UnAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786, which is herein referred to as Article 11. The following unaudited pro forma condensed combined financial statements of Pineapple Energy Inc. (the “Company”) including Pineapple Energy LLC (“Pineapple”), Communications Systems, Inc. (“CSI”), Hawaii Energy Connection, LLC (“HEC”) and E-Gear, LLC (“E-Gear”) present the combination of the financial information of Pineapple, CSI, HEC and E-Gear adjusted to give pro forma effect to the following transactions, each of which closed on March 28, 2022:

Subsequent to the Pineapple Merger Transaction and the Pre-Closing Acquisition, the Company has classified its business into the following two segments:

Following the closing of the Pineapple Merger Transaction, CSI changed its name from Communications Systems, Inc. to Pineapple Holdings, Inc. and commenced doing business using the “Pineapple” name, and subsequently, on April 13, 2022, changed its name to Pineapple Energy Inc.

Under the Pre-Closing Acquisition Agreement, HEC agreed to sell to Pineapple substantially all the assets of HEC and E-Gear for an aggregate purchase price of $12.5 million in cash payable at closing, subject to a working capital adjustment following closing, plus equity in Pineapple consisting of 6,250,000 Class B Units of Pineapple, representing approximately 40% ownership in Pineapple. These Pineapple units were subsequently converted into 1,562,498 common shares of the Company as part of the Pineapple Merger Transaction.

Under the terms of the Merger Agreement, the Merger Sub merged with and into Pineapple with Pineapple surviving the merger as a wholly owned subsidiary of CSI (the “merger”). As consideration for the Pineapple Merger Transaction, CSI issued shares of its common stock to the members of Pineapple and the members of Pineapple became the majority owners of CSI’s outstanding common stock upon the closing of the Pineapple Merger Transaction.

Under the terms of the Merger Agreement, the Pineapple unit holders received base consideration of 3.4 million shares of CSI common stock in the Pineapple Merger Transaction. In addition to the base consideration, the former Pineapple unit holders have the right to receive additional shares of Company common stock upon the occurrence of the following milestones:

The Merger Agreement also included the execution of contingent value right (“CVR”) agreements with holders of record of CSI stock at the close of business on March 25, 2022. Each shareholder of record received one contractual non-transferable CVR per share of common stock held, which entitles the holders of the CVRs to receive 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 Technologies, Inc. and Ecessa Corporation, that are related to CSI’s pre-merger business, assets, and properties that occur during the 24-month period following the closing of the Pineapple Merger Transaction.

In addition, on March 18, 2022, prior to the Pineapple Merger Transaction and Pre-Closing Acquisition, CSI implemented a one-for-four reverse stock split of its outstanding Common Stock. After this reverse stock split and immediately prior to the Pineapple Merger Transaction, CSI had 2,429,341 shares of common stock outstanding. As consideration for the merger, CSI issued an aggregate of 5,006,245 shares of its common stock to the former unit holders of Pineapple. As a result of this stock split and immediately following the merger, the Company has 7,435,586 common shares issued and outstanding.

The pre-merger CSI shareholders owned approximately 32.7% of the Company’s common stock outstanding, on an undiluted basis, immediately following the effective time of the Pineapple Merger Transaction and the pre-merger Pineapple unit holders owned approximately 67.3% of the Company’s common stock outstanding, on an undiluted basis, immediately following the effective time of the Pineapple Merger Transaction. The following describes additional transactions entered into relevant to the presentation of the Company’s pro forma financial information outlined below:

The following unaudited pro forma condensed combined financial information included herein presents the combination of the historical consolidated financial statements of Pineapple, CSI, HEC and E-Gear adjusted to give effect to the Pineapple Merger Transaction, the Pre-Closing Acquisition, and the PIPE Offering. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021 and for the three months ended March 31, 2022 combines the historical statements of operations of Pineapple, CSI, HEC and E-Gear for such periods on a pro forma basis as if the Pineapple Merger Transaction, the Pre-Closing Acquisition, and the PIPE Offering had been consummated at the beginning of the earliest period presented. The unaudited pro forma condensed combined financial statements are presented on the basis of the Company’s fiscal year and combine the historical results of the fiscal periods of Pineapple, CSI, HEC, and E-Gear.

The unaudited pro forma condensed combined financial information does not include an unaudited pro forma condensed combined balance sheet as of March 31, 2022 since the Pineapple Merger Transaction, the Pre-Closing Acquisition, and the PIPE Offering were consummated on March 28, 2022 and are reflected in the Company’s historical unaudited condensed consolidated balance sheet as of March 31, 2022, included in the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 23, 2022.

In accordance with Article 11 of Regulation S-X, as amended by Release No. 33-10786, the historical financial statements may be adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to provide for “Transaction Accounting Adjustments” reflecting only the application of required accounting for the transactions. The Company has not included any Management Adjustments as defined under Release No. 33-10786.

The unaudited pro forma condensed combined financial statements have been derived from:

The Pineapple Merger Transaction was considered a business combination and was accounted for using the acquisition method of accounting, whereby Pineapple has been determined to be the accounting acquirer, primarily based on the following predominate factors:

Other factors were considered; however, they did not change the preponderance of factors indicating that Pineapple is the accounting acquirer.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of CSI included in its Forms 10-K and Forms 10-Q, and the audited financial statements of Pineapple, HEC and E-Gear included in the Form 8-K/A filed by the Company on May 19, 2022. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read with the unaudited pro forma condensed combined financial information.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021

(Amounts in thousands except share and per share data)

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2022

(Amounts in thousands except share and per share data)

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Pineapple Merger Transaction

On March 1, 2021, CSI, Merger Sub, and Pineapple, entered into a Merger Agreement that was amended on December 16, 2021, pursuant to which Merger Sub merged with and into Pineapple, with Pineapple surviving the merger as a wholly-owned subsidiary of CSI upon closing of the merger on March 28, 2022. Unless otherwise stated, references to the “Merger Agreement” mean the Merger Agreement as amended. As consideration for the Pineapple Merger Transaction, CSI issued shares of its common stock to the members of Pineapple and the members of Pineapple became the majority owners of CSI’s outstanding common stock upon the closing of the merger.

Pursuant to the Merger Agreement, the outstanding Pineapple units held by members of Pineapple as of and immediately prior to the effective time were automatically cancelled and represented only the right to receive shares of CSI common stock. As consideration for the merger, the Company issued an aggregate of 5,006,245 shares of its common stock to the former unit holders of Pineapple.

Pre-Closing Acquisition

On March 1, 2021, Pineapple entered into the Pre-Closing Acquisition Agreement, which was amended on December 16, 2021. Unless otherwise stated, references to the Pre-Closing Acquisition Agreement means the asset purchase agreement as amended. Pursuant to the Pre-Closing Acquisition Agreement, and subject to the terms and conditions contained therein, immediately prior to the closing of the Pineapple Merger Transaction, Pineapple completed its acquisition of substantially all of the assets and assumption of certain liabilities of HEC and E-Gear pursuant to the Pre-Closing Acquisition Agreement. At the closing of the Pre-Closing Acquisition Agreement, the sellers were paid approximately $12.4 million from the PIPE Offering proceeds. Additionally, Pineapple issued an aggregate 6,250,000 Class B Units of Pineapple at closing to certain Pineapple unit holders, which were subsequently converted into shares of the Company’s common stock pursuant to the terms and conditions of the Merger Agreement as described above.

E&S Sale Transaction

On August 2, 2021, CSI and Lantronix, completed the sale by CSI to Lantronix of all of the issued and outstanding shares of its wholly-owned subsidiary, Transition Networks, Inc., and the entire issued share capital of its wholly-owned subsidiary, Transition Networks Europe Limited (collectively with the Transition Networks, Inc., the “TN Companies”), pursuant to a securities purchase agreement dated April 28, 2021. The E&S Sale Transaction is summarized in more detail in the Company’s Current Reports on Form 8-K filed on April 29, 2021 and August 2, 2021.

PIPE Offering

On September 15, 2021, CSI entered into an amended and restated securities purchase agreement with the PIPE Investors for a $32.0 million PIPE Offering by the Company in connection with the Merger Agreement. Under the terms of the amended and restated securities purchase agreement, the PIPE Investors agreed to purchase 32,000 newly authorized Company Series A convertible preferred stock for $32 million in cash, which are convertible at a price of $13.60 per share into Company common stock, with five-year warrants to purchase an additional $32.0 million of common shares at that same price. The PIPE Offering closed immediately following the consummation of the Pineapple Merger Transaction. The PIPE Investors invested in the post-merger combined company and were not entitled to any cash dividends prior to the closing or to the CVRs to be issued to pre-merger CSI shareholders.

The pro forma financial information has been prepared by the Company in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786, which is referred to herein as Article 11. The pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what the Company’s consolidated results of operations actually would have been if the Pineapple Merger Transaction, Pre-Closing Acquisition, or the PIPE Offering had been completed as of the dates indicated or will be for any future periods.

The Pineapple Merger Transaction and Pre-Closing Acquisition were treated as business combinations and accounted for using the acquisition method of accounting, with goodwill and other intangible assets recorded, in accordance with ASC 805, Business Combinations, under U.S. GAAP. Accordingly, for accounting purposes, the net assets of Pineapple are stated at historical cost, with the acquired assets and assumed liabilities of CSI and HEC and E-Gear stated at fair value in accordance with the fair value concepts under ASC 820, Fair Value Measurement.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 and for the three months ended March 31, 2022 give pro forma effect to the Pineapple Merger Transaction, Pre-Closing Acquisition, and PIPE Offering as if they had been consummated on January 1, 2021.

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 have been prepared using, and should be read in conjunction with, the following:

As of the date of this filing, Pineapple has not finalized the detailed valuation study necessary to arrive at the required final estimates of the fair value of CSI or HEC and E-Gear assets acquired, or liabilities assumed and the related allocations of purchase price. Thus, the allocation of the purchase consideration for the Pineapple Merger Transaction and Pre-Closing Acquisition depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information. Pineapple estimated the fair value of CSI’s assets and liabilities based on certain internal projected financial information, preliminary valuation studies, and information presented to our management. The Company also estimated the fair value of HEC and E-Gear’s assets and liabilities based on discussions with HEC and E-Gear’s management, preliminary valuation studies, due diligence and information presented to the Company’s management. A final determination of fair values of assets acquired and liabilities assumed relating to the Pineapple Merger Transaction and Pre-Closing Acquisition could differ materially from the preliminary allocation of purchase consideration. This final valuation will be based on the actual net tangible and intangible assets of CSI, HEC, and E-Gear existing at the closing date of the Pineapple Merger Transaction and Pre-Closing Acquisition. The final valuations may materially change the allocation of purchase consideration, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

The pro forma financial information does not reflect adjustments for any other consummated or probable acquisitions by the Company, or any dispositions that are significant in accordance with Regulation S-X Rule 3-05, as amended by Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, as adopted by the SEC on May 20, 2020, because no other significant transactions were identified.

The unaudited pro forma condensed combined financial information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Pineapple Merger Transaction and Pre-Closing Acquisition had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Pineapple Merger Transaction and Pre-Closing Acquisition, the costs to integrate the operations of CSI, Pineapple, HEC and E-Gear or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined financial statements of operations are based on the weighted average number of the Company’s shares outstanding, assuming the Pineapple Merger Transaction, Pre-Closing Acquisition and the PIPE Offering occurred at the beginning of the earliest period presented.

3. Pro Forma Adjustments

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations

The adjustments included in the unaudited pro forma condensed combined statement of operations as of December 31, 2021 and March 31, 2022 are as follows:

3AA. Reflects the approximate $194 thousand net increase and $52 thousand net increase in the intangible assets amortization expense resulting from the fair value adjustments recognized as part of the Pineapple Merger Transaction for the year ended December 31, 2021 and for the three months ended March 31, 2022, respectively.

3AB. Reflects the approximate $2.0 million net increase and $479 thousand net increase in the intangible assets amortization expense resulting from the fair value adjustments recognized as part of the Pre-Closing Acquisition in the year ended December 31, 2021 and for the three months ended March 31, 2022, respectively.

The basic and diluted pro forma net loss per share of Company common stock represents net loss attributable to the Combined Entity divided by the weighted average shares of Company common stock outstanding.