Business context and reporting period
This is Pineapple Energy Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2023; the filing is not issued by Sunation Energy, Inc. Pineapple operates residential and commercial solar, battery-storage and energy-management businesses, including Hawaii-based HEC and New York-based SUNation. SUNation was acquired in November 2022. Legacy JDL and Ecessa operations are reported as discontinued operations and are being marketed for sale.
Comparisons with Q1 2022 are not like-for-like: that period largely preceded the 2022 merger and acquisitions, while Q1 2023 includes SUNation and the acquired businesses.
Financial results and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $22.07 million | $0.23 million |
| Gross profit / margin | $8.01 million / 36.3% | $0.07 million / 28.3% |
| Operating loss | $2.15 million | $1.53 million |
| Continuing-operations net loss | $2.60 million | $1.89 million |
| Net loss per share, basic and diluted | $0.26 | $0.58 |
| Cash used in operating activities, including discontinued operations | $0.13 million | $5.04 million |
Q1 2023 revenue comprised $18.34 million residential contracts, $2.83 million commercial contracts, $0.64 million services and $0.25 million software. SG&A was $8.06 million; amortization was $1.27 million. Operating margin was approximately negative 9.7%, and continuing-operations net margin approximately negative 11.8%.
At March 31, 2023, total assets were $71.84 million, stockholders’ equity $25.00 million, and working capital was $194,883 as presented in MD&A. Cash and cash equivalents were $1.92 million, restricted cash $3.67 million, and investments $2.02 million. Of the reported cash, restricted cash and investments, $4.19 million was earmarked for legacy CSI/CVR holders and $1.50 million was restricted to SUNation support; these amounts were not generally available for Pineapple’s working capital. The filing reports approximately $14.0 million in current and long-term loans payable, including related-party loans. Total liabilities were $46.84 million.
Cash, cash equivalents and restricted cash ended the quarter at $5.59 million, up $0.34 million from the start of the period. Investing activities provided $0.34 million, mainly from investment sales; financing activities provided $0.12 million. The company reported no dividend or specific forward financial guidance.
Material changes, outlook and risks
- Revenue and gross profit rose sharply year over year, principally because of acquisitions; the very small prior-period revenue base makes the percentage comparison uninformative.
- Operating expenses increased to $10.16 million. Q1 included an $825,000 fair-value loss on SUNation acquisition earnout consideration and a $250,000 loss on remeasurement of contingent value rights (CVRs). A $244,271 gain on asset sales partly offset other expense.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. Forecast cash was not expected to be sufficient to repay the $5.0 million SUNation Short-Term Note, due August 9, 2023, or meet the first earnout payment. The company said it would need additional capital through potential equity, debt or strategic sources, with no assurance funding would be available.
- The Short-Term Note’s interest rate steps up to 12% after six months and it is secured by the acquired SUNation companies’ equity. Default remedies could allow sellers to recover that equity. The company also has a $5.486 million unsecured Long-Term Note, with a $2.5 million principal payment due in November 2024.
- Other stated risks include integrating acquisitions, obtaining sufficient solar installation agreements, supplier concentration and component costs, retaining installers and other key staff, competition, and changes to utility, net-metering and incentive policies. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- JDL and Ecessa are classified as held for sale. Their Q1 results were $1.75 million in sales and $44,683 in income from discontinued operations.
Investor facts to verify
- Whether Pineapple secured adequate funding to meet the August 9, 2023 Short-Term Note maturity and the disclosed going-concern cash needs.
- How much cash is actually unrestricted and available to the operating business after CVR and SUNation restrictions.
- Debt balances, escalating note interest, payment dates, and the consequences of any covenant breach or default.
- Whether acquired-business revenue can produce sustainable operating cash flow after SG&A, amortization and acquisition-related obligations.
- Progress, expected proceeds and timing for the JDL/Ecessa divestitures and related CVR distributions.
- Potential dilution from equity financing, convertible preferred stock, warrants and earnout arrangements.