Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Overview
SUNation Energy Inc. (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. 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.
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. 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.
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 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.
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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 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.
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.
Forward Looking Statements
In this report and from time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We may make these forward-looking statements concerning possible or anticipated future financial performance, business activities, plans, pending claims, investigations or litigation, which are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could cause actual performance, activities, anticipated results, outcomes or plans to differ significantly from those indicated in the forward-looking statements. For a detailed discussion of a number of these risk factors, please see Item 1A, “Risk Factors,” of this Annual Report on Form 10-K.
Critical Accounting Estimates
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
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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. Actual results may differ from these estimates and such differences could be material to our financial position and results of operations. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.
While our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included elsewhere in this report, we believe the following discussion addresses our most critical accounting estimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results. 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.
Goodwill: 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. We perform our goodwill impairment test at the reporting unit level, which is the same as our operating segments.
An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is "more-likely-than not" that the fair value is less than the carrying value, a quantitative assessment of goodwill is required. The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit. The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill. We estimate the reporting units’ fair value using a combination of the income approach based upon projected discounted cash flows of the reporting unit and the market approach based upon the market multiple of comparable publicly traded companies. If the estimated fair value of the reporting entity exceeds the carrying value, the goodwill is not impaired, and no further review is required. However, if the carrying value exceeds the estimated fair value of the reporting unit, an impairment expense should be recognized for the excess of the carrying value over the fair value.
Under the income approach, the estimated discounted cash flows are based on the best information available to us at the time, including supportable assumptions and projections we believe are reasonable. Our discounted cash flow estimates use discount rates that correspond to a weighted-average cost of capital consistent with a market-participant view. Certain other key assumptions utilized, including revenue and cash flow projections, are based on estimates consistent with those utilized in our annual budgeting and planning process that we believe are reasonable. However, if we do not achieve the results reflected in the assumptions and estimates, our goodwill impairment evaluations could 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.
The market approach identifies the revenue multiples of comparable publicly traded companies. The reporting unit’s revenue projections are multiplied by the market multiple to estimate its current estimated fair value. 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.
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 NY reporting unit.
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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
2025 Consolidated Results
The following table summarizes our consolidated results for the years ended December 31, 2025 and 2024:
2025
2024
Change
Amount
% of Sales
Amount
% of Sales
$
%
Sales
$
71,905,527
100%
$
56,861,753
100%
$
15,043,774
26%
Cost of sales
44,361,314
62%
36,435,509
64%
7,925,805
22%
Gross profit
27,544,213
38%
20,426,244
36%
7,117,969
35%
Operating expenses:
Selling, general and administrative expenses
26,979,750
38%
27,054,166
48%
(74,416)
0%
Amortization expense
2,237,500
3%
2,837,500
5%
(600,000)
-21%
Fair value remeasurement of SUNation NY earnout consideration
—
0%
(1,000,000)
-2%
1,000,000
-100%
Goodwill impairment loss
—
0%
3,101,981
5%
(3,101,981)
-100%
Intangible asset impairment loss
—
0%
750,000
1%
(750,000)
-100%
Total operating expenses
29,217,250
41%
32,743,647
58%
(3,526,397)
-11%
Operating loss from continuing operations
(1,673,037)
-2%
(12,317,403)
-22%
10,644,366
-86%
Other (expense) income:
Investment and other income
106,625
0%
144,529
0%
(37,904)
-26%
Loss on sale of assets
—
0%
(822)
0%
822
-100%
Fair value remeasurement of warrant liability
(7,531,044)
-10%
(974,823)
-2%
(6,556,221)
673%
Fair value remeasurement of embedded derivative liability
—
0%
(65,617)
0%
65,617
-100%
Fair value remeasurement of contingent forward contract
899,080
1%
—
0%
899,080
Fair value remeasurement of contingent value rights
36,079
0%
522,257
1%
(486,178)
-93%
Financing fees
(1,294,090)
-2%
—
0%
(1,294,090)
Interest expense
(1,041,835)
-1%
(3,087,450)
-5%
2,045,615
-66%
Loss on debt extinguishment
(343,471)
0%
(35,657)
0%
(307,814)
863%
Other expense, net
(9,168,656)
-13%
(3,497,583)
-6%
(5,671,073)
162%
Operating loss from continuing operations before income taxes
(10,841,693)
-15%
(15,814,986)
-28%
4,973,293
-31%
Income tax expense
51,140
0%
34,819
0%
16,321
47%
Net loss
$
(10,892,833)
-15%
(15,849,805)
-28%
$
4,956,972
-31%
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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 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 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:
Revenue by Type
2025
2024
Residential contracts
$
40,215,497
$
30,715,255
Commercial contracts
6,894,923
6,700,469
Service revenue
2,489,891
2,317,638
$
49,600,311
$
39,733,362
Residential contract sales increased $9,500,242, or 31%, due to a 25% increase in systems installed and a 40% increase in kilowatts installed. 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. 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.
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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 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:
Revenue by Type
2025
2024
Residential contracts
$
20,993,980
$
15,984,618
Commercial contracts
189,694
429,259
Service revenue
1,121,542
714,514
$
22,305,216
$
17,128,391
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. Commercial contract sales decreased $239,565, or 56%, due to timing of projects. HEC has limited commercial projects and the revenue from this revenue stream can fluctuate year over year. 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
As of December 31, 2025, the Company had approximately $7,182,344 in cash, restricted cash and cash equivalents, and liquid investments, compared to $1,151,348 at December 31, 2024. Of this amount, $665,582 was invested in short-term money market funds that are not considered to be bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or other government agency. These money market funds seek to preserve the value of the investment at $1.00 per share; however, it is possible to lose money investing in these funds. The remainder in cash and cash equivalents is operating cash.
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
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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.
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 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. 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.
Contingent Value Rights and Impact on Cash
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 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
See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included elsewhere in this report for a discussion of new accounting standards.
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Off Balance Sheet Arrangements
None.