Mr. Justin Holland reports

EGUANA PROVIDES BUSINESS AND FINANCIAL UPDATES

Eguana Technologies Inc. has provided various business and financial updates.

Financial update

The company continues to take prudent action toward navigating a softer than expected renewable energy sector, which has underperformed due to decreased consumer spending related to inflation, high-interest rates and increased dealer fees. In North America, renewable markets are drastically lower than forecasted, and the timing of market recovery is forecasted for the second half of 2024.

In response, the company furloughed staff in North America before the December holiday break, with most staff on leave through January and February, and transferred certain personnel into sales positions within the company's United States sales channel partner. As previously outlined, the company also rationalized staff in October, 2023, with a global headcount reduction of approximately 22 per cent. Associated savings related to the North American business are projected at approximately $2.1-million for 2024. Operations in Europe and Australia, where market conditions are significantly better than North America, remain unaffected by the furlough. With functional areas restructured and a priority focus on near-term opportunities, management does not anticipate any near or mid-term impact on operational objectives.

To continue managing short term liquidity risk, the company successfully negotiated the return of obsolete and/or unusable inventory components (the inventory return) to a major supply partner. The two parties have entered into an agreement whereby the inventory return would result in cash payments to Eguana at full landed cost. Based on the agreement, Eguana expects the total inventory return to yield approximately $5.0-million in value, including approximately $3.8-million in cash and approximately $1.2-million of credits against the company's outstanding accounts payable to the supply partner. Shipping arrangements have been confirmed and payment is expected in March, 2024.

With 2024 component inventory in a strong position, and to match market conditions, Eguana can also reduce further inventory investments in the near term and will benefit from lower component pricing going forward driving expected gross margin improvements to meet 2024 objectives.

As reported in the company's financial statements for the period ended Sept. 30, 2023, continuing delays in accounts receivable collections from a major customer have negatively impacted short-term liquidity. Management continues to work closely with the key customer and has negotiated various offsets that will reduce the receivables balance in exchange for raw materials and finished goods inventory, future manufacturing credits, and a fixed payment schedule, with formalized security rights. The fixed payment schedule is expected to provide a consistent flow of funds to Eguana to finance operating expenses while providing a security interest over the assets held by the customer.

These tradeoffs have been carefully considered and given the nature of the industry, long-term potential with the key customer and a defined payment schedule, management felt the co-operation was beneficial to both parties and will deliver additional margin opportunity for Eguana in 2024.

With market recovery anticipated in mid 2024, near-term liquidity will remain a key priority for Eguana. This may cause delays in future product development and enhancement initiatives, the return to work for staff, and regular cash payments to vendors.

Debt amendments

The company has reached an agreement in principle with its secured lenders under its existing long-term debt (the senior loan), to make interest only payments for December, 2023, January, 2024, and February, 2024, and to delay the March, 2024, payment.

The company intends to enter into a formal amendment to the original loan agreement, wherein the monthly payments will be reduced and comprised of interest only for three months commencing Dec. 1, 2023, and whereby these payments amounts were delayed. The interest payments due on Dec. 1, 2023, and Jan. 1, 2024, were deferred and paid in early January. The interest payment due on Feb. 1, 2024, will be deferred to Feb. 15. The regular payment due on March 1, 2024, will be delayed to the end of March. The senior loan continues to bear interest at a rate of 12 per cent per annum.

Further, the company has reached an agreement to defer the upcoming cash interest payment on its unsecured convertible debenture, originally due on March 1, 2024, to Aug. 31, 2024.

When completed, copies of the amendments will be posted on the company's SEDAR+ profile.

"Our lenders continue to be supportive, which has given us access to short-term liquidity," said Justin Holland, chief executive officer. "The short-term flexibility has opened up pathways to achieve a multiquarter runway as we continue executing our strategy to improve the balance sheet and realize sales, through our virtual power plant rollouts, and with our various utility and financing partners."

Private placement

Given the business and financial updates provided herein, the company decided to close the offering of units of the company for gross proceeds of up to $2-million and will review future working capital needs at a later date. In connection with the offering, the company issued 11.3 million units for aggregate gross proceeds of $452,000 and paid no finders' fees. Further information on the offering can be found in the company's news releases dated Nov. 23 and Dec. 8, 2023.

Business update

The company is anticipating overall market recovery through the second half of 2024, as the impact of interest rates and consumer access to capital continues to stabilize. During the previous two quarters, Eguana has been successful in locking in key partnerships in various markets, including the United States, Canada, Australia and Germany. Importantly, the company has focused on partnerships that offer financial support to homeowners and utility driven virtual power plant (VPP) opportunities, which simplify the selling process to the end-user.

The Eguana hardware platform was designed to deliver a full suite of VPP grid capability and is fully integrated with the Eguana cloud, a software platform designed to manage fleets of energy storage systems, to optimize utility operation of the power grid. With both platforms complete, the company now offers utilities and grid operators full VPP program management capability, and opens software driven recurring revenue streams.

In the North American market, Eguana continues to expand its utility and DERMS (distributed energy resource management system) partners, in addition to its partnership with Duracell Power Center. The company believes utility driven VPPs will shift the renewables focus from rooftop solar to fully integrated energy storage, given the wide array of benefits for both the consumer and the utility. Currently the company is enrolled in six VPPs spanning 20 utilities, with additional utility pilot programs planned for 2024.

In Australia, market recovery has been much more robust, and the company has signed a multiyear agreement with Simply Energy to roll out its FCAS (frequency control ancillary service) VPP. The FCAS VPP, scheduled to begin in January, includes direct marketing campaigns from the utility to its customer base, incentivizing homeowners with monthly bill credits, upfront cash payments and further savings through a reduction of grid purchased power. The utility, on the other hand, will pay a fee to access the energy storage fleet, or the aggregation of individual storage systems, which are used to manage grid frequency in the event of sudden changes to supply or demand. One of the key benefits of aggregated storage systems is rapid response time and cost reduction for the utility, while keeping grid frequency within the mandated targets. The VPP rollout is expected to be accretive to Eguana's vertically integrated model in Australia, with residential and commercial solar plus storage solutions, which has been steadily growing over the last two quarters.

In Europe, Eguana entered into a partnership with Finanzdesk, a German bank with a focus in renewables, to exclusively offer the Eguana Enduro to customers with existing Finanzdesk solar lease arrangements. The Enduro is designed specifically for the European market, for both new and retrofit installations. Finanzdesk currently has a customer base of 8,000 with rooftop solar and targets to grow additional solar plus storage as a secondary channel. First units were sold to Finanzdesk in late 2023, with direct customer marketing campaigns expected to begin soon.

"Two thousand twenty-three has been a difficult year for the industry and particularly Eguana as we continue to work through short-term liquidity concerns," commented Mr. Holland. "The team has been successful in building out the fully integrated Eguana cloud platform and opening up recurring revenue streams through our utility partnerships, which we expect to play a key role in the market recovery and the adoption of energy storage technologies."

About Eguana Technologies Inc.

Eguana (TSX Venture Exchange: EGT) (OTCQB: EGTYF) designs and manufactures high performance residential and commercial energy storage systems. The company also markets and sells a suite of microinverter products, which are integrated with its energy storage platform, providing consumers with full solar and storage system architecture, for residential and commercial applications. Eguana has two decades of experience delivering grid edge power electronics for fuel cell, photovoltaic and battery applications, and delivers proven, durable, high-quality solutions from its high-capacity manufacturing facilities in North America, Europe and Australia.

With thousands of its proprietary energy storage inverters deployed in the European and North American markets, Eguana is one of the leading suppliers of power controls for solar self-consumption, grid services and demand charge applications at the grid edge. Focused on distributed energy storage applications located at the point of energy consumption, Eguana provides cost-effective solutions to modernize the power grid, from the consumer to the electricity retailer, the distribution utility and the system operator.

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