000 shares authorized;

28,000 and 0 shares issued and outstanding, respectively

28,000 shares issued and outstanding

Common stock, par value $ 0.05 per share;

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Accumulated other comprehensive loss

TOTAL STOCKHOLDERS'

EQUITY (DEFICIT)

( 8,636,894 )

TOTAL LIABILITIES AND STOCKHOLDERS'

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of the consolidated financial statements.

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Transaction costs

Fair value remeasurement of SUNation earnout consideration

Impairment loss

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( 10,448,679 )

Other income (expenses):

Other income (expense):

Investment and other income

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( 2,657,517 )

Other income (expense), net

( 1,373,261 )

Other income, net

Operating loss from continuing operations before income taxes

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( 8,132,167 )

Other comprehensive loss, net of tax:

Unrealized losses on available-for-sale securities

Total other comprehensive loss

( 10,352,240 )

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available-for-sale securities

Total other comprehensive income (loss)

Comprehensive loss

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( 3,624,000 )

Net loss available to common shareholders

Net loss attributable to common shareholders

( 8,132,167 )

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PINEAPPLE ENERGY INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Series A Convertible

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Comprehensive

BALANCE AT DECEMBER 31, 2020

( 2,501,344 )

( 6,235,550 )

Share based compensation

Income (Loss)

BALANCE AT DECEMBER 31, 2021

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( 19,089,134 )

( 8,132,167 )

Issuance of common stock under

Employee Stock Purchase Plan

Issuance of common stock under

Equity Incentive Plan

Gain on extinguishment of related party debt

Share based compensation

Other share retirements

Other comprehensive income

BALANCE AT DECEMBER 31, 2023

( 27,081,411 )

The accompanying notes are an integral part of the consolidated financial statements.

7 unchanged sentences

( 1,192,275 )

( 7,074,184 )

Net loss from continuing operations

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Share based compensation

Deferred taxes

Impairment loss

3 unchanged sentences

( 2,674,966 )

( 2,125,949 )

Gain on sale of assets

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Trade and related party accounts receivables, net

Inventories, net

Prepaid income taxes

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Customer deposits

( 2,172,766 )

Other accrued liabilities

( 4,494,247 )

Accrued interest

( 1,085,174 )

( 1,098,207 )

Net cash used in operating activities - continuing operations

( 7,652,468 )

Net cash provided by operating activities - discontinued operations

Net cash (used in) provided by operating activities - discontinued operations

Net cash used in operating activities

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Proceeds from earnout consideration payments

Net cash (used in) provided by investing activities - continuing operations

Net cash provided by (used in) investing activities - continuing operations

( 3,081,917 )

Net cash used in investing activities - discontinued operations

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities - discontinued operations

Net cash provided by (used in) investing activities

( 3,097,406 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowing against working capital line of credit

Proceeds from working capital line of credit

Proceeds from loans payable

Payments against loans payable

( 7,277,334 )

Payments related to equity issuance costs

( 4,792,885 )

Debt issuance costs paid

Equity issuance costs paid

( 2,699,370 )

Proceeds from the issuance of preferred stock & warrants to PIPE investors

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( 3,036,676 )

Net cash provided by financing activities

( 8,745,628 )

Proceeds from issuance of common stock, net of shares withheld

Purchase of common stock

Net cash (used in) provided by financing activities

( 2,760,236 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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Interest paid

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:

Capital contribution on related party debt extinguishment

Issuance of common stock for conversion of related party payables

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Our strategy is focused on acquiring, integrating, and growing leading local and regional solar, storage, and energy services companies nationwide.

Pineapple today is primarily engaged in the sale, design, and installation of photovoltaic solar energy systems and battery storage systems through its Hawaii-based HEC and New York-based SUNation entities.

Pineapple is primarily engaged in the sale, design, and installation of photovoltaic solar energy systems and battery storage systems through its Hawaii-based HEC and New York-based SUNation entities.

We install systems that provide clean, reliable solar energy typically at savings relative to traditional utility offerings.

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Our primary customers for this technology are energy services companies and other utilities.

Pursuant to the merger agreement, the Company is working to divest its legacy operations and operating assets.

The Company is actively pursuing the sale of its JDL Technologies, Inc.

(“JDL”) and Ecessa Corporation (“Ecessa”) businesses and has met the criteria to report the operations of these businesses as discontinued operations.

Pursuant to the merger agreement, the Company worked to divest its legacy operations and operating assets.

The Company sold substantially all of the assets of its JDL Technologies, Inc.

(“JDL”) and Ecessa Corporation (“Ecessa”) businesses on June 30, 2023.

See Note 7, 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.

As a result, unless otherwise noted, all information in this Form 10-K related to the JDL and Ecessa businesses is discussed and presented as discontinued operations and the Company’s remaining business operations are reported as continuing operations.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Actual results could materially differ from those estimates.

The Company’s estimates consist principally of reserves for doubtful accounts, asset impairment evaluations, accruals for compensation plans, lower of cost or market inventory adjustments, the fair value of the term loan payable and related assets at the date of acquisition, the fair value of the contingent value rights and contingent consideration, provisions for income taxes and deferred taxes, depreciable lives of fixed assets, and amortizable lives of intangible assets.

The Company’s estimates consist principally of allowances for credit losses, revenue recognition on commercial projects based on percentage of completion, asset impairment evaluations, accruals for compensation plans, lower of cost or market inventory adjustments, the fair value of the term loan payable and related assets at the date of acquisition, the fair value of the contingent value rights and contingent consideration, provisions for income taxes and deferred taxes, depreciable lives of fixed assets, and amortizable lives of intangible assets.

Restricted Cash and Cash Equivalents

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however, it is possible to lose money investing in these funds.

Approximately $ 1.8 million of the restricted cash and cash equivalents on the balance sheet as of December 31, 2022 are funds that can only be used to support the legacy CSI business, will be distributed to holders of the Company’s contingent value rights (“CVRs”) and cannot be used to support the working capital needs of the Pineapple Energy business.

The remaining $ 1.3 million is cash related to the SUNation operations and the consolidated Company only has the ability to use cash in excess of $ 1.5 million until the Short-Term Note (as defined below) is paid off.

The $ 1,821,060 of restricted cash and cash equivalents on the balance sheet as of December 31, 2023 are funds that can only be used to support the legacy CSI business, will be distributed to holders of the Company’s contingent value rights (“CVRs”) and cannot be used to support the working capital needs of the Pineapple Energy business.

Investments consist of corporate notes and bonds and commercial paper that are traded on the open market and are classified as available-for-sale and minority investments in strategic technology companies.

Available-for-sale investments are reported at fair value with unrealized gains and losses excluded from operations and reported as a separate component of stockholders’ equity, net of tax.

The investments on the balance sheet as of December 31, 2022 can only be used to support the legacy CSI business, will be distributed to CVR holders and cannot be used to support the working capital needs of the Pineapple Energy business.

All investments have either converted to cash and cash equivalents or been distributed to the CVR holders as of December 31, 2023.

Accounts Receivable, Net

Accounts receivable are recorded at their net realizable value and are not collateralized.

Accounts receivable include amounts earned less payments received and allowances for doubtful accounts.

Accounts receivable include amounts earned less payments received and allowances for credit losses.

Management continually monitors and adjusts its allowances associated with the Company’s receivables to address any credit risks associated with the accounts receivable and periodically writes off receivables when collection is not considered probable.

The Company does not charge interest on past due accounts.

When uncertainty exists as to the collection of receivables, the Company records an allowance for doubtful accounts and a corresponding charge to bad debt expense.

When uncertainty exists as to the collection of receivables, the Company records an allowance for credit losses and a corresponding charge to credit loss expense.

The current year provision for credit losses and write-off for uncollectible amounts included approximately $949,000 in receivables related to JDL that were not included in the sale of assets and were deemed uncollectible during the fourth quarter of 2023.

The provision for credit losses is recorded within selling, general and administrative expenses.

The following table presents the changes in the allowance for credit losses since adoption at the beginning of the year:

Year Ended December 31

Beginning balance

Provision for credit losses

Write off of uncollectible amounts

( 1,083,747 )

Ending balance

Inventories, Net

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The Company periodically reviews its inventories for excess and obsolete items and adjusts carrying costs to estimated net realizable values when they are determined to be less than cost.

The inventory reserve was $ 126,990 and $ 12,000 at December 31, 2023 and 2022, respectively.

Property, Plant and Equipment

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The Company reassesses the value of our reporting units and related goodwill balances annually on October 1 and at other times if events have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable.

Recoverability of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable.

Recoverability of Long-Lived Assets and Intangible Assets

The Company reviews its long-lived assets and definite lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable.

If indicators of impairment exist, management identifies the asset group that includes the potentially impaired long-lived asset, at the lowest level at which there are separate, identifiable cash flows.

If the fair value, determined as the total of the expected undiscounted future net cash flows for the asset group is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset.

Accumulated other comprehensive loss

The components of accumulated other comprehensive loss are as follows:

Unrealized Loss on Securities

Accumulated Other Comprehensive Loss

December 31, 2020

Net current period change

December 31, 2021

Net current period change

December 31, 2022

Revenue Recognition

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Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period.

The Company also arranges for solar power systems to be installed for residential customers by a third party, for which it earns a commission upon the end customer’s acceptance of the installation.

As there are more than two parties involved in the sales transaction, the Company has determined it has an agent relationship in the contracts with these customers, due to the fact that the Company is not primarily responsible for fulfilling the promise to provide the installation of solar arrays to the customer, the Company does not have inventory risk and has only limited discretion in pricing.

Accordingly, the Company has determined that revenue under these arrangements should be recognized on a net basis.

See Note 4, Revenue Recognition, for further discussion regarding revenue recognition.

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The Company records the tax revenue and expense on a gross basis.

Cost of Sales

Cost of sales consist of direct and indirect material and labor costs for solar energy system installations as well as warranty costs, permitting fees, financing fees and overhead including costs related to procurement, warehousing and inventory management.

Employee Retirement Benefits

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Additionally, as part of the November 9, 2022 SUNation Acquisition, the Company also acquired the SUNation Solar Systems, Inc.

401(k) Plan, which included employer contributions of $ 27,656 during the period under Company ownership in 2022.

Employer contributions into this plan were $ 27,656 during the period under Company ownership in 2022 and $ 176,334 during 2023 until the plan was merged with the Employee Savings Plan on December 1, 2023.

Share Based Compensation

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The estimated grant date fair value of each stock-based award is recognized in the statement of operations over the requisite service period (generally the vesting period).

The Company recognizes forfeitures as they occur.

SUNation warrants its products for various periods against defects in material or installation workmanship.

The manufacturers of the solar panels and the inverters provide a warranty period of generally 25 years and 10 years , respectively.

SUNation will assist its customers in the event that the manufacturers'

warranty needs to be used to replace a defective solar panel or inverter.

SUNation provides for warranty up to 10 years in duration on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers'

SUNation provides extended workmanship warranties paid by the customer for up to 25 years for the service of inverters, which is reimbursed by the manufacturer.

The Company records a provision for the installation warranty, an expense included in cost of sales, based on management’s best estimate of the probable cost to be incurred in honoring its warranty commitment.

The Company’s accrued warranty provision was $ 276,791 and $ 0 at December 31, 2022 and December 31, 2021, respectively, and is included in other current liabilities.

The Company expenses advertising costs as the expenses are incurred.

SUNation will assist its customers in the event that the manufacturers' warranty needs to be used to replace a defective solar panel or inverter.

SUNation provides for warranty up to the lifetime of the system on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers' warranty.

SUNation provides extended workmanship warranties to the customer for up to 25 years for the service of inverters, which is reimbursed by the manufacturer.

The Company estimates its warranty obligations upon installation, an expense included in cost of sales, based on management’s best estimate of the probable cost to be incurred in honoring its warranty commitment.

Advertising costs are expensed as they are incurred.

Advertising expense was $ 946,379 and $ 251,335 for the years ended December 31, 2023 and 2022, respectively.

1 unchanged sentence

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance.

Our chief operating decision maker is the chief executive officer.

Our chief operating decision maker is comprised of our chief executive officer and chief financial officer.

Based on the financial information presented to and reviewed by our chief operating decision maker in deciding how to allocate resources and in assessing performance, we have determined we have two operating segments, but meet the aggregation criteria in order to aggregate into one reportable segment.

Concentrations of Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.

The associated risk of concentration for cash is mitigated by banking with institutions with high credit ratings.

At certain times amounts on deposit exceed FDIC insurance limits.

The Company has limited credit risk in accounts receivable as most contracts are paid through outside customer financing.

The Company is not dependent on any single customer and the loss of any customer would not adversely impact the Company’s operating results or financial position.

The Company depends on a limited number of suppliers for its solar panels and other system components.

During the years ended December 31, 2023 and 2022, the top five suppliers collectively accounted for approximately 53 % and 60 % of the Company’s total accounts payables, respectively.

Net Loss Per Share

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There were no options or deferred stock awards excluded from the calculation of diluted earnings per share because there were no outstanding options or deferred stock awards as of both December 31, 2023 and 2022.

Warrants totaling 5,176,471 would have been excluded from the calculation of diluted earnings per share for the year ended December 31, 2022, even if there had not been a net loss in those periods, because the exercise price was greater than the average market price of common stock during the period.

For the year ended December 31, 2021, there were no potentially dilutive securities.

Warrants totaling 5,176,471 would have been excluded from the calculation of diluted earnings per share for the years ended December 31, 2023 and 2022 and restricted stock units totaling 785,404 and 687,712 for the years ended December 31, 2023 and 2022, respectively, even if there had not been a net loss in those periods, because the exercise price was greater than the average market price of common stock during the period.

Accounting Standards Issued

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses.

This ASU is intended to provide financial statement users with more decision-useful information about expected credit losses and is effective for annual periods and interim periods for those annual periods beginning after December 15, 2022, which for us is the first quarter ending March 31, 2023.

We do not expect the impact of the adoption of ASU 2016-13 to have a material impact on our consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which is intended to clarify or improve disclosure and presentation requirements of a variety of topics.

Many of the amendments will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements and align the requirements in the FASB accounting standard codification with the SEC’s regulations.

The Company is currently evaluating this ASU and the impact it may have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.

This ASU is effective for fiscal periods beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating this ASU and the impact it may have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

This ASU is effective for fiscal periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating this ASU and the impact it may have on its financial statement disclosures.

Accounting Standards Adopted

In August 2020, FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock and amend the guidance for the derivative scope exception for contracts in an entity’s own equity.

Convertible instruments that continue to be subject to separation models are a) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and b) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.

The reduction of accounting models is intended to simplify the accounting for convertible instruments, reduce complexity for preparers and practitioners, and improve the decision usefulness and relevance of the information provided to financial statement users.

The amendments to the derivative scope exception guidance a) removes the following conditions from the settlement guidance:

settlement in unregistered shares, collateral, and shareholder rights;

b) clarifies that penalty payments do not preclude equity classification within the settlement guidance in the situation where there is a failure to timely file;

c) requires instruments that are required to be classified as an asset or liability under ASC 815-40-15-8A to be measured subsequently at fair value, with changes reported in earnings and disclosed in the financial statements;

d) clarifies that the scope of the disclosure requirements in ASC 815-40-50 applies only to freestanding instruments, not embedded features;

and e) clarifies that the scope of the reassessment guidance in ASC 815-40-35 on subsequent measurement applies to both freestanding instruments and embedded features.

The amendment to this guidance is intended to reduce form-over-substance-based accounting conclusions.

The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

We adopted this update as of January 1, 2022 and have incorporated this guidance in our evaluation of the accounting for our warrants, which are classified as equity in our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers"

(“ASU 2021-08”).

We adopted this ASU in the first quarter of 2023 without a material impact on the Company’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" (“ASU 2021-08”).

The standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers,” as if it had originated the contracts.

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Early adoption is permitted.

The Company adopted this ASU during the second quarter of 2022 and has incorporated this guidance in our evaluation of the accounting for the merger and the HEC Asset Acquisition.

The Company adopted this ASU during the second quarter of 2022 and has incorporated this guidance in its evaluation of the accounting for the merger and the HEC Asset Acquisition.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment,” which eliminates step two from the goodwill impairment test.

Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.

ASU 2017-04 became effective for accelerated filing companies for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

All other entities, including not-for-profit entities, that are adopting the amendments in this ASU should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company adopted ASU 2017-04 in 2023.

NOTE 3 – BUSINESS COMBINATIONS

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The Company accounted for the merger as a reverse recapitalization whereby it was determined that Pineapple Energy was the accounting acquirer and CSI was the accounting acquiree.

Refer to Note 2, Summary of Significant Accounting Policies, for

further details.

Refer to Note 2, Summary of Significant Accounting Policies, for further details.

The accompanying consolidated financial statements and related notes reflect the historical results of Pineapple Energy prior to the merger and do not include the historical results of CSI prior to the consummation of the merger.

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The merger agreement also included the execution of CVR agreements with holders of record of CSI stock at the close of business on March 25, 2022.

Each shareholder of record received one contractual non-transferable CVR per share of common stock held, which entitles the holders of the CVRs to receive a portion of the cash, cash equivalents, investments and net proceeds of any divestiture, assignment, or other disposition of all legacy assets of CSI and/or its legacy subsidiaries, JDL and Ecessa, that are related to CSI’s pre-merger business, assets, and properties, including the sale of JDL and Ecessa, that occur during the 24-month period following the closing of the merger.

Each shareholder of record received one contractual non-transferable CVR per share of common stock held, which entitles the holders of the CVRs to receive a portion of the cash, cash equivalents, investments and net proceeds of any divestiture, assignment, or other disposition of all legacy assets of CSI and/or its legacy subsidiaries, JDL and Ecessa, that are related to CSI’s pre-merger business, assets, and properties, including the sale of JDL and Ecessa, that occur during the period following the closing of the merger and ending initially on March 28, 2024, but was extended through December 31, 2024 by the First Amendment to the Contingent Value Rights Agreement entered into on March 27, 2024.

As of the merger date, the fair value of the CVR liability was estimated at $ 18,277,230 , a Level 3 fair value, which was determined based on the provisional fair value of the tangible and definite-lived intangibles assets of CSI discussed below.

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The Company received net proceeds of $ 6,281,000 and recorded a loss on the sale of $ 285,000 during the second quarter of 2022.

The consolidated financial statements include results of operations of CSI following the consummation of the merger for the year ended December 31, 2022, which included $ 5,291,492 of revenue and a net loss of $ 7,074,184 related to its JDL and Ecessa businesses, included in discontinued operations and net income of $ 2,531,457 primarily related to a gain on the fair value remeasurement of the CVR liability, included within continuing operations.

The consolidated financial statements include results of operations of CSI following the consummation of the merger for the years ended December 31, 2023 and 2022 as follows:

Year Ended December 31

Revenue from discontinued operations

Net loss from discontinued operations

( 1,192,275 )

( 7,074,184 )

HEC Asset Acquisition

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This acquisition was an expansion in the residential solar market and is a strategic start to the Company’s overall acquisition growth plan as it looks to expand further through the acquisition of regional residential solar companies and energy technology solution providers.

At the closing of this acquisition, Pineapple Energy issued 6,250,000 Class B units, which upon the closing of the merger were converted into 1,562,498 shares of the Company’s common stock, with a fair value of $ 12,781,234 using the publicly traded stock price at the merger date.

the publicly traded stock price at the merger date.

The sellers received $ 12,500,000 in initial cash consideration, less $ 164,888 in working capital adjustments, bringing the aggregate purchase price to $ 25,116,346 , with cash acquired totaling $ 215,684 .

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projected revenues, estimated probability of continued used of tradenames, margins, depreciation, contributory asset charges, discount rates, and income tax rates.

The consolidated financial statements include results of operations of HEC and E-Gear following the consummation of the HEC Asset Acquisition for the year ended December 31, 2022, which included $ 19,843,011 of revenue and a net loss of $ 845,234 .

The consolidated financial statements include results of operations of HEC and E-Gear following the consummation of the HEC Asset Acquisition for the year ended December 31, 2023 and 2022 as follows:

Year Ended December 31

Net income (loss)

SUNation Acquisition

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The backlog amount was determined using an income approach under a multi-period excess earnings approach whereby cash flows in excess of those needed to operate contributory assets over a period of time are otherwise attributed to the fair value of the asset .

The consolidated financial statements include results of operations of SUNation following the consummation of the SUNation Acquisition for the year ended December 31, 2022, which included $ 7,617,848 of revenue and a net loss of $ 99,522 .

The consolidated financial statements include results of operations of SUNation following the consummation of the SUNation Acquisition for the years ended December 31, 2023 and 2022 as follows:

Year Ended December 31

Net income (loss)

Transaction costs related to the merger, the HEC Asset Acquisition and the SUNation Acquisition totaled $ 2,020 and $ 1,947,425 incurred during the years ended December 31, 2023 and 2022, respectively, and were recorded in operating expenses within the consolidated statements of operations and comprehensive loss.

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the expected probability and timing of achievement of milestone events.

As of December 31, 2022, the fair value of the Merger Earnout Shares was $ 0 , resulting in a gain on the fair value remeasurement of the earnout consideration totaling $ 4,684,000 during the year ended December 31, 2022, which was recorded in other income (expense) within the consolidated statements of operations.

As of December 31, 2023 and 2022 the fair value of the Merger Earnout Shares was $ 0 .

The Company recognized a gain of $ 0 and $ 4,684,000 on the fair value remeasurement of in the years ended December 31, 2023 and 2022, respectively.

NOTE 4 – REVENUE RECOGNITION

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Revenue by Type

Residential contracts

Commercial contracts

Service revenue

Software revenue

The following table disaggregates revenue based on the timing of satisfaction of the performance obligations for the years ended December 31, 2023 and 2022:

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Contract liabilities were $ 2,552,452 and $ 6,990,538 at December 31, 2023 and 2022, respectively.

Due to the shorter-term nature of our contracts, the balances within contract assets and liabilities as of December 31, 2022 has been recognized within cash and revenue, respectively, during the year ended December 31, 2023.

NOTE 5 – CONTRACTS IN PROGRESS

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In accordance with ASC Topic 842, the Company recognizes assets and liabilities for the rights and obligations created by leases that extend more than twelve months from the date of the balance sheet.

Right of use (“ ROU”) assets represent our right

to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease.

Right of use (“ ROU”) assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease.

Lease ROU assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term.

Because the rate implicit in each individual lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

In 2022, the Company entered into operating leases for two office locations, including one in April 2022 and one in November 2022 upon the acquisition of SUNation.

In 2022, the Company entered into operating leases for two office locations, including one in Hawaii in April 2022 and one in New York in November 2022 upon the acquisition of SUNation.

In 2022, the Company had also entered into an operating lease

for its corporate offices in Minnesota that commenced on January 1, 2023.

In March 2023, the Company entered into an operating lease for an additional office location in Florida.

These leases have remaining lease terms of 2 to 12 years.

One lease includes a 3 % rent adjustment on each anniversary of the lease and the other includes a fixed annual rent adjustment of $ 6,840 .

One lease includes a 3 % rent adjustment on each anniversary of the lease, another includes a fixed annual rent adjustment of $ 6,840 , another includes an annual 3 % rent adjustment after two year s and the other a 4 % annual rent adjustment.

As of December 31, 2023, total ROU assets and operating lease liabilities were $ 4,516,102 and $ 4,587,247 , respectively.

There were no operating lease liabilities as of December 31, 2021.

All operating lease expense is recognized on a straight-line basis over the lease term.

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Total operating lease liabilities

As of December 31, 2022, the Company has a future operating lease obligation related to its corporate offices, commencing on January 1, 2023.

NOTE 7– DISCONTINUED OPERATIONS

Pursuant to the merger agreement, the Company is working to divest its legacy operations and operating assets.

The Company is actively pursuing the sale of its JDL and Ecessa businesses and has met the criteria to report the operations of these businesses as discontinued operations beginning in the fourth quarter of 2022.

On June 30, 2023, the Company sold substantially all of the assets of its legacy non-core subsidiaries, JDL and Ecessa, to TheIPGuys.net LLC doing business as OneNet Global for total net proceeds of $ 1,231,616 .

The Company received net initial proceeds of $ 1,106,616 , consisting of $ 1,175,000 in initial consideration less $ 68,384 in adjustments.

An additional $ 125,000 in consideration is being held in escrow until July 1, 2024 for potential indemnification claims that may arise under the asset purchase agreement.

The amount in escrow represents a consideration receivable that is included in other current assets within the condensed consolidated balance sheet as it is currently considered to be probable that the amount will be received in full at the conclusion of the escrow period.

The amount of escrow proceeds that will be received will depend on whether any indemnification obligations arise under the asset purchase agreement and the receivable will be monitored for potential impairment.

The Company recorded a loss on sale of $ 1,190,002 during the second quarter of 2023.

The presentation of discontinued operations with respect to this transaction has been retrospectively applied to all prior periods presented.

The assets and liabilities of the discontinued operations that are classified as held for sale are as follows:

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Goodwill impairment loss

Restructuring expenses

Loss on sale of assets

Operating loss before income taxes

( 1,207,260 )

Income tax expense

( 7,070,858 )

Income tax (benefit) expense

Net loss from discontinued operations

( 1,192,275 )

Due to CVR Representative’s approval of the planned sale of JDL and Ecessa and its discontinued operations assessment in the fourth quarter of 2022, the Company determined there was a triggering event that warranted an interim impairment assessment.

Based on the quantitative assessment, the Company recorded an impairment loss of $ 6,718,612 .

( 7,074,184 )

During the year ended December 31, 2023, the Company recorded $ 56,717 in restructuring expenses, which consisted of severance and related benefits costs.

The Company paid $ 56,717 in restructuring charges in 2023 and had no restructuring accruals recorded at December 31, 2023.

NOTE 8 –RESTRICTED CASH EQUIVALENTS AND INVESTMENTS

The following tables show the Company’s restricted cash equivalents and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash equivalents or short and long-term investments as of December 31, 2022.

The Company did no t have any restricted cash equivalents and available for sale securities in 2021.

December 31, 2023

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Long-Term Investments

Restricted cash equivalents:

Cash equivalents:

Money Market funds

Corporate Notes/Bonds

The following table summarizes the estimated fair value of our investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of December 31, 2022:

December 31, 2022

Amortized Cost

‎ Market Value

Due within one year

Due after one year through five years

The Company tests for other than temporary losses on a quarterly basis and has considered the unrealized losses indicated above to be temporary in nature.

The Company intends to hold the investments until it can recover the full principal amount and has the ability to do so based on other sources of liquidity.

The Company expects such recoveries to occur prior to the contractual maturities.

The Company did no t recognize any gross realized gains or losses during the years ended December 31, 2022 or 2021.

Gross Unrealized Gains

Gross Unrealized Losses

Cash Equivalents

Short-Term Investments

Long-Term Investments

Cash equivalents:

Money Market funds

Corporate Notes/Bonds

The Company recognized $ 38,419 and $ 0 in gross realized gains during the years ended December 31, 2023 and 2022, respectively.

As part of the merger, the Company acquired an investment totaling $ 250,000 in preferred shares of Kogniz, Inc., a privately owned artificial intelligence company based in Silicon Valley, CA.

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NOTE 10 – GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the year ended December 31, 2022 by reporting unit are as follows.

The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 by reporting unit are as follows:

January 1, 2022

December 31, 2022

December 31, 2023

Gross goodwill

Accumulated impairment loss

Balance at December 31, 2023

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( 1,050,000 )

( 9,379,549 )

December 31, 2022

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( 4,141,072 )

Developed technology

( 4,641,072 )

Amortization expense on these identifiable intangible assets was $ 3,133,460 and $ 1,429,295 in 2022 and 2021 respectively.

Amortization expense on these identifiable intangible assets was $ 4,738,477 and $ 3,133,460 for the years ended December 31, 2023 and 2022, respectively.

The weighted average remaining useful life at December 31, 2023 was 6.1 years.

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NOTE 11 – COMMITMENTS AND CONTINGENCIES

As of December 31, 2022 and December 31, 2021, Pineapple Energy had $ 3,000,000 and $ 7,500,000 , respectively, in a loan payable to Hercules Capital, Inc.

Pineapple Energy has a loan in an original amount of $ 7,500,000 payable to Hercules Capital, Inc.

(“Hercules”) under a loan and security agreement (the “Term Loan Agreement”).

This loan accrues interest at 10 %, payable-in-kind and was initially due and payable on December 10, 2023.

This loan accrues interest at 10 %, payable-in-kind (“PIK”) and was initially due and payable on December 10, 2023.

There are no financial covenants associated with this loan.

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The amendment represented a modification to the loan agreement with the existing lender as both the original loan agreement and the amendment allow for immediate prepayment and the Company passed the cash flow test.

At December 31, 2021, the combined loan and accrued interest balance was $ 6,194,931 .

The balance at December 31, 2022, after giving effect to the $ 5,557,000 payment of principal and accrued interest on March 29, 2022, was $ 1,428,685 .

A new effective interest rate of approximately 52.9 % was established during the first quarter of 2022 based on the carrying value of the revised cash flows.

Interest and accretion expense was $ 151,024 and $ 618,983 for years ended December 31, 2022 and December 31, 2021 respectively.

On May 31, 2023, the Term Loan Agreement was further amended (the “Second Amendment”), primarily for the purpose of obtaining consent for the senior financing from Decathlon Specialty Finance, LLC (the “Decathlon Financing”), the proceeds of which were partially applied to repay $ 1,500,000 of the principal amount of the Hercules Term Loan.

At the time of the Second Amendment and prior to the repayment, the aggregate remaining balance of the Term Loan, including principal and interest, was $ 3,375,742 .

The Second Amendment also extended t he maturity date of the Term Loan to June 2, 2027 and set the interest rate at ten percent ( 10.0 %) payable monthly and removing the PIK interest.

The aggregate remaining principal balance of $ 1,875,742 along with interest is payable in equal monthly installments of principal and interest beginning on July 3, 2023 and continuing on the first business day of each month thereafter.

The Second Amendment represented a modification under ASC 470-50 as the original loan agreement and the amended agreement are not substantially different.

At December 31, 2023 and 2022, the combined loan and accrued interest balance was $ 497,052 and $ 1,428,685 , respectively.

A new effective interest rate of approximately 48.6 % was established during the second quarter of 2023 based on the carrying value of the revised cash flows.

Interest and accretion expense was $ 853,809 and $ 151,024 for the years ended December 31, 2023 and 2022, respectively.

The loan is collateralized by all of Pineapple Energy’s personal property and assets.

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Borrowings under the Working Capital Agreement bore interest at 10.00 % per annum with interest compounded daily and payable monthly.

At December 31, 2021, the balance outstanding on the working capital loan was $ 350,000 .

The working capital loan had an initial maturity date of January 7, 2022 and was collateralized by all of Pineapple Energy’s assets.

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During the first three months of 2022, Pineapple Energy borrowed an additional $ 150,000 and had $ 500,000 outstanding prior to the merger on March 28, 2022.

Immediately prior to the merger on March 28, 2022, the $ 500,000

outstanding loan balance was converted to 250,000 Class C Units, which upon close of the merger were converted into 62,500 shares of Company common stock .

Immediately prior to the merger on March 28, 2022, the $ 500,000 outstanding loan balance was converted to 250,000 Class C Units, which upon close of the merger were converted into 62,500 shares of Company common stock .

Interest expense was $ 0 and $ 13,977 for the years ended December 31, 2023 and 2022, respectively.

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As discussed in Note 3, Business Combinations, the Company entered into Short-Term and Long-Term Notes in connection with the SUNation Acquisition on November 9, 2022.

The $ 5,000,000 Short-Term Note is secured as described below and matures on August 9, 2023.

It carries an annual interest rate of 4 % until the three-month anniversary of issuance, 8 % thereafter until the six-month anniversary of issuance, then 12 % thereafter until the Short-Term Note is paid in full.

The $ 5,000,000 Short-Term Note was secured by a pledge by the Company and Merger Sub of the equity of SUNation purchased under the Transaction Agreement and was scheduled to mature on August 9, 2023.

It carried an annual interest rate of 4 % until the three-month anniversary of issuance, 8 % thereafter until the six-month anniversary of issuance, then 12 % thereafter until the Short-Term Note was paid in full.

On June 1, 2023, the Company used funds from the Decathlon Financing to repay the Short-Term Note in full.

The repayment of Short-Term Note has been recorded as a debt extinguishment as the Company is relieved of its obligation under the Short-Term Note and the related pledge by the Company of the equity of SUNation to secure the repayment of the Short-Term Note has been terminated.

Since the Short-Term Note was with a related party, the Company recorded a capital contribution of $ 36,291 based on the difference between the carrying amount and reacquisition price of the Short-Term Note.

The $ 5,486,000 Long-Term Note is unsecured and matures on November 9, 2025.

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The Company accretes the value of the debt over its life at a discount rate of approximately 11.2 %.

Both the Short-Term Note and Long-Term Note may be prepaid at the Company’s option at any time without penalty.

Pursuant to the Pledge Agreement, the Short-Term Note is secured by a pledge by the Company and Merger Sub of the equity of SUNation purchased under the Transaction Agreement.

While the Short-Term Note remains outstanding, the Company also agrees to certain negative covenants with respect to the operation of SUNation, including limits on distributions, the incurrence of indebtedness, imposition of liens, and sales of assets outside the ordinary course of business.

If Sellers exercise their remedies under the Pledge Agreement (due to an event of default by the Company under the Short-Term Note or the Pledge Agreement), Sellers would be able recover the pledged equity of the acquired companies and the Company’s remaining obligations under the Short-Term Note and the Long-Term Note would be cancelled in their entirety and would be of no further force and effect.

The Company’s obligations to make any Earnout payment under the Transaction Agreement would also be terminated.

The Pledge Agreement will automatically terminate upon the payment of all amounts due under the Short-Term Note.

The balances of the Short-Term Note and Long-Term Note recorded at December 31, 2022 was $ 5,057,299 and $ 4,917,879 , respectively.

Interest and accretion expense related to the notes totaled $ 144,645 for the year ended December 31, 2022.

The Long-Term Note may be prepaid at the Company’s option at any time without penalty.

The balance of the Long-Term Note recorded at December 31, 2023 and 2022 was $ 5,499,716 and $ 4,917,879 , respectively.

Interest and accretion expense related to the notes totaled $ 779,489 and $ 144,645 for the years ended December 31, 2023 and 2022, respectively.

Decathlon Fixed Loan

On June 1, 2023, the Company entered into a Revenue Loan and Security Agreement (the “Loan Agreement”) with Decathlon Specialty Finance, LLC (“Decathlon”).

The Loan Agreement provides for a loan facility for the Company in the maximum amount of $ 7.5 million with a maturity date of June 1, 2027 (the “Decathlon Fixed Loan”), with the full amount being advanced to the Company upon execution of the Loan Agreement.

The Decathlon Fixed Loan contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default.

The advances are secured by all present and hereafter acquired property of the Company.

The Decathlon Fixed Loan is repayable in fixed monthly payments, which generally aggregate to $ 960,000 that was paid in 2023, $ 2,220,000 payable in 2024, $ 2,580,000 payable in 2025, $ 2,760,000 payable in 2026 and $ 3,480,000 payable in 2027 to the maturity date.

All outstanding advances and interest under the Loan Agreement are due at maturity on June 1, 2027 (unless accelerated upon a change of control or the occurrence of other events of default) .

Interest accrues on the amounts advanced pursuant to the Loan Agreement at such rate as is necessary to generate an amount equal to the Minimum Interest, which is defined in the Loan Agreement as the following multiple of the advanced amount depending on the period during which all amounts due under the Loan Agreement are paid:

(i) 0.25 times if on or before 12 months after the Effective Date;

(ii) 0.35 times if after 12 months and on or before 24 months after the Effective Date;

(iii) 0.50 times if after 24 months and on or before 36 months after the Effective Date;

and 0.60 times if after 36 months after the Effective Date.

The Company may at its option

prepay the advance(s) and accrued but unpaid interest from time to time without penalty or premium (other than payment of the Minimum Interest).

The Company incurred an aggregate of $ 348,065 in debt issuance costs that are recorded as a discount and are amortized using the effective interest method over the life of the Decathlon Fixed Loan using an effective interest rate of 21 %.

At December 31, 2023, the combined loan and accrued interest balance was $ 7,408,925 and the unamortized debt issuance costs balance was $ 280,856 .

The Company recorded interest expense of $ 936,135 for the year ended December 31, 2023.

Equipment Loans

The Company acquired various equipment loan agreements through its SUNation Acquisition.

These loans are secured by machinery and equipment and expire at various dates through September 2025 with interest rates ranging from 5.0 to 6.5 % per annum.

The balance for the equipment loans recorded at December 31, 2022 was $ 168,184 .

Interest expense was $ 1,271 for the year ended December 31, 2022.

The Company obtains various equipment loan agreements through SUNation.

These loans are secured by machinery and equipment and expire at various dates through August 2029 with interest rates ranging from 4.5 to 9.7 % per annum.

The balance for the equipment loans recorded at December 31, 2023 and 2022 was $ 333,717 and $ 168,184 , respectively.

Interest expense was $ 16,047 and $ 1,271 for the years ended December 31, 2023 and 2022, respectively.

Promissory Note

Through the SUNation Acquisition, the Company acquired a promissory note with a former shareholder and member of SUNation through a buyout agreement.

The promissory note includes monthly payments of principal and interest at an annual

rate of 3.25 %.

The promissory note includes monthly payments of principal and interest at an annual rate of 3.25 %.

The promissory note matures on March 1, 2031.

The balance for the promissory note recorded at December 31, 2022 was $ 1,887,616 .

Interest expense was $ 14,726 for the year ended December 31, 2022.

The balance for the promissory note recorded at December 31, 2023 and 2022 was $ 1,656,416 and $ 1,887,616 , respectively.

Interest expense was $ 58,030 and $ 14,726 for the years ended December 31, 2023 and 2022, respectively.

Future Minimum Principal Payments

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Other Contingencies

During the first quarter of 2022, the two lawsuits that were filed on behalf of purported CSI shareholders relating to the Registration Statement on S-4 that we filed on November 12, 2021 (the “Registration Statement”) in connection with the merger, among other matters, were voluntarily dismissed.

The first complaint was filed on December 13, 2021 by Bashir Rivera in the United States District Court for the Southern District of New York and is captioned Rivera v.

Communications Systems, Inc., et al.

1:21-cv-10637-NRB.

The second complaint was filed on December 28, 2021 by Allen Chaidez in the United States District Court for the Eastern District of New York and is captioned Chaidez v.

Communications Systems, Inc., et al.

1:21-cv-07155-MKB-VMS.

The Rivera action was voluntarily dismissed on February 24, 2022.

The Chaidez action was voluntarily dismissed on March 24, 2022.

In the ordinary course of business, the Company is exposed to legal actions and claims and incurs costs to defend against these actions and claims.

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Related party receivables

The Company has provided advances to employees resulting in a balance as of December 31, 2022 of $ 116,710 .

The Company has provided advances to employees resulting in a balance as of December 31, 2023 and 2022 of $ 46,448 and $ 116,710 , respectively.

Related party payables

As part of the SUNation Acquisition, the Company agreed to reimburse the sellers for proceeds received related to SUNation’s employee retention credit (a refundable tax credit against certain employment taxes incurred during the first nine months of 2021), totaling $ 1,584,541 as of December 31, 2022.

The Company also agreed to reimburse the sellers approximately $ 597,219 for tax payments due related to the period prior to acquisition.

The full amount of this credit was received by the Company and subsequently remitted to the sellers during the three months ended March 31, 2023.

The Company also agreed to reimburse the sellers approximately $ 597,219 for tax payments due related to the period prior to acquisition, of which the full amount was paid during 2023, leaving no remaining balance at December 31, 2023.

The Company leases its offices in Hawaii and New York from companies owned by the prior owners of HEC and SUNation, respectively, most of whom are still employees and one who is a current director of the Company.

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The 2022 Plan authorizes incentive awards to officers, key employees, non-employee directors, and consultants in the form of options (incentive and non-qualified), stock appreciation rights, restricted stock awards, stock unit awards, and other stock-based awards.

The 2022 Plan authorizes the issuance of up to 750,000 shares of common stock.

On December 7, 2022, the

shareholders approved an additional 500,000 for issuance, for a total of 1,250,000 shares.

At December 31, 2022, no shares had been issued under the 2022 Plan, 470,888 shares were subject to currently outstanding unvested restricted stock units (“RSUs”), and 779,112 shares were available for future awards.

On December 7, 2022, the Company’s shareholders approved an amendment to the 2022 Plan, which authorizes issuance of up to 1,250,000 shares of common stock.

At December 31, 2023, 212,057 shares had been issued under the 2022 Plan, 640,854 shares were subject to currently outstanding unvested restricted stock units (“RSUs”), and 397,089 shares were available for future awards.

RSUs granted to employees generally vest over three years , with one-third vesting each year and RSUs granted to non-employee directors vest over one year .

Inducement Grants

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On December 7, 2022, the Company’s shareholders approved an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible employees are able to acquire shares of common stock at a purchase price determined by the board of directors or compensation committee prior to the start of each six-month plan phase, which price may not be less than 85 % of the fair market value of the lower of the value on the first day or the last day of the phase, or the value on the last day of the phase .

The ESPP is considered compensatory under current Internal Revenue Service rules.

At December 31, 2022, 200,000 shares remain available for purchase under the ESPP.

The first plan phase will commence on January 1, 2023.

ESPP is considered compensatory under current Internal Revenue Service rules.

At December 31, 2023, 415,005 shares remained available for purchase under the ESPP.

The first plan phase commenced on January 1, 2023 and 84,995 shares were purchased during 2023.

Employee Stock Ownership Plan (ESOP)

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On June 28, 2021, the Company entered into a securities purchase agreement (“SPA”) in which, subsequent to the closing of the merger, the Company would authorize the issuance and sale of 25,000 restricted shares of Series A Preferred Stock, par value $ 1.00 per share (“Convertible Preferred Stock”), to certain investors in a private offering (“PIPE Investors”).

September 15, 2021, the Company amended the SPA to issue 32,000 restricted shares of Convertible Preferred Stock, to the PIPE Investors for $ 32.0 million in cash.

On September 15, 2021, the Company amended the SPA to issue 32,000 restricted shares of Convertible Preferred Stock, to the PIPE Investors for $ 32.0 million in cash.

This Convertible Preferred Stock is convertible into underlying shares of the Company’s common stock at any time after the issuance date at the option of the PIPE Investors, subject to certain restrictions, and has a liquidation preference over the Company’s common stock.

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The PIPE Investors in the Convertible Preferred Stock were granted certain registration rights as set forth in the SPA.

Holders of the Convertible Preferred Stock have no voting rights and no dividend preference over common stock.

Holders of the Convertible Preferred Stock have no voting rights and while the Convertible Preferred Stock has no dividend preference over common stock, it does participate in the dividend with the common stock.

Concurrent with the amendment, the Company entered into warrant agreements with the PIPE Investors to purchase common stock (the “Warrant Agreement”), whereby the Company would issue 2,352,936 warrants (“PIPE Warrants”) to purchase restricted shares of the Company’s common stock for cash or in a cashless exercise.

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No PIPE Warrants were exercised prior to December 31, 2023.

All PIPE Warrants remain outstanding as of December 31, 2022.

All PIPE Warrants remained outstanding as of December 31, 2023.

The proceeds from the issuance of Convertible Preferred Stock were allocated between the Convertible Preferred Stock and PIPE Warrants using a relative fair value method.

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the expected volatility, risk-free rate, expected annual dividend yield, and expected conversion dates.

The Convertible Preferred Stock is reported as part of permanent equity in the consolidated balance sheet and consolidated statement of stockholders’ equity as of December 31, 2022.

The Convertible Preferred Stock is reported as part of permanent equity in the consolidated balance sheet and consolidated statement of stockholders’ equity as of December 31, 2023 and 2022.

The PIPE Warrants were determined to be equity-classified and the fair value of $ 7.8 million was recognized in additional paid-in capital as of December 31, 2022.

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Warrant Modifications

In September 2021, the Company entered into transactions with holders of its outstanding Series A Preferred Stock to issue PIPE Warrants to purchase the Company's common stock.

At such time, the PIPE Warrants contained certain anti-dilution provisions.

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The Company is required to analyze amendment to preferred stock terms to determine the appropriate method of accounting to be applied.

While guidance exists in ASC 470-50 to address the accounting for debt modifications, including preferred stock that is accounted for as a liability, there is no comparable guidance to address the accounting for modifications to preferred stock instruments that are accounted for as equity or temporary equity, which necessitates the subjective determination of

whether a modification or exchange represents an extinguishment.

Current accounting guidance permits the analysis of preferred stock modifications by using either the qualitative approach, the fair value approach or the cash flow approach.

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Current year income taxes :

Income tax expense (benefit)

Deferred income taxes:

Income tax expense

The Company’s Austin Taylor Communications, Ltd.

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( 1,165,327 )

( 1,051,007 )

Net deferred tax liability

( 1,368,537 )

Total net deferred tax asset

( 2,058,644 )

Total net deferred tax liability

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

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On the basis of this evaluation, as of December 31, 2023, a valuation allowance of $ 8,970,982 has been recorded to reflect the portion of the deferred tax asset that is more likely to not be realized.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.

At December 31, 2022, the Company has a federal net operating loss carryforward from 2015 through 2022 activity of approximately $ 16,975,459 that is available to offset future taxable income and begins to expire in 2035 .

During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014.

As a result of this study, the Company claimed $ 1,554,447 of federal and $ 1,024,373 of state research and development credits.

The Company amended prior year tax returns to claim these credits and offset prior year taxes paid.

Credits not used to reduce taxes are available to be carried forward.

The valuation allowance increased by $ 2,410,333 from December 31, 2022 to December 31, 2023.

The Company continues to reassess the ability to realize the valuation allowance and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

As of December 31, 2023, the Company had approximately $ 19,300,602 of federal net operating loss carryforwards available to reduce future taxable income.

Of the federal total net operating loss carryforwards, $ 5,852,041 begins to expire in 2035 and $ 13,448,561 may be carried forward indefinitely.

The Company also had state and local net operating loss carryforwards that will begin to expire in 2035 .

Section 382 of the Internal Revenue Code limits the utilization of U.S.

net operating loss carryforwards and other tax attributes following a change of ownership or failure of continuity of business.

analysis under Section 382, we believe that certain tax attributes will be subject to a limitation and will not be available for future periods.

Management will continue to evaluate the limitation under Section 382 and does not expect a material impact because of the valuation allowance against the net deferred tax asset.

At December 31, 2023, the Company has an estimated federal research and development credit carryforward of approximately $ 220,000 and a state research and development credit carryforward of approximately $ 387,000 .

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Section 383 governs the utilization of tax attribute carryforwards such as the research and development credit in the event of a change in control of the Company, such as that which occurred as of March 28, 2022.

Credits not used to reduce taxes are available to be carried forward.

The Company assesses uncertain tax positions in accordance with ASC 740.

Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent

likelihood of being realized upon ultimate resolution.

The tax benefits recognized in the financial statements from these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

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Opening balance sheet

Gross increases - current period tax positions

Gross decreases - current period tax positions

Uncertain tax positions – December 31, 2023

Included in the balance of uncertain tax positions at December 31, 2023 are $ 43,028 of tax benefits that if recognized would affect the tax rate.

The Company’s unrecognized tax benefits will be reduced by $ 0 in the next twelve months due to statute of limitations expirations.

The Company’s unrecognized tax benefits will be reduced by $ 7,560 in the next twelve months as a result of the statute of limitations.

There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months.

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The Company’s 2023 income tax expense decreased by $ 0 due to net decreases for accrued interest and penalties.

The Company is subject to taxation by the United States, foreign and state and local jurisdictions.

In general, the Company’s tax years 2019 through 2022 remain open to assessment.

NOTE 16 – FAIR VALUE MEASUREMENTS

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The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial instruments.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022, are summarized below.

There were no assets or liabilities measured at fair value on a recurring basis as of December 31, 2021.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 are summarized below.

December 31, 2023

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Money Market funds

Contingent value rights

( 1,691,072 )

Earnout consideration

( 3,500,000 )

( 5,191,072 )

( 3,391,715 )

December 31, 2022

Total Fair Value

Cash equivalents:

Money Market funds

Short-term investments:

Corporate Notes/Bonds

Current Liabilities:

Contingent value rights

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( 5,907,486 )

The estimated fair value of the CVRs as of December 31, 2022 was $ 7,402,714 , as noted above.

The Company recorded a $ 2,125,949 gain on the fair value remeasurement of the CVRs in 2022 related to a decrease in the fair value of the JDL and Ecessa assets and a loss on held for sale assets sold in the second quarter of 2022, offset by a gain on an earnout payment realized in the second quarter of 2022 related to legacy CSI’s sale of its Electronics and Software segment in 2021.

The estimated fair value of the CVRs as of December 31, 2023 and 2022 was $ 1,691,072 and $ 7,402,714 , respectively, as noted above.

The Company recorded a net $ 2,674,966 gain on the fair value remeasurement of the CVRs in 2023 related to the loss on the sale of the JDL and Ecessa assets offset with a $ 250,000 gain on an earnout payment realized in the first quarter of 2023 related to legacy CSI’s sale of its Electronics and Software segment in 2021.

The Company paid $ 3,036,676 in CVR distributions during the fourth quarter of 2023.

The Company recorded a net $ 2,125,949 gain on the fair value remeasurement of the CVRs in 2022 related to a decrease in the fair value of the JDL and Ecessa assets and a loss on held for sale assets sold in the second quarter of 2022, offset by a gain on an earnout payment realized in the second quarter of 2022 related to legacy CSI’s sale of its Electronics and Software segment in 2021.

The Company paid $ 8,745,628 in CVR distributions during the third quarter of 2022.

The estimated fair value of all earnout consideration as of December 31, 2022 was $ 2,150,000 , all attributed to the earnout consideration related to the SUNation Acquisition.

As noted in Note 3, Business Combinations, the Company recorded a liability for earnout shares to holders of certain per-merger Pineapple Energy shareholders in the amount of $ 4,684,000 and $ 2,150,000 in earnout consideration related to the SUNation Acquisition.

As described in Note 3, the estimated fair value is considered a Level 3 measurement.

The estimated fair value of all earnout consideration as of December 31, 2023 and 2022 was $ 3,500,000 and $ 2,150,000 , respectively, all attributed to the earnout consideration related to the SUNation Acquisition.

Included in the $ 3,500,000 at December 31, 2023 is $ 2,500,000 related to the first earnout period recorded in current liabilities and $ 1,000,000 related to the second earnout period, which is recorded in long-term liabilities.

As noted in Note 3, Business Combinations, the Company recorded a liability of $ 4,684,000 for earnout shares to holders of certain pre-merger Pineapple Energy shareholders and a liability of $ 2,150,000 in earnout consideration related to the SUNation Acquisition in the respective opening balance sheets.

As described in Note 3, Business Combinations, the estimated fair value is considered a Level 3 measurement.

In order to update the fair value of the earnout consideration, the Company utilized a Monte Carlo simulation, which included the following significant assumptions:

the expected probability and timing of achievement of milestone events.

As a result of the fair value remeasurement, the Company recorded a remeasurement gain of $ 4,684,000 during the year ended December 31, 2022 related to the remeasurement of the value of the liability for the earnout shares.

The fair value remeasurements noted above were both recorded within other income (expense) in the consolidated statements of operations.

As a result of the fair value remeasurement, the Company recorded a remeasurement gain of $ 0 and $ 4,684,000 during the years ended December 31, 2023 and 2022, respectively, related to the remeasurement of the value of the liability for the earnout shares.

The Company recorded a remeasurement loss of $ 1,350,000 related to the remeasurement of the value of the liability for SUNation

Acquisition earnout consideration during 2023.

There was no remeasurement adjustment to the SUNation Acquisition earnout consideration during 2022.

The fair value remeasurement related to the SUNation earnout was recorded within operating expenses.

The other fair value remeasurements noted above were recorded within other income (expense) in the condensed consolidated statements of operations.

We record transfers between levels of the fair value hierarchy, if necessary, at the end of the reporting period.

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The Company’s financial statements as of December 31, 2023 have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

As noted in Note 11, Commitments and Contingencies, the Company entered into a $ 5.0 million Short-Term Note that is due on August 9, 2023.

Based on the Company’s current financial position, which includes approximately $ 5.7 million of restricted cash, cash equivalents and investments that are restricted under the CVR agreement or the SUNation agreement and cannot be used by the Company for its own working capital needs, the Company’s forecasted future cash flows for twelve months beyond the date of issuance of these financial statements indicate that the Company will not have sufficient cash to repay the Short-Term Note obligation, a factor which raises substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.

Based on the Company’s current financial position, which includes approximately $ 1.8 million of restricted cash, cash equivalents and investments that are restricted under the CVR agreement and cannot be used by the Company for its own working capital needs, the Company’s forecasted future cash flows for twelve months beyond the date of issuance of these financial statements indicate that the Company will not have sufficient cash to make the first SUNation earnout payment in the second quarter of 2024 or the first principal payment of the Long-Term Note due on November 9, 2024, factors which raise substantial doubt about the Company’s ability to continue as a going concern.

In order to continue as a going concern, the Company will need additional capital resources.

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NOTE 18 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of this filing.

We do not believe there are any material subsequent events other than those disclosed in the footnotes to these financial statements that require further disclosure.

On February 5, 2024, we entered into a securities purchase agreement with certain institutional investors (the “Purchasers”) for the sale by the Company of 2,702,703 shares of our common stock, in a registered direct offering (the “Direct Offering”).

The Purchasers in this offering agreed to purchase, and the Company agreed to sell, such shares at a purchase price per share of $ 0.37 .

The sale closed on February 7, 2024 for an aggregate gross proceeds of $ 1.0 million.

In connection with the Direct Offering, the Company also entered into a Limited Waiver and Amendment (the “Waiver”), dated February 5, 2024, with the Purchasers with respect to up to 50 % of the shares of Series A convertible preferred stock issued pursuant to the Certificate of Designation of Preferences, Rights and Limitations of our Series A convertible preferred stock, previously filed with the State of Minnesota on March 25, 2022 (the “Certificate of Designation”).

The Certificate of Designation and the Company’s outstanding common stock purchase warrants, dated March 22, 2022, have anti-dilution provisions that would increase the number of shares issuable upon conversion or exercise, and lower the conversion or exercise price of our Series A convertible preferred stock and our common stock purchase warrants, respectively, if the Company issues equity securities at a price less than the current conversion or exercise price of our Series A convertible preferred stock and our common stock purchase warrants, respectively, at the time of such issuance.

The anti-dilution provisions of the Certificate of Designation and our common stock purchase warrants reset (a) the conversion price of our Series A convertible preferred stock to the lower of the effective price per share of the subsequent equity sale or the lowest volume weighted average price of the common stock during the five consecutive trading days immediately following the public announcement of the execution of the dilutive issuance and (b) the exercise price of our common stock purchase warrants to the lower of the effective price per share of the subsequent equity sale or the lowest volume weighted average price of the common stock during the five consecutive trading days immediately following the public announcement of the execution of the dilutive issuance with the number of shares of the common stock issuable under our common stock purchase warrants increasing such that the aggregate exercise price payable under our common stock purchase warrants, after taking into account the decrease in the exercise price, is equal to the aggregate exercise price prior to the anti-dilution adjustment.

As a result of the Direct Offering and in accordance the anti-dilution provisions of the Certificate of Designation and our common stock purchase warrants, the conversion price of our Series A convertible preferred stock and the exercise price of our common stock purchase warrants would adjust to the lower of (i) $ 0.37 or (ii) the lowest volume weighted average price of our common stock during the five consecutive trading days immediately following the public announcement of the Direct Offering and the number of shares of the Common Stock issuable under our common stock purchase warrants would increase proportionally.

In connection with the Waiver, the Purchasers agreed to a floor of $ 0.14 with respect to the adjustment set forth in clause (ii) above.

In connection with the Waiver, the Purchasers also agreed to waive future anti-dilution protection with

respect to 50 % of the shares of our Series A convertible preferred stock held by such Purchaser as of the date of the Waiver and the Company agreed to extend the term of our common stock purchase warrants until March 28, 2029.

On October 27, 2023, Pineapple Energy Inc.

(the "Company") received a notice from the Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market ("Nasdaq") informing the Company that because the closing bid price for the Company's common stock listed on Nasdaq was below $ 1.00 per share for the last 31 consecutive business days, the Company did not comply with the minimum closing bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2) (the "Minimum Bid Price Rule").

In accordance with Nasdaq's Listing Rules, the Company has a period of 180 calendar days, or until April 24, 2024, to regain compliance with the Minimum Bid Price Rule.

On February 27, 2024, the Staff issued another notice (the "February Notice") notifying the Company that the Company's common stock had a closing bid price of $ 0.10 or less for 10 consecutive trading days (February 12, 2024 to February 26, 2024).

Accordingly, the Company is subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) (the "Low Priced Stock Rule").

As a result, the Staff had determined to delist the Company's securities from Nasdaq effective as of the opening of business on March 7, 2024, unless the Company requests an appeal before the Nasdaq Hearings Panel (the "Panel") of the Staff's determination by March 5, 2024, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

The Company requested a hearing before the Panel to appeal the February Notice, and Nasdaq has scheduled the hearing for April 30, 2024.

Accordingly, the delisting action has been stayed, pending a final written decision by the Panel.

There can be no assurance that the hearing will occur, that a favorable decision will be obtained if the hearing is held, that the Panel will grant any request for an extension period within which to regain compliance, or that the Company will be able meet the continued listing requirements during any compliance period or in the future.

On March 27, 2024, the Company, Equiniti Trust Company, as Rights Agent and the CVR holders’ representative entered into the First Amendment to the Contingent Value Rights Agreement which extends the term of the CVR agreement from March 28, 2024 to December 31, 2024.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data