What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-23 compared with 2025-04-15 · 82 added, 131 removed, 124 unchanged (63% of the section changed)

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SUNation Energy Inc.

(formerly Communications Systems, Inc.

(“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”).

Following the closing of the merger (the “Closing”) the Company changed its name from Communications Systems, Inc.

to Pineapple Holdings, Inc.

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

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.

(herein referred to as “SUNation Energy,” “SUNE,” “our,” “we” or the “Company”) is a Delaware corporation, whose shares of Common Stock are listing on the Nasdaq Stock Market under its trading symbol “SUNE”.

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

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

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

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

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

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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

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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.

As a result of the June Reverse Stock Split 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.

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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.

As a result of the October Reverse Stock Split 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.

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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.

April 2025 Reverse Stock Split

On April 3, 2025, 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 1,000,000,000 shares.

On April 9, 2025, the Company’s board of directors determined to effect the reverse stock split of the common stock at a 1-for-200 ratio (the “April Reverse Stock Split”) and approved an amendment (“April Reverse Stock Split Amendment”) to its Certificate of Incorporation to effect the April Reverse Stock Split.

On April 16, 2025, the Company amended its Certificate of Incorporation to implement the April Reverse Stock Split.

The Company's common stock began trading on a split-adjusted basis when the market opened on April 21, 2025 (the "April Effective Date").

As a result of the April Reverse Stock Split on the April Effective Date, every 200 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 April Reverse Stock Split, and any fractional shares that would have resulted from the April Reverse Stock Split were rounded up to the nearest whole share.

The number of shares of common stock outstanding was reduced from 672,799,910 to 3,406,614.

The effects of the June 2024 Reverse Stock Split, October 2024 Reverse Stock Split, and April 2025 Reverse Stock Split (collectively known as the “Reverse Stock Splits”) have been applied retroactively and are reflected in this Annual Report on Form 10-K for all periods presented.

Following each of 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.

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The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

of revenues and expenses during the reporting period.

Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances.

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Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

Income Taxes:

In the preparation of the Company’s consolidated financial statements, management calculates income taxes.

This includes estimating the Company’s current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes.

These differences result in deferred tax assets and liabilities, which are recorded on the balance sheet.

These assets and liabilities are analyzed regularly and management assesses the likelihood it will realize these deferred assets from future taxable income.

We determine the valuation allowance for deferred income tax benefits based upon the expectation of whether the benefits are more likely than not to be realized.

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

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.

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 third quarter of 2025, as a result of a material decline forecasted revenues and operating results due to the implications of the OBBBA, we performed an interim quantitative analysis as of September 30, 2025.

Based on the results of this analysis, we concluded that there was no impairment indication within our HEC and SUNation NY reporting units between the fair value and carrying value of the reporting units.

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 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 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).

There was no impairment indication within our SUNation NY reporting unit.

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 for the asset 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.

During the third quarter of 2025, as a result of the OBBBA, the Company performed an impairment test on the tradenames and trademarks intangible assets associated with both the HEC and SUNation NY reporting units as of September 30, 2025.

The Company performed the analysis under ASC 360 and no impairment charge was realized.

Results of Operations

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Amortization expense

Fair value remeasurement of SUNation earnout consideration

Fair value remeasurement of SUNation NY earnout consideration

Goodwill impairment loss

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Investment and other income

(Loss) gain on sale of assets

Loss on sale of assets

Fair value remeasurement of warrant liability

Fair value remeasurement of embedded derivative liability

Fair value remeasurement of contingent forward contract

Fair value remeasurement of contingent value rights

Financing fees

Interest expense

Loss on debt extinguishment

Other (expense) income, net

Other expense, 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.

Consolidated sales increased 26% to $71,905,527 in 2025 from $56,861,753 in 2024, with a 31% increase within residential contract revenue and a 19% increase in service revenue, partially offset by a 1% decrease in commercial revenue.

On a consolidated basis, overall kilowatts installed on residential projects increased 31% and revenue per residential installation increased 31% in 2025 as compared to 2024.

The overall increase in residential revenue is driven by increased customer demand to install solar systems prior to the expiration of federal tax credits at December 31, 2025 under the passing of the One Big Beautiful Bill Act.

Consolidated gross profit increased 35% to $27,544,213 in 2025 as compared to gross profit of $20,426,244 in 2024 due primarily to the increase in revenue an improvement in residential margins.

Gross margin increased to 38.3% in 2025 compared to 35.9% in 2024.

Consolidated operating expenses decreased 10.8% to $29,217,250 in 2025 as compared to $32,743,647 in 2024.

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.

Consolidated selling, general and administrative expenses decreased 0.3% to $26,979,750 in 2025 from $27,054,166 in 2024, due primarily to a decrease in Corporate selling, general and administrative costs, partially offset by increases at HEC and SUNation NY.

Corporate general and administrative expenses decreased 17.7% or $1,281,827 to $5,976,017 due primarily to $1,300,000 in expense in the prior year on loss contingencies related to certain prior securities issuances.

Amortization expense decreased by $600,000 to $2,237,500 in 2025 due to the write down of the technology intangible asset at HEC at December 31, 2024, resulting in lower amortization expense in the current year.

There was a $1,000,000 decrease in a fair value remeasurement gainrelated to the SUNation NY acquisition earnout consideration in 2025 as compared to 2024.

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.

Consolidated other expense increased $5,671,073 to expense of $9,168,656 in 2025 as compared to income of $3,497,583 in 2024.

The increase was primarily related to a $6,556,221 increase in the fair value remeasurement loss on the warrant liability, $1,294,090 in financing fees primarily on the issuance of the contingent forward contract and issuance of Series A and Series B warrants, a $486,178 decrease in fair value remeasurement gain on the contingent value rights (“CVRs”), and a $307,814 increase in loss on debt extinguishment, partially offset by a $65,617 decrease in fair value remeasurement loss on the embedded derivative liability, a $899,080 increase in fair value remeasurement gain on the contingent forward contract, and a $2,045,615 decrease in interest expense.

Consolidated operating loss before income taxes in 2025 was $10,841,693, compared to a consolidated operating loss before income taxes of $15,814,986 in 2024.

Net loss in 2025 was $10,892,833, or ($4.38) per diluted share.

Net loss attributable to shareholders in 2024 (after taking into effect $11,587,121 in deemed dividends) was $27,436,926, or ($10,110.93) per diluted share from continuing operations.

SUNation NY Operating Results

SUNation NY sales increased 25% or $9,866,949, to $49,600,311 in 2025 as compared to $39,733,362 in 2024.

Sales in 2025 and 2024 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.

Residential contract sales increased $9,500,242, or 31%, due to a 25% increase in systems installed and a 40% increase in kilowatts installed.

Commercial contract sales increased $194,454, or 3%, due primarily to the timing of commercial projects.

Gross profit increased 34% to $20,166,363 in 2025 as compared to gross profit of $15,093,667 in 2024 due primarily to the increase in revenue and additional increase in gross margin.

Gross margin increased to 40.7% in 2025 compared to 38.0% in 2024 due primarily to revenue mix with higher margin residential revenue making a larger percentage of the total revenue in 2025 as compared to 2024.

The higher residential margins are driven by lower material costs as a percentage of sales.

Selling, general and administrative expenses increased 6% to $16,237,256 in 2025 (33% as a percentage of sales) as compared to $15,265,443 in 2024 (38% as a percentage of sales), due primarily to an increase in selling and marketing expenses on higher residential contract revenue, partially offset by a decrease in personnel costs on lower headcount.

Amortization expense remained flat at $812,500 in 2025 as compared to 2024.

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.

HEC sales increased 30% or $5,176,825, to $22,305,216 in 2025 as compared to $17,128,391 in 2024.

Sales in 2025 and 2024 by type were as follows:

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Service revenue

Software revenue

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.

Residential contract sales increased $5,009,362, or 31%, despite a 2% decrease in systems installed, due to a 9% increase in kilowatts installed, a 66% increase in battery capacity installed and a 20% increase in price per watt installed.

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

Battery installations decreased when this incentive went away.

In May 2025, Hawaii implemented a new BYOD Plus program.

The impact of this new program was realized in third quarter installations.

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.

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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.

Service revenue increased $407,028, or 57%, due to an increase in repair and replacement installations.

Gross profit increased 38% to $7,377,850 in 2025 as compared to gross profit of $5,332,577 in 2024 due primarily to the increase in revenue and improvement in gross margins.

Gross margin increased slightly to 33.1% in 2025 compared to 31.1% in 2024 due primarily to a decrease in material and labor costs as a percentage of revenue.

Selling, general and administrative expenses increased 5% to $4,766,477 in 2025 (21% as a percentage of sales) as compared to $4,530,879 in 2024 (26% as a percentage of sales), due primarily to an increase in commissions expense and gross excise taxes on higher revenue.

Liquidity and Capital Resources

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The remainder in cash and cash equivalents is operating cash.

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.

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

The Company had working capital of $1,066,408, consisting of current assets of approximately $16,473,979 and current liabilities of $15,407,571 at December 31, 2025 compared to a working capital deficit of $(16,051,658), consisting of current assets of $11,110,385 and current liabilities of $27,162,043 at December 31, 2024.

Cash flow provided by operating activities was approximately $954,978 in 2025 compared to $6,302,686 used in operating activities in 2024.

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

Significant working capital changes in 2025 included a $575,858 decrease in accounts receivable, $1,720,872 increase in accrued compensation and benefits related to the earnout liability as discussed further in Note 8, Commitments and Contingencies, and a $635,556 decrease in accrued interest.

Cash used in investing activities was $48,594 in 2025 compared to $26,667 used in 2024 primarily related to capital expenditures.

Net cash provided by financing activities was $5,124,612 in 2025 compared to $2,084,358 provided in 2024.

Net cash provided by financing activities in 2025 was due to $17,871,964 in net proceeds from the issuance of common stock under a registered

direct offering and $351,372 in proceeds from the issuance of common stock under the at-the-market offering, partially offset by $10,081,464 in payments against loans payable, $2,500,000 in payments of contingent consideration $267,391 in payments for the termination of warrants, and $276,000 in CVR distributions.

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 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”).

The Short-Term Note was secured as described below 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 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 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.

In connection with the SUNation NY acquisition, on November 9, 2022, the Company issued a $5,486,000 Long-Term Promissory Note (the “Long-Term Note”).

The Long-Term Note was unsecured and 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 was 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.

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.

On April 10, 2025, the Long-Term Note was amended and restated whereby 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, and such amended note became a senior secured instrument.

Principal and interest payments under the amended Long-Term Note are payable monthly on the first day of each month commencing on June 1, 2025 for thirty-six consecutive months thereafter.

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 is 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 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 Notes 8 and 11, the Company raised capital and satisfied certain outstanding debt obligations during 2025, 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.

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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 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.

The CVRs were settled during the fourth quarter of 2025, with a final distribution payment of $276,000 in December 2025.

There are no further obligations during the CVRs.

New Accounting Pronouncements

2 unchanged sentences

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 7. Management’s Discussion and Analysis