Pineapple Energy Inc

Previous wording

our common stock may be delisted from Nasdaq if we cannot increase the share price within the time period and for the duration as required by Nasdaq;

Current wording

our common stock may be delisted from Nasdaq if we cannot maintain compliance with the applicable listing standards;

Previous wording

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

Current wording

Pineapple’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 and commercial 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.

Previous wording

Consolidated sales decreased $8,846,227, or 40.1%, to $13,219,197 in the first quarter of 2024 from $22,065,424 in the first quarter of 2023. Sales in the first quarter of 2024 and 2023 by type were as follows:

Current wording

Consolidated sales decreased $6,286,871, or 31.7% to $13,549,420 in the second quarter of 2024 from $19,836,291 in the second quarter of 2023. Sales in the second quarter of 2024 and 2023 by type were as follows:

Previous wording

Residential contract sales decreased $6,743,799, or 37%, due to a 29% reduction in residential kilowatts installed and also a decrease in average price per system installed as result of lower financing fees and lower battery attachment rate. Commercial contract sales decreased $1,830,586, or 65%, due to a delay in the start of commercial pipeline projects. The software revenue in the first quarter of 2023 is related to a licensing arrangement for the use of software.

Current wording

Residential contract sales decreased $2,691,079, or 18%, due to a 7% reduction in residential kilowatts installed and also a decrease in average price per system installed as result of lower financing fees and lower battery attachment rate. The residential market within the solar industry is seeing an overall decline in installations due to higher interest rates. Commercial contract sales decreased $3,268,061, or 87%, due to a delay in the start of commercial pipeline projects into the second half of 2024.

Previous wording

Consolidated gross profit decreased to $4,805,448 in the first quarter of 2024 as compared to gross profit of $8,006,315 in the first quarter of 2023 due primarily to the decrease in revenue during the quarter. Gross margin remained flat at 36% during the first quarter of 2024 as compared to the first quarter of 2023.

Current wording

Consolidated gross profit decreased to $4,792,354 in the second quarter of 2024 as compared to gross profit of $7,136,934 in the second quarter of 2023 due primarily to the decrease in revenue during the quarter. Gross margin decreased slightly to 35% during the second quarter of 2024 as compared to 36% in the second quarter of 2023.

Previous wording

Consolidated operating expenses, which include selling, general and administrative expenses, amortization expense, transaction costs and a fair value remeasurement gain of SUNation earnout consideration, decreased to $6,988,402 in the first quarter of 2024 as compared to $10,155,841 in the first quarter of 2023. Consolidated selling, general and administrative expenses decreased $1,433,096, or 18%, to $6,629,027 in the first quarter of 2024 from $8,062,123 in the first quarter of 2023, due primarily to decreased sales and marketing expense, including commissions, on lower revenue in the quarter, and decreased personnel expenses on lower headcount. Amortization expense decreased by $557,323 to $709,375 in the first quarter of 2024 as compared to $1,266,698 in the same period of the prior year 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 the first quarter of 2023 was a gain of $350,000 compared to a loss of $825,000 in the same period of the prior year.

Current wording

Consolidated operating expenses, which include selling, general and administrative expenses, amortization expense, transaction costs and a fair value remeasurement gain of SUNation earnout consideration, decreased to $13,806,700 in the first six months of 2024 as compared to $18,708,095 in the first six months of 2023. Consolidated selling, general and administrative expenses decreased $2,104,728, or 14%, to $13,187,950 in the first six months of 2024 from $15,292,678 in the first six months of 2023, due primarily to a $427,259 decrease in stock compensation expense, decreased sales and marketing expense, including commissions, on lower revenue in the quarter, and decreased personnel expenses on lower headcount. Amortization expense decreased by $1,064,647 to $1,418,750 in the first six months of 2024 as compared to $2,483,397 in the same period of the prior year 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 the first six months of 2024 was a gain of $800,000 compared to a loss of $930,000 in the same period of the prior year.

Previous wording

Consolidated other income (expense) increased by $3,836,181 to income of $3,391,767 in the first quarter of 2024 as compared to $444,414 in expense in the first quarter of 2023. The increase was primarily related to a $3,728,593 fair value remeasurement gain on the warrant liability and a $626,085 increase in fair value remeasurement gain on the contingent value rights (“CVRs”), partially offset by a $306,652 increase in interest and accretion expense.

Current wording

Consolidated other (expense) income decreased by $2,157,139 to expense of $1,522,937 in the first six months of 2024 as compared to $634,202 in income in the first six months of 2023. The decrease was primarily related to a $442,950 increase in interest and accretion expense, a $1,055,600 fair value remeasurement loss on the embedded derivative liability, and a $899,335 decrease in fair value remeasurement gain on the CVRs, partially offset by a $461,022 fair value remeasurement gain on the warrant liability.

Previous wording

Consolidated operating loss from continuing operations in the first quarter of 2024 was $2,182,954 as compared to $2,149,526 in the first quarter of 2023. Net loss from continuing operations attributable to shareholders in the first quarter of 2024 (after taking into effect $11,322,639 in deemed dividends) was $10,119,988, or $(0.26) per diluted share, compared to net loss from continuing operations of $2,599,672, or $(0.26) per diluted share, in the first quarter of 2023.

Current wording

Consolidated operating loss from continuing operations in the first six months of 2024 was $4,208,898 as compared to $3,564,845 in the first six months of 2023. Net loss from continuing operations attributable to shareholders in the first six months of 2024 (after taking into effect $11,322,639 in deemed dividends) was $17,054,003, or $(3.83) per diluted share, compared to net loss from continuing operations of $2,933,481, or $(4.43) per diluted share, in the first six months of 2023.

Previous wording

As of March 31, 2024, the Company had $3,292,451 in cash, restricted cash and cash equivalents. Of this amount, $1,720,912 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.

Current wording

As of June 30, 2024, the Company had $2,132,055 in cash, restricted cash and cash equivalents. Of this amount, $1,225,988 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.

Previous wording

Of the amounts of cash, restricted cash and cash equivalents on the balance sheet at March 31, 2024, $1,502,495 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.

Current wording

Of the amounts of cash, restricted cash and cash equivalents on the balance sheet at June 30, 2024, $1,085,712 consisted 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.

Previous wording

The Company had working capital deficit of $(7,798,750) at March 31, 2024, consisting of current assets of $13,146,781 and current liabilities of $20,945,531 compared to working capital deficit of $(6,594,834) at December 31, 2023.

Current wording

The Company had working capital deficit of $(11,600,420) at June 30, 2024, consisting of current assets of $12,230,447 and current liabilities of $23,830,867 compared to working capital deficit of $(6,594,834) at December 31, 2023.

Previous wording

Cash used in operating activities was $2,649,280 in the first three months of 2024 as compared to $125,579 in the same period of 2023. Significant working capital changes in the three months ended March 31, 2024 included a decrease in accounts payable of $684,194, a decrease in inventory of $641,301, and a decrease in customer deposits of $293,877.

Current wording

Cash used in operating activities was $3,425,726 in the first six months of 2024 as compared to $1,660,982 in the same period of 2023. Significant working capital changes in the six months ended June 30, 2024 included an increase in accounts payable of $822,503, a decrease in customer deposits of $774,524, and an increase in other accrued liabilities of $758,737 due to an increase in deferred revenue on upcoming commercial projects.

Previous wording

Net cash provided by investing activities was $524 in the first three months of 2024 compared to $339,776 in the same period of 2023. Net cash provided in the 2023 period was the result of proceeds from the sale of investments, partially offset by capital expenditures.

Current wording

Net cash used in investing activities was $11,461 in the first six months of 2024 compared to $2,301,591 provided by investing activities in the same period of 2023. Net cash provided in the 2023 period was the result of proceeds from the sale of investments, proceeds from the sale of JDL and Ecessa assets included within discontinued operations, partially offset by capital expenditures.

Previous wording

Net cash provided by financing activities was $544,864 in the first three months of 2024 compared to $122,249 in the same period of 2023. Net cash provided by financing activities in the first three months of 2024 was due to $1,000,000 in proceeds from the issuance of common stock under a registered direct offering, partially offset by payments against loans payable. Net cash provided by financing activities in the first three months of 2023 was due to proceeds from net borrowings under equipment loans.

Current wording

Net cash provided by financing activities was $172,899 in the first six months of 2024 compared to $791,378 in the same period of 2023. Net cash provided by financing activities in the first six months of 2024 was due to $1,000,000 in proceeds from the issuance of common stock under a registered direct offering, partially offset by payments against loans payable. Net cash provided by financing activities in the six months of 2023 was due to $7,500,000 in borrowings from Decathlon Specialty Finance, LLC (“Decathlon”), partially offset by $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.

Previous wording

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, which was due on May 6, 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. Notwithstanding the Company’s ability to make such payments, the Company is not permitted to make any earnout payments under the SUNation Transaction Agreement or any payments under the Long-Term Note unless Decathlon has provided prior written consent to such payment pursuant to the Company’s Revenue Loan and Security Agreement, dated as of June 1, 2023, by and among the Company, Decathlon, and the other parties thereto (the “Loan Agreement”). Pursuant to that certain subordination letter dated May 31, 2023, each holder of the Long-Term Note has subordinated all payments under the Long-Term Note to the obligations owed to Decathlon under the Loan Agreement (the “Decathlon Obligations”) and has agreed that, until the Decathlon Obligations have been paid in full, any payment under the Long-Term Note is subject to Decathlon’s prior written consent. Therefore, if Decathlon does not consent to the first principal payment of the Long-Term Note, such non-payment will not result in a default under the Long-Term Note. Failure to make earnout payments under the SUNation Transaction Agreement, which are prohibited under the Loan Agreement, could result in a breach under the SUNation Transaction Agreement.

Current wording

Based on the Company’s current financial position, the Company did not have sufficient cash to make the first SUNation earnout payment, which was due on May 6, 2024, and the Company’s forecasted future cash flows for the 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 principal payment of the Long-Term Note that is due on November 9, 2024, a factor which raises substantial doubt about the ability of the Company to continue as agoing concern for a reasonable period of time. Notwithstanding the Company’s ability to make such payments, the Company is not permitted to make any earnout payments under the SUNation Transaction Agreement or any payments under the Long-Term Note unless Decathlon has provided prior written consent to such payment pursuant to the Company’s Revenue Loan and Security Agreement, dated as of June 1, 2023, by and among the Company, Decathlon, and the other parties thereto (the “Loan Agreement”). Pursuant to that certain subordination letter dated May 31, 2023, each holder of the Long-Term Note has subordinated all payments under the Long-Term Note to the obligations owed to Decathlon under the Loan Agreement (the “Decathlon Obligations”) and has agreed that, until the Decathlon Obligations have been paid in full, any payment under the Long-Term Note is subject to Decathlon’s prior written consent. Therefore, if Decathlon does not consent to the first principal payment of the Long-Term Note, such non-payment will not result in a default under the Long-Term Note. Failure to make earnout payments under the SUNation Transaction Agreement, which are prohibited under the Loan Agreement, could result in a breach under the SUNation Transaction Agreement.

Previous wording

The Company issued CVRs prior to the Closing 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 24-month period following the Closing. The CVR liability as of March 31, 2024 was estimated at $1,314,987 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, 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.

Current wording

The Company issued CVRs prior to the Closing 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 24-month period following the Closing. The CVR liability as of June 30, 2024 was estimated at $1,198,212 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, 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.

Previous wording

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. 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. For additional information, please see the discussion of our critical accounting estimates in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

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. 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. For additional information, please see the discussion of our critical accounting estimates in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no changes to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2023, except as set forth below.