SUNation Energy, Inc.

Previous wording

anti-takeover provisions in our organizational documents and agreements may discourage or prevent a change in control, even if a sale of Pineapple could be beneficial to our shareholders;

Current wording

anti-takeover provisions in our organizational documents and agreements may discourage or prevent a change in control, even if a sale of the Company could be beneficial to our shareholders;

Previous wording

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.

Current wording

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”.

Previous wording

Effective as of the same time as the June 2024 Reverse Stock Split, October 2024 Reverse Stock Split, and April 2025 Reverse Stock Split (collectively known as the “Reverse Stock Splits”), the number of shares of common stock available for issuance under the Company's equity compensation plans were automatically reduced in proportion to the Reverse Stock Splits ratio. Upon effectiveness, the Reverse Stock Splits also resulted in reductions in the number of shares of common stock issuable upon exercise or vesting of equity awards in proportion to the Reverse Stock Splits ratios and caused a proportionate increase in exercise price or share-based performance criteria, if any, applicable to such awards.

Current wording

The effects of the June 2024 Reverse Stock Split, October 2024 Reverse Stock Split, and April 2025 Reverse Stock Split (collectively, the “Reverse Stock Splits”) have been applied retroactively and are reflected in this Quarterly Report on Form 10-Q 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.

Previous wording

Consolidated other (expense) income decreased by $4,706,236 to expense of $1,314,469 in the first quarter of 2025 as compared to $3,391,767 in income in the first quarter of 2024. The decrease was primarily related to a $3,728,593 decrease in the fair value remeasurement gain on the warrant liability, a $356,906 decrease in fair value remeasurement loss on the contingent value rights (“CVRs”), a $343,471 loss on debt extinguishment, and $576,594 in financing fees on the issuance of the contingent forward contract, partially offset by a $193,630 decrease in interest expense.

Current wording

Consolidated other expense increased by $2,514,888 to expense of $7,429,592 in the second quarter of 2025 as compared to $4,914,704 in the second quarter of 2024. The decrease was primarily related to a $4,263,473 increase in the fair value remeasurement loss on the warrant liability, a $110,504 decrease in fair value remeasurement loss on the contingent value rights (“CVRs”), and $559,939 in financing fees on the issuance of Series A and Series B warrants, partially offset by a $1,055,600 decrease in fair value remeasurement loss on the embedded derivative liability, a $573,503 decrease in interest expense, and a $789,588 increase in fair value remeasurement gain on the contingent forward contract.

Previous wording

SUNation revenue decreased 2% or $208,416, to $9,544,554 in the first quarter of 2025 as compared to $9,752,970 in first quarter of 2024. Revenue in the first quarters of 2025 and 2024 by type were as follows:

Current wording

SUNation revenue increased 1% or $89,202, to $9,820,849 in the second quarter of 2025 as compared to $9,731,647 in second quarter of 2024. Revenue in the second quarters of 2025 and 2024 by type were as follows:

Previous wording

Residential contract revenue decreased $235,586, or 3%, despite a 5% increase in residential kilowatts installed and a 1% increase in average price per system installed, due to a 5% decrease in number of systems installed. Commercial contract revenue increased $278,695, or 28%, due timing of commercial projects where the prior year had some larger projects from 2024 carry into 2025 and there were delays in the prior year in the start of commercial pipeline projects into the second half of 2024. Service revenue decreased $251,525, or 40%, due to lower battery installations.

Current wording

Residential contract revenue decreased $468,054, or 6%, despite a 5% increase in residential kilowatts installed and a 1% increase in average revenue per system installed, due to a 5% decrease in number of systems installed. Commercial contract revenue increased $769,790, or 156%, due to timing of commercial projects where the prior year had some larger projects from 2024 carry into 2025 and there were delays in the prior year in the start of commercial pipeline projects into the second half of 2024. Service revenue decreased $212,534, or 28%, due to lower battery installations and third-party referral service jobs.

Previous wording

Gross profit decreased 7% to $3,672,582 in 2025 as compared to gross profit of $3,951,210 in 2024 due primarily to the decrease in revenue and additional decrease in gross margin. Gross margin decreased to 38.5% in 2025 compared to 40.5% in 2024 due primarily to lower commercial revenue gross margins due to higher unanticipated project costs on larger projects during the quarter.

Current wording

Gross profit increased 7% to $3,961,022 in the second quarter of 2025 as compared to gross profit of $3,712,869 in the second quarter of 2024 due primarily to the increase in revenue and additional increase in gross margin. Gross margin increased to 40.3% in 2025 compared to 38.2% in 2024 due primarily to higher commercial revenue gross margins due to higher revenue to cover fixed overhead costs and higher residential margins due to lower job material costs as a percentage of revenue.

Previous wording

HEC sales decreased 11% or $374,143, to $3,092,084 in the first quarter of 2025 as compared to $3,466,227 in the first quarter of 2024. Sales in 2025 and 2024 by type were as follows:

Current wording

HEC sales decreased 15% or $574,368, to $3,243,405 in the second quarter of 2025 as compared to $3,817,773 in the second quarter of 2024. Sales in 2025 and 2024 by type were as follows:

Previous wording

Consolidated sales decreased $582,559, or 4.4% to $12,636,638 in the first quarter of 2025 from $13,219,197 in the first quarter of 2025, with declines primarily within the residential contract and service revenue streams. On a consolidated basis, while overall kilowatts installed on residential projects increased 7% in the first quarter of 2025 from the first quarter of 2024, this was offset by a 13% decrease in price per watt due to lower battery kilowatts installed within HEC.

Current wording

Consolidated sales decreased $1,067,725, or 4.0% to $25,700,892 in the first six months of 2025 from $26,768,617 in the first six months of 2024, with declines primarily within the residential contract and service revenue streams, partially offset by increased commercial contract revenue. On a consolidated basis, the decline in residential contract revenue during the first six months of 2025 as compared to the same period of 2024 is due to a 2% decrease on kilowatts installed and a 7% decrease in price per watt installed due to lower battery kilowatts installed within HEC.

Previous wording

Consolidated gross profit decreased to $4,431,325 in the first quarter of 2025 as compared to gross profit of $4,805,448 in the first quarter of 2024 due primarily to the decrease in revenue during the quarter. Gross margin decreased slightly to 35% during the first quarter of 2025 as compared to 36% in the first quarter of 2024.

Current wording

Consolidated gross profit decreased to $9,270,842 in the first six months of 2025 as compared to gross profit of $9,597,802 in the first six months of 2024 due primarily to the decrease in revenue during the year. Gross margin remained flat at 36% during the first six months of 2025 as compared to the first six months of 2024.

Previous wording

Consolidated operating expenses decreased 5.6% to $6,598,673 in the first quarter of 2025 as compared to $6,988,402 in the first quarter of 2024. Consolidated selling, general and administrative expenses decreased $589,729, or 9%, to $6,039,298 in the first quarter of 2025 from $6,629,027 in the first quarter of 2024, due primarily to a decrease in corporate costs including stock compensation expense and legal and other professional fees. Amortization expense decreased by $150,000 to $559,375 in the first quarter of 2025 as compared to $709,375 in the same period of the prior year 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 not a fair value remeasurement related to the SUNation acquisition earnout consideration in the first quarter of 2025 compared to a gain of $350,000 in the same period of the prior year.

Current wording

Consolidated operating expenses decreased 1% to $13,601,777 in the first six months of 2025 as compared to $13,806,700 in the first six months of 2024. Consolidated selling, general and administrative expenses decreased $704,923, or 5%, to $12,483,027 in the first six months of 2025 from $13,187,950 in the first six months of 2024, due primarily to a decrease in personnel expenses on lower headcount and a decrease in corporate costs including stock compensation expense and legal and other professional fees, partially offset by $512,821 in compensation expense related to the new earnout liability as discussed in Note 6, Commitments and Contingencies. Amortization expense decreased by $300,000 to $1,118,750 in the first six months of 2025 as compared to $1,418,750 in the same period of the prior year 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.

Previous wording

Consolidated operating loss in the first quarter of 2025 was $2,167,348 as compared to $2,182,954 in the first quarter of 2024. Net loss in the first quarter of 2025 was $3,496,432, or $(106.71) per diluted share, compared to net loss attributable to shareholders (after taking into effect $11,322,639 in deemed dividends) of $10,119,988, or $(38,414.84) per diluted share, in the first quarter of 2024.

Current wording

Consolidated operating loss in the first six months of 2025 was $4,330,935 as compared to $4,208,898 in the first six months of 2024. Net loss in the first six months of 2025 was $13,103,847, or $(8.42) per diluted share, compared to net loss attributable to shareholders (after taking into effect $11,322,639 in deemed dividends) of $17,054,003, or $(38,216.49) per diluted share, in the first six months of 2024.

Previous wording

Selling, general and administrative expenses decreased slightly to $3,847,500 in 2025 (40% as a percentage of sales) as compared to $3,872,455 in 2024 (40% as a percentage of sales), due primarily to a decrease in personnel costs on lower headcount. Amortization expense remained flat at $203,125 in 2025 as compared to 2024.

Current wording

Selling, general and administrative expenses decreased 3% to $7,594,004 in 2025 (39% as a percentage of sales) as compared to $7,843,159 in 2024 (40% as a percentage of sales), due primarily to a decrease in personnel costs on lower headcount. Amortization expense remained flat at $406,250 in 2025 as compared to 2024.

Previous wording

Residential contract sales decreased $489,079, or 15%, due to a 34% decrease in battery capacity installed, which was partially offset by a 21% increase in kilowatts installed. In the first half of 2024, the Battery Bonus program in Hawaii ended. Under this program, customers were paid a cash incentive and provided energy bill credits to add energy storage to an existing or new rooftop solar system. Service revenue increased $114,936, or 48%, due to an increase in repair and replacement installations.

Current wording

Residential contract sales decreased $1,427,537, or 21%, due to a 22% decrease in battery capacity installed and a 12% decrease in kilowatts installed. In the first half of 2024, the Battery Bonus program in Hawaii ended. Under this program, customers were paid a cash incentive and provided energy bill credits to add energy storage to an existing or new rooftop solar system. Service revenue increased $326,563, or 81%, due to an increase in repair and replacement installations.

Previous wording

Selling, general and administrative expenses decreased 3% to $976,674 in the first quarter of 2025 (32% as a percentage of sales) as compared to $1,002,052 in the first quarter of 2024 (29% as a percentage of sales), due primarily to a decrease in commissions expense and gross excise taxes on lower revenue.

Current wording

Selling, general and administrative expenses remained flat at $1,997,994 in the first six months of 2025 (32% as a percentage of sales) as compared to $1,993,532 in the first six months of 2024 (27% as a percentage of sales.

Previous wording

As of March 31, 2025, the Company had $1,740,230 in cash, restricted cash and cash equivalents. Of this amount, $370,986 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, 2025, the Company had $3,473,387 in cash, restricted cash and cash equivalents. Of this amount, $1,535,022 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, 2025, $292,901 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 SUNation Energy business.

Current wording

Of the amounts of cash, restricted cash and cash equivalents on the balance sheet at June 30, 2025, $286,630 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 SUNation Energy business.

Previous wording

The Company had working capital deficit of $(9,728,626) at March 31, 2025, consisting of current assets of $10,545,189 and current liabilities of $20,273,815 compared to working capital deficit of $(16,051,658) at December 31, 2024.

Current wording

The Company had working capital deficit of $(1,850,380) at June 30, 2025, consisting of current assets of $10,951,412 and current liabilities of $12,801,792 compared to working capital deficit of $(16,051,658) at December 31, 2024.

Previous wording

Cash used in operating activities was $3,403,349 in the first three months of 2025 as compared to $2,649,280 in the same period of 2024. The increase in negative cash flow from operations is primarily driven by the increase in the net loss and an increase in payments against accounts payable. Significant working capital changes in the three months ended March 31, 2025 included a decrease of accounts receivable of $953,150, a decrease in accounts payable of $1,518,440, a $443,775 decrease in customer deposits and a decrease in accrued interest of $1,098,801.

Current wording

Cash used in operating activities was $3,533,533 in the first six months of 2025 as compared to $3,425,726 in the same period of 2024. The increase in negative cash flow from operations is primarily driven by the increase in the net loss and an increase in payments against accounts payable. Significant working capital changes in the six months ended June 30, 2025 included a decrease of accounts receivable of $1,601,897, a decrease in accounts payable of $489,960, and a decrease in accrued interest of $634,467.

Previous wording

Net cash used in investing activities was $0 in the first three months of 2025 compared to $524 provided by investing activities in the same period of 2024. The Company did not have any capital expenditures or disposals during 2025.

Current wording

Net cash used in investing activities was $8,817 in the first six months of 2025 compared to $11,461 used in investing activities in the same period of 2024 primarily related to capital expenditures.

Previous wording

Net cash provided by financing activities was $3,992,231 in the first three months of 2025 compared to $544,864 in the same period of 2024. Net cash provided by financing activities in the first three months of 2025 was due to $13,431,902 in net proceeds from the issuance of common stock under a registered direct offering and $351,371 in proceeds from the issuance of common stock under the at-the-market offering, partially offset by $9,401,939 in payments against loans payable and $389,104 in payments of contingent consideration. 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.

Current wording

Net cash provided by financing activities was $5,864,389 in the first six months of 2025 compared to $172,899 in the same period of 2024. Net cash provided by financing activities in the first six months of 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 $9,552,943 in payments against loans payable, $2,500,000 in payments of contingent consideration, and $267,391 in payments for the termination of warrants. Net cash provided by financing activities in the first six months of 2024 was due to$918,988 in net proceeds from the issuance of common stock under a registered direct offering, partially offset by payments against loans payable.

Previous wording

In connection with the SUNation 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 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 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 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.

Current wording

In connection with the SUNation 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 shall become 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.

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, 2025 was estimated at $292,901 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. 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, 2025 was estimated at $286,630 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. 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, 2024. 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, 2024, except as set forth below.

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, 2024. 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, 2024.