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Item 7. Management’s Discussion and Analysis

2025-04-15 compared with 2024-04-01 · 173 added, 69 removed, 82 unchanged (75% of the section changed)

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The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and the related notes that appear elsewhere in this report.

Pineapple Energy Inc.

SUNation Energy Inc.

(formerly Communications Systems, Inc.

(“CSI”) and Pineapple Holdings, Inc.) (herein referred to as “Pineapple,” “PEGY,” “our,” “we” or the “Company”) was originally organized as a Minnesota corporation in 1969.

(“CSI”), Pineapple Holdings, Inc.

and Pineapple Energy Inc.) (herein referred to as “SUNation Energy,” “SUNE,” “our,” “we” or the “Company”) was originally organized as a Minnesota corporation in 1969.

On March 28, 2022, the Company completed its previously announced merger transaction with Pineapple Energy LLC (“Pineapple Energy”) in accordance with the terms of a merger agreement, pursuant to which a subsidiary of the Company merged with and into Pineapple Energy, with Pineapple Energy surviving the merger as a wholly owned subsidiary of the Company (the “merger”).

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and subsequently, on April 13, 2022, changed its name to Pineapple Energy Inc.

In addition, on March 28, 2022 and immediately prior to the Closing, the Company completed its acquisition (“HEC Asset Acquisition”) of substantially all of the assets of two Hawaii-based solar energy companies, Hawaii Energy Connection, LLC (“HEC”) and E-Gear, LLC (“E-Gear”).

On November 9, 2022, the Company purchased the equity of New York-based SUNation Solar Systems, Inc.

and five of its affiliated entities (collectively “SUNation”).

Pineapple’s vision is to power the energy transition through grass-roots growth of solar electricity paired with battery storage.

The Company is a growing domestic operator and consolidator of residential and commercial solar, battery storage, and grid services solutions.

On November 14, 2024, the Company filed articles of conversion with the Secretary of State of the State of Minnesota and filed a certificate of conversion with the Secretary of State of the State of Delaware changing its jurisdiction of incorporation from Minnesota to Delaware (the “Reincorporation”), as well as having filed a Certificate of Incorporation with the Secretary of State of the State of Delaware on this same date.

Concurrently with the Reincorporation, the Company also effectuated a change to its name from Pineapple Energy, Inc.

to SUNation Energy, Inc., and to its stock trading symbol from PEGY to SUNE, effective November 19, 2024.

SUNation Energy’s vision is to power the energy transition through grass-roots growth of solar electricity paired with battery storage.

The Company is a domestic operator and consolidator of residential solar, battery storage, and grid services solutions.

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

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.

Our primary customers are residential homeowners.

We also provide solar energy systems to commercial owners and other municipal customers.

Through its E-Gear business, Pineapple also develops, manufactures, and sells patented edge-of-grid energy management software and hardware technology, such as energy management control devices.

These products allow homeowners to get the most out of their installed photovoltaic solar energy systems and utility grid support benefits.

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

While CSI was the legal acquirer in the merger, because Pineapple Energy was determined to be the accounting acquirer, the historical financial statements of Pineapple Energy became the historical financial statements of the combined company upon the consummation of the merger.

As a result, the financial statements included in the accompanying consolidated financial statements, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, reflect the historical operating results of Pineapple Energy prior to the merger, the consolidated results of CSI, Pineapple Energy, HEC, and E-Gear following the Closing, including the results of SUNation following that acquisition, and the Company’s equity structure for all periods presented.

Accordingly, references to “the Company” herein are to the applicable entity at the date or during the time period in the applicable discussion.

Our current business units, Hawaii Energy Connection, LLC (“HEC”), and New York-based subsidiaries, the SUNation entities (collectively, “SUNation”).

are engaged in the design, installation, and maintenance of solar energy systems across residential, commercial, and municipal sectors.

Our team specializes in providing tailored solar solutions that meet the specific energy needs of each client, ensuring both efficiency and sustainability.

In addition to our core solar services, we also offer energy storage systems to optimize energy use and increase reliability.

Our New York business unit further integrates a broader range of services, including residential roofing solutions, to ensure seamless solar installations and long-term durability.

Additionally, we provide community solar services that allow groups of individuals, businesses, or organizations to share the benefits of a single solar array, making renewable energy accessible to more people in the community.

On June 30, 2023, the Company divested its legacy operations and operating assets through the sale of substantially all of the assets of its JDL Technologies, Inc.

(“JDL”) and Ecessa Corporation (“Ecessa”) businesses.

See Note 5, Discontinued Operations.

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

Bitcoin Strategy

WE ARE NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940 AND STOCKHOLDERS DO NOT HAVE THE PROTECTIONS ASSOCIATED WITH OWNERSHIP OF SHARES IN A REGISTERED INVESTMENT COMPANY NOR THE PROTECTIONS AFFORDED BY THE COMMODITIES EXCHANGE ACT.

In January 2025, our board of directors approved and adopted a corporate treasury strategy, adopting the inclusion of bitcoin (“BTC”) as a treasury reserve asset on an ongoing basis, subject to, among other factors, market conditions, the Company’s operational requirements, including in support of its planned expansion strategy, and our anticipated cash needs, instead of solely looking to keep cash in short and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S.

federal government.

As part of this strategy, we may allocate a minority portion of our excess cash, calculated based on our estimated six-month operating expenses, toward BTC purchases.

Since 2003, we have been designing, developing, and providing solar energy solutions tailored to customers in the information technology and technology sectors.

The Company believes this BTC initiative further solidifies its role in supporting the new digital economy and its expanding energy needs in an environmentally conscious manner.

Accordingly, this strategic initiative aligns with the Company’s goal to enable BTC as a possible payment option for its customers and suppliers as part of its core mission to make solar power more accessible.

We believe it has unique characteristics as a scarce and finite asset that can serve as a reasonable inflation hedge and safe haven amid global instability.

Bitcoin is often compared by some to gold, the latter of which has been viewed as a dependable store of value throughout history.

As of January 3, 2025, the total market capitalization of gold was approximately $17.8 trillion compared to nearly $1.95 trillion for bitcoin.

Bitcoin is a highly volatile asset that has traded below $38,000 per bitcoin and above $108,000 per bitcoin on Coinbase in the 12 months preceding the date of this annual report.

While highly volatile, bitcoin’s price has also appreciated significantly since bitcoin’s inception in January 2009 (at zero per bitcoin).

We believe that a substantial portion of bitcoin’s appreciation is attributable to the view that bitcoin is or will become a reliable store of value.

Like gold, bitcoin is also viewed as a scarce asset;

the ultimate supply of bitcoin is limited to 21 million coins and approximately 94.5% of its supply already exists.

We believe that bitcoin’s finite, digital and decentralized nature as well as its architectural resilience make it a highly attractive and potentially highly appreciable asset.

We also believe that the growing global acceptance across sectors, public and private companies and other “institutionalization” of bitcoin, including in some governments integrating bitcoin into their financial strategies as a hedge against inflation, macro-economic instability, and geopolitical risks facing global economies, supports our view that bitcoin is a reliable store of value.

We believe that bitcoin’s unique attributes discussed above not only differentiate it from fiat money, but also from other cryptocurrency assets, and for that reason, we have no plans to purchase cryptocurrency assets other than bitcoin.

Reverse Stock Splits

June 2024 Reverse Stock Split

On January 3, 2024, the Company’s shareholders approved a reverse stock split of the Company’s common stock at a ratio within a range of 1-for-2 and 1-for-15 and granted the Company’s board of directors the discretion to determine the timing and ratio of the split within such range.

On May 28, 2024, the Company’s board of directors determined to effect the reverse stock split of the common stock at a 1-for-15 ratio (the “June Reverse Stock Split”) and approved an amendment (“June Reverse Stock Split Amendment”) to the Fourth Amended and Restated Articles of Incorporation of the Company to effect the June Reverse Stock Split.

Effective June 12, 2024, the Company amended its Fourth Amended and Restated Articles of Incorporation to implement the June Reverse Stock Split.

The Company's common stock began trading on a split-adjusted basis when the market opened on June 12, 2024 (the "June Effective Date").

As a result of the June Reverse Stock Split, at 12:01 a.m.

Central Time on the June Effective Date, every 15 shares of common stock then issued and outstanding automatically were combined into one share of common stock, with no change in par value per share.

No fractional shares were outstanding following the June Reverse Stock Split, and any fractional shares that would have resulted from the June Reverse Stock Split were settled in cash.

The number of shares of common stock outstanding was reduced from 108,546,773 to 7,235,731, with 720.901 fractional shares paid out in cash totaling $1,132.

The total number of shares authorized for issuance was reduced to 7,500,000 in proportion to the June Reverse Stock Split ratio.

October 2024 Reverse Stock Split

On July 19, 2024, the Company’s shareholders approved a reverse stock split of the Company’s common stock at a ratio within a range of 1-for-2 and 1-for-200 and granted the Company’s board of directors the discretion to determine the timing and ratio of the split within such range.

Additionally, the shareholders also approved an increase in authorized shares to 133,333,333 shares.

On October 1, 2024, the Company’s board of directors determined to effect the reverse stock split of the common stock at a 1-for-50 ratio (the “October Reverse Stock Split”) and approved an amendment (“October Reverse Stock Split Amendment”) to the Fourth Amended and Restated Articles of Incorporation of the Company to effect the October Reverse Stock Split.

Effective October 17, 2024, the Company amended its Fourth Amended and Restated Articles of Incorporation to implement the October Reverse Stock Split.

The Company's common stock began trading on a split-adjusted basis when the market opened on October 17, 2024 (the "October Effective Date").

As a result of the October Reverse Stock Split, at 12:01 a.m.

Central Time on the October Effective Date, every 50 shares of common stock then issued and outstanding automatically were combined into one share of common stock, with no change in par value per share.

No fractional shares were outstanding following the Reverse Stock Split, and any fractional shares that would have resulted from the October Reverse Stock Split were settled in cash.

The number of shares of common stock outstanding was reduced from 67,260,696 to 1,344,841, with 372.92 fractional shares payable in cash totaling $1,891.

The total number of shares authorized for issuance was reduced from 133,333,333 to 2,666,667 in proportion to the October Reverse Stock Split ratio.

The number of shares authorized for issuance was later increased to 25,000,000 as a result of the Reincorporation.

Effective as of the same time as the June 2024 Reverse Stock Split and October 2024 Reverse Stock Split (collectively known as the “Reverse Stock Splits”), the number of shares of common stock available for issuance under the Company's equity compensation plans were automatically reduced in proportion to the Reverse Stock Splits ratio.

Upon effectiveness, the Reverse Stock Splits also resulted in reductions in the number of shares of common stock issuable upon exercise or vesting of equity awards in proportion to the Reverse Stock Splits ratios and caused a proportionate increase in exercise price or share-based performance criteria, if any, applicable to such awards.

Forward Looking Statements

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The Company records interest and penalties related to income taxes as income tax expense in the consolidated statements loss and comprehensive loss.

Accounting for Business Combinations:

We record all acquired assets and liabilities, including goodwill, other identifiable intangible assets, contingent value rights and contingent consideration at fair value.

The initial recording of goodwill, other identifiable intangible assets, contingent value rights and contingent consideration, requires certain estimates and assumptions concerning the determination of the fair values and useful lives.

The judgments made in the context of the purchase price allocation can materially affect our future results of operations.

The valuations calculated from estimates are based on information available at the acquisition date.

Goodwill is not amortized, but is subject to annual tests for impairment or more frequent tests if events or circumstances indicate it may be impaired.

Other intangible assets are amortized over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount.

The contingent consideration and contingent value rights liability are adjusted to fair value each reporting period with any adjustments recorded within the statement of operations.

For additional details, see Note 3, Business Combinations and Note 10, Goodwill and Intangible Assets.

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the assets acquired and liabilities assumed from acquisitions.

We test goodwill for impairment annually on October 1 or more frequently if events and circumstances warrant.

Such events and circumstances may be a significant change in our business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition or changes in strategy.

Such events and circumstances may be a significant change

in our business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition or changes in strategy.

We perform our goodwill impairment test at the reporting unit level, which is the same as our operating segments.

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If the market multiples or revenue value assumptions are incorrect, our goodwill impairment evaluation could also be adversely affected, and we may impair a portion or all of our goodwill, which would adversely affect our operating results in the period of impairment.

No goodwill impairment was recorded during the years ended December 31, 2023 and 2022.

As of October 1, 2024, we performed a qualitative assessment to evaluate any circumstances and events impacting our reporting units to determine the likelihood of goodwill impairment.

We concluded it was more likely than not that the fair value of our reporting units exceeded its carrying value.

To corroborate this conclusion, we compared the carrying value of our reporting units to a valuation of our outstanding equity including consideration of a reasonable control premium.

During the fourth quarter of 2024, as a result of a material decline in our stock price and forecasted revenues and operating results, we performed an interim quantitative analysis as of December 31, 2024.

Based on the results of this analysis, we concluded that the fair value of our HEC reporting unit did not exceed its carrying value as of December 31, 2024 and recorded an impairment loss of $3.1 million in our consolidated statements of operations, reducing our HEC goodwill balance to $6.7 million and our consolidated goodwill balance to $17.4 million.

There was no impairment indication within our SUNation reporting unit as there was adequate cushion of 80% between the fair value and carrying value of the reporting unit.

No goodwill impairment was recorded during the year ended December 31, 2023.

Convertible Preferred Stock and Warrants:

In March 2022, the Company issued shares of Series A convertible preferred stock (the “Convertible Preferred Stock”) and warrants (the “PIPE Warrants”) to investors as part of a $32.0 million private investment in public equity (“PIPE”) transaction.

In March 2022, the Company issued shares of Series A convertible preferred stock (the “Convertible Preferred Stock”) and PIPE Warrants to investors as part of a $32.0 million private investment in public equity (“PIPE”) transaction.

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

The Company accounts for the Convertible Preferred Stock and PIPE Warrants based on an assessment of the specific terms and applicable authoritative guidance in Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity”, and ASC 815, “Derivatives and Hedging”.

The Convertible Preferred Stock is reported as part of permanent equity and the PIPE Warrants were determined to be equity-classified.

The Convertible Preferred Stock was originally reported as part of permanent equity and the PIPE Warrants were originally determined to be equity-classified.

As discussed in Notes 2 and 12, the Convertible Preferred Stock and PIPE Warrants were modified during the first quarter of 2024, which resulted in the Company not having sufficient authorized and unissued shares to settle the conversion and exercise to common stock and the reclassification of the Convertible Preferred Stock to mezzanine equity and the PIPE Warrants to a liability.

During the third quarter of 2024, the Company received the appropriate shareholder approval on an increase in authorized shares and the Convertible Preferred Stock and PIPE Warrants were reclassified to equity.

Embedded Derivative Liability:

The Company’s Decathlon Fixed Loan includes a mandatory prepayment feature upon a contingent event that is considered an embedded derivative that requires bifurcation under ASC 815.

The Company’s Conduit and MBB loans include an acceleration of amounts outstanding under the loan agreements upon an event of default or if the Company consummates one or more equity offerings meeting certain criteria that is considered an embedded derivative that requires bifurcation.

Under ASC 815, the embedded derivative is bifurcated and recorded at fair value at inception and each subsequent reporting period.

However, based on management’s estimates of the likelihood of certain events, the embedded derivative liability related to the Decathlon Fixed Loan had no fair value at issuance and at the end of December 31, 2023.

As of December 31, 2024, the fair value of this embedded derivative was ascribed value.

See further discussion in Note 9.

The Conduit and MBB embedded derivatives were ascribed a fair value at issuance and were fair valued at December 31, 2024 with the change in fair value recorded within Other (expense) income within the condensed consolidated statements of operations and comprehensive income (loss).

Results of Operations

2023 Compared to 2022

The consolidated results herein reflect the historical operating results of Pineapple Energy prior to the merger and the consolidated results of CSI (excluding the discontinued operations of JDL & Ecessa), Pineapple Energy, HEC and E-Gear following the Closing on March 28, 2022 and the results of SUNation following the closing on its acquisition on November 9, 2022.

Consolidated sales were $79,632,709 in 2023 and $27,522,099 in 2022.

As Pineapple Energy had limited revenue in the first quarter of the prior year, the increase in sales was due to the merger, the HEC Asset Acquisition and the acquisition of SUNation during 2022.

Consolidated Results

The following table summarizes our consolidated results for the years ended December 31, 2024 and 2023:

Cost of sales

Operating expenses:

Selling, general and administrative expenses

Amortization expense

Fair value remeasurement of SUNation earnout consideration

Goodwill impairment loss

Intangible asset impairment loss

Total operating expenses

Operating loss from continuing operations

Other (expense) income:

Investment and other income

(Loss) gain on sale of assets

Fair value remeasurement of warrant liability

Fair value remeasurement of embedded derivative liability

Fair value remeasurement of contingent value rights

Interest expense

Loss on debt extinguishment

Other (expense) income, net

Operating loss from continuing operations before income taxes

Income tax expense

Net loss from continuing operations

Net loss from discontinued operations, net of tax

Consolidated sales decreased 29% to $56,861,753 in 2024 from $79,632,709 in 2023, with declines in all revenue streams.

The overall decrease in consolidated sales is due to overall industry contraction in the residential solar market.

On a consolidated basis, overall kilowatts installed on residential projects decreased 12% in 2024 from 2023 with a 18% decrease in price per watt due to lower battery kilowatts installed within HEC.

Consolidated gross profit decreased 26% to $20,426,244 in 2024 as compared to gross profit of $27,696,190 in 2023 due primarily to the decrease in revenue at both SUNation and HEC.

Gross margin increased to 35.9% in 2024 compared to 34.8% in 2023.

Consolidated operating expenses decreased 6.9% to $32,743,647 in 2024 as compared to $35,163,055 in 2023.

Consolidated selling, general and administrative expenses decreased 6.9% to $27,054,166 in 2024 from $29,074,578 in 2023, due primarily to a $1,830,189 decrease in selling, general and administrative costs associated with SUNation and HEC.

Corporate general and administrative expenses decreased 2.6% or $190,223 to $7,257,844 due primarily to a $1,103,039 decrease in expenses associated with Legacy CSI assets and a $1,183,954 decrease in stock compensation expense, partially offset by $1,300,000 in expense on loss contingencies related to certain prior securities issuances and an increase in legal and professional fees on the corporate restructuring efforts during 2024.

Amortization expense decreased by $1,900,977 to $2,837,500 in 2024 due to the completion of the amortization of certain intangible assets in late 2023.

The fair value remeasurement related to the SUNation acquisition earnout consideration in 2024 was a gain of $1,000,000 compared to a loss of $1,350,000 in 2023.

The Company also recorded a $3,101,981 goodwill impairment loss within the HEC segment and a $750,000 intangible asset impairment loss during 2024 related to technology related intangible assets within the HEC segment.

Consolidated other income decreased $5,031,926 to expense of $(4,385,777) in 2024 as compared to income of $646,149 in 2023.

The decrease was related to a $429,933 increase in interest and accretion expense, a $974,823 fair value remeasurement loss on the embedded derivative liability, a $2,152,709 decrease in fair value remeasurement gain on the CVRs, a $974,823 fair value remeasurement loss on the warrant liability, and a $437,938 decrease in gain on sale of assets.

Consolidated operating loss from continuing operation s before income taxes in 2024 was $15,814,986, compared to a consolidated operating loss from continuing operations before income taxes of $6,820,716 in 2023.

Net loss from continuing operations attributable to shareholders in 2024 (after taking into effect $11,587,121 in deemed dividends) was $27,436,926, or ($50.58) per diluted share.

Net loss from continuing operations in 2023 was $6,939,892, or ($521.89) per diluted share from continuing operations.

SUNation Operating Results

SUNation sales decreased 24% or $12,630,348, to $39,733,362 in 2024 as compared to $52,363,710 in 2023.

Sales in 2024 and 2023 by type were as follows:

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Service revenue

Residential contract sales decreased $8,611,153, or 22%, due to a 12% reduction in residential kilowatts installed and a decrease in average price per system installed as result of lower financing fees.

Overall the acceleration of projects in the last quarter of 2023 led to approval bottlenecks at the outset of 2024 which was further hampered by some supply chain disruption from a change in suppliers.

The residential market within the solar industry has seen an overall decline in installations due to higher interest rates in the first 9 months of 2024.

Commercial contract sales decreased $3,202,968, or 32%, due timing of commercial projects where the prior year had some larger projects complete early in 2023 and there were delays in the current year in the start of commercial pipeline projects into the second half of 2024.

Gross profit decreased 22% to $15,093,668 in 2024 as compared to gross profit of $19,370,809 in 2023 due primarily to the decrease in revenue.

Gross margin increased to 38.0% in 2024 compared to 37.0% in 2023 due primarily to an increase in residential gross margins on lower financing fees in 2024.

Selling, general and administrative expenses decreased 6% to $15,265,443 in 2024 (38% as a percentage of sales) as compared to $16,178,126 in 2023 (31% as a percentage of sales), due primarily to a decrease in personnel costs on lower headcount.

Amortization expense decreased 40% to $812,500 in 2024 as compared to $1,362,500 in 2023 due to certain intangible assets becoming fully amortized at the end of 2023.

HEC Operating Results

HEC sales decreased 37% or $10,140,608, to $17,128,391 in 2024 as compared to $27,268,999 in 2023.

Sales in 2024 and 2023 by type were as follows:

Revenue by Type

Residential contracts

Commercial contracts

Service revenue

Software revenue

Consolidated gross profit increased to $27,696,190 in 2023 as compared to gross profit of $7,377,445 in 2022 due to the increase in revenue through acquisitions.

Gross margin increased to 34.8% in 2023 compared to 26.8% in 2022 due to the SUNation acquisition, normalization of the supply chain and an overall decrease in product costs.

Consolidated operating expenses, which include selling, general and administrative expenses, amortization expense, transaction costs and a fair value remeasurement loss on SUNation earnout consideration increased 97.3% to $35,163,055 in 2023 as compared to $17,826,124 in 2022.

Consolidated selling, general and administrative expenses increased to $29,072,558 in 2023 from $12,211,135 in 2022, due primarily to a $16,038,900 increase in selling, general and administrative costs associated with acquired businesses.

Amortization expense increased by $1,605,017 to $4,738,477 in 2023 due to additional intangible assets acquired through acquired businesses.

Transaction costs decreased by $2,229,509 to $2,020 in 2023, due to the consummation

of the merger and the HEC Asset Acquisition in the first quarter of 2022 and limited activity in 2023.

There was also a $1,350,000 fair value remeasurement loss related to the SUNation acquisition earnout consideration in 2023.

Consolidated other income decreased $6,536,711 to $646,149 in 2023 as compared to $7,182,860 in 2022.

The decrease was related to a $4,684,000 gain on the fair value remeasurement of the merger earnout consideration in 2022, a $792,767 decrease in the gain on sale of assets in 2023 compared to the same period of 2022 and a $1,680,911 increase in interest and accretion expense, partially offset by a $549,017 increase in fair value remeasurement gain on the CVRs.

Consolidated operating loss from continuing operation s before income taxes in 2023 was $6,820,716, compared to a consolidated operating loss from continuing operations before income taxes of $3,265,819 in 2022.

Net loss from continuing operations in 2023 was $6,939,892, or ($0.69) per diluted share.

Net loss attributable to common shareholders in 2022 (after taking into effect $16,863,892 in deemed dividends) was $27,216,132, or ($2.99) per diluted share from continuing operations.

Residential contract sales decreased $8,871,328, or 36%, due to a 12% reduction in residential kilowatts installed and a decrease in average price per system installed as result of a 51% decrease in battery capacity installed.

In the first half of 2024, the Battery Bonus program in Hawaii ended.

Under this program, customers were paid a cash incentive and provided energy bill credits to add energy storage to an existing or new rooftop solar system.

Commercial contract sales decreased $951,207, or 32%, due to timing of projects.

HEC has limited commercial projects and the revenue from this revenue stream can fluctuate year over year.

The decrease in software revenue is due to a licensing arrangement for the use of software in 2023.

Gross profit decreased 36% to $5,332,577 in 2024 as compared to gross profit of $8,325,381 in 2023 due primarily to the decrease in revenue.

Gross margin increased slightly to 31.1% in 2024 compared to 30.5% in 2023.

Selling, general and administrative expenses decreased 17% to $4,530,879 in 2024 (26% as a percentage of sales) as compared to $5,448,385 in 2023 (20% as a percentage of sales), due primarily to a decrease in commissions expense and gross excise taxes on lower revenue.

Liquidity and Capital Resources

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The remainder in cash and cash equivalents is operating cash.

The Company also had $0 in investments consisting of corporate notes and bonds that are traded on the open market and are classified as available-for-sale at December 31, 2023.

Of the amounts of cash, restricted cash, and restricted cash equivalents on the balance sheet at December 31, 2023, $1,821,060 consist of funds that 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.

Of the amounts of cash, restricted cash, and restricted cash equivalents on the balance sheet at December 31, 2024, $312,080 consist of funds that 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 SUNation Energy business.

The Company had working capital of $(16,051,658), consisting of current assets of approximately $11,110,385 and current liabilities of $27,162,043 at December 31, 2024 compared to working capital of $(6,594,834), consisting of current assets of $15,778,648 and current liabilities of $22,373,482 at the end of 2023.

Cash flow used in operating activities was approximately $6,302,686 in 2024 compared to $667,177 used in 2023.

Significant working capital changes from 2022 to 2023 included a decrease in other accrued liabilities of $4,494,247, a decrease in other assets of $3,333,146, a decrease in inventory of $2,475,825, and a decrease in customer deposits of $2,172,766.

$1,584,541 of the decrease in other assets and $2,181,761 of the decrease in other accrued liabilities was related to the receipt and payment out of the employee retention credit receivable and other related party payables.

Other accrued liabilities also decreased by approximately $2.3 million due to a decrease in billings in excess of costs and estimated earnings as commercial projects were completed during the year.

Cash provided by investing activities was $3,567,278 in 2023 compared to $3,097,406 provided in 2022.

The negative cash flow from operations is primarily driven by the decrease in the Company’s operating profit and the increase in interest expense.

Significant working capital changes in 2024 included a decrease in inventories of $853,518, an increase in other accrued liabilities of $1,402,564 due to the $1,300,000 accrual for loss contingencies, a decrease in accrued compensation and benefits for $563,333, and an increase in other assets of $577,872, primarily due to an increase in costs and estimated earnings in excess of billings on commercial projects in process at year end.

Cash used in investing activities was $26,667 in 2024 compared to $3,567,278 provided in 2023.

Net cash provided in 2023 was the result of proceeds from the sale of investments and proceeds from the sale of the JDL and Ecessa assets included within discontinued operations, partially offset by capital expenditures.

Net cash used in 2022 was primarily related to $10,991,128 in net cash paid for the HEC Asset Acquisition, the merger, and the SUNation acquisition partially offset by $6,297,865 in proceeds from the sale of assets previously classified as held for sale and $1,500,000 in earnout consideration payments related to legacy CSI’s sale of its Electronics and Software segment in 2021.

Net cash used in financing activities was $2,760,236 in 2023 compared to $15,912,117 in 2022.

Net cash provided by financing activities was $2,084,358 in 2024 compared to $2,760,236 used in 2023.

Net cash provided by financing activities in 2024 was due to $1,000,000 in proceeds from the issuance of common stock under a registered direct offering, $2,457,352 in proceeds from the issuance of common stock under the at-the-market offering and $1,604,000 in borrowings from Conduit Capital US Holdings LLC (“Conduit”) and MBB Energy, LLC (“MBB”), partially offset by $1,595,364 in payments against loans payable and $856,736 in CVR distributions.

Net cash used in financing activities in 2023 was due to $3,036,676 in CVR distributions and $5,000,000 in payments against the SUNation Short-Term Note and $1,500,000 in payments against the Hercules Capital, Inc.

(“Hercules”) term loan, as discussed further in Note 9, Commitments and Contingencies, partially offset by $7,500,000 in borrowings from Decathlon Specialty Finance, LLC (“Decathlon”).

In 2022, the Company received $32,000,000 in proceeds from the issuance of convertible preferred stock and warrants to PIPE Investors and paid $2,699,370 in related issuance costs.

The Company also paid $8,745,628 in CVR distributions and $4,500,000 in principal against the Hercules term loan in 2022, as discussed further in Note 11, Commitments and Contingencies.

In connection with the SUNation Acquisition, on November 9, 2022, the Company issued a $5,000,000 Short-Term Limited Recourse Secured Promissory Note (the “Short-Term Note”) and a $5,486,000 Long-Term Promissory Note (the “Long-Term Note”).

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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 is paid in full.

The Short-Term Note was paid in full in conjunction

with the Decathlon loan.

The Long-Term Note is unsecured and matures on November 9, 2025.

It carries an annual interest rate of 4% until the first anniversary of issuance, then 8% thereafter until the Long-Term Note is paid in full.

The Company will be required to make a principal payment of $2.74 million on the second anniversary of the Long- Term Note.

The Short-Term Note was paid in full in conjunction with the Decathlon loan.

The Long-Term Note is unsecured and initially matured on November 9, 2025.

It carried an annual interest rate of 4% until the first anniversary of issuance, then 8% thereafter until the Long-Term Note is paid in full.

The Company was required to make a principal payment of $2.74 million on the second anniversary of the Long- Term Note.

The Long-Term Note may be prepaid at our option at any time without penalty.

As discussed above and in Note 3, Business Combinations and Note 11, Commitments and Contingencies, on November 9, 2022, the Company, in connection with the SUNation acquisition, paid $2.39 million in cash and entered into the Short-Term Note and the Long-Term Note.

Based on the Company’s current financial position, the Company’s forecasted future cash flows for twelve months beyond the date of issuance of the financial statements in this report 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.

On April 10, 2025, the original Long-Term Note was amended and restated as follows:

The principal amount of $5,486,000 previously due and payable under the original Long Term Note, together with all accrued and unpaid interest owing thereunder, shall be due and payable on May 1, 2028 (the “Maturity Date”), and such amended note shall become a senior secured instrument.

Principal and interest payments under the amended Long-Term Note shall be payable monthly on the first day of each month commencing with June 1, 2025 for thirty-six (36) consecutive months thereafter pursuant to the terms thereunder.

Additionally, pursuant to the terms of that certain Senior Secured Contingent Note Instrument, entered into on April 10, 2025, the unearned 2024 earnout was rescheduled and shall be based on the earnout terms set forth therein pursuant to the financial conditions and terms covering each of fiscal years 2024 and 2025 and, if attained, shall be payable in fiscal year 2026, which payment is further conditioned on the continued employment of the note holders at the time of such earnout payment trigger date.

Based on the Company’s current financial position, which includes approximately $0.3 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, and the Company’s forecasted future cash flows for twelve months beyond the date of issuance of these financial statements, substantial doubt exists around the Company’s ability to continue as a going concern for a reasonable period of time .

As noted in Note 17, Subsequent Events, the Company raised capital and satisfied certain outstanding debt obligations subsequent to year end, however there remains uncertainty related to our future cash flows as it relies on the ability to generate enough cash flow from its operating segments to cover the Company’s corporate overhead costs.

As a result, the Company requires a dditional funding and seeks to raise capital through sources that may include public or private equity offerings, debt financings and/or strategic alliances.

However, additional funding may not be available on terms acceptable to the Company, or at all.

On February 27, 2025, the Company entered into a securities purchase agreement with certain institutional investors for the purchase and sale of an aggregate of $20.0 million in securities, with $15.0 million in gross proceeds in the first closing on February 27, 2025 and $5.0 million in gross proceeds in the second closing on April 7, 2025.

While the Company was able to use the proceeds to pay off approximately $12.6 million in outstanding debt and contingent liability obligations, it was not sufficient to cover all of the Company’s current and future obligations.

Additional funding may not be available on terms acceptable to the Company, or at all.

If the Company is unable to raise additional funds, it would have a negative impact on the Company’s business, results of operations and financial condition.

To the extent that additional funds are raised through the sale of equity or securities convertible into or exercisable for equity securities, the issuance of securities will result in dilution to the Company’s shareholders.

Further, certain transactions could trigger an adjustment to the exercise price of the Convertible Preferred Stock and PIPE Warrants, which would lead to a corresponding increase in the number of shares of common stock issuable upon exercise of the PIPE Warrants, further diluting the Company’s shareholders.

Contingent Value Rights and Impact on Cash

As discussed in Note 3, Business Combinations, the Company issued CVRs prior to the closing of the merger to CSI shareholders of record on the close of business on March 25, 2022.

The Company issued CVRs prior to the closing of the merger to CSI shareholders of record on the close of business on March 25, 2022.

The CVR entitles the holder to 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 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.

This was extended again through December 31, 2025 by the Second Amendment to the Contingent Value Rights Agreement entered into on December 30, 2024.

The CVR liability as of December 31, 2024 was estimated at $312,080 and represented the estimated fair value as of that date of the legacy CSI assets to be distributed to CVR holders as of that date.

This amount is recorded as a long-term liability that includes the remaining restricted cash and cash equivalents, investments, along with the other tangible and intangible assets related to the legacy CSI business.

The proceeds from CSI’s pre-merger business working capital and related long term-assets and liabilities are not available to fund the working capital needs of the post-merger company.

This amount is recorded as a current liability that includes the remaining restricted cash and cash equivalents and payables related to the legacy CSI business.

The proceeds from CSI’s pre-merger business

working capital and related long term-assets and liabilities are not available to fund the working capital needs of the post-merger company.

New Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis