Company: SUNE
Filing Date: 2025-04-15
Form Type: 10-K
Source: 0000022701-25-000002
Chunk: 3

Company: SUNation Energy, Inc.
Filing Date: 2025-04-15
Form: 10-K
Item: Item 8
Chunk 3
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 the significant assumptions used in the quantitative models.  To test the fair value of the Company’s reporting units, we performed audit procedures that included the following:  Compared the projected revenue growth rates to the Company’s historical results and industry and economic data, and compared projected EBITDA margins to historical results and industry data. We assessed the historical accuracy of management’s prior forecasts to actual results to evaluate management’s ability to accurately forecast future revenues and gross profit.Involved our valuation specialists to 1) assess management’s fair value methodology, compare the terminal growth rates to external industry and economic data, and determine an independent estimate of the discount rates and 2) evaluated the comparable public companies utilized by management under the market approach.Evaluated certain inputs and assumptions for consistency where they were used by management in other accounting estimates impacting the consolidated financial statements.  Tested management’s fair value calculations for clerical accuracy. Performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in these assumptions.Assessed the appropriateness of the disclosures in the financial statements. Critical Audit Matter – Convertible Preferred Stock and WarrantsIn 2022, the Company issued shares of Series A convertible preferred stock and warrants to investors. The Company accounted for the convertible preferred stock and warrants in permanent equity. The convertible preferred stock and the 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.  As a result, the Company reclassified the convertible preferred stock to mezzanine equity and the warrants to a liability.  During the third quarter of 2024, the Company received shareholder approval on an increase in authorized shares, resulting in the convertible preferred stock and warrants being reclassified to permanent equity. Additionally, the Series A convertible preferred stock and warrants were further modified prior to being exchanged for Series C convertible preferred stock in September 2024. No preferred stock or warrants remained outstanding as of December 31, 2024. As disclosed in Notes 2 and 12 to the consolidated financial statements, these transactions resulted in the following impact on the consolidated financial statements:Change in fair value of the warrant liability resulting in a loss of $974,823.Deemed dividends on modifications of Series A convertible preferred stock and warrants of ($11,447,251) and ($4,215,551), respectively, that