NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2021 AND 2020
(in
thousands, except share and per share data)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
a) Organization
iSun,
Inc. is a solar energy company providing design, development, engineering, procurement, installation, storage and electric vehicle infrastructure
services for residential, commercial, industrial and utility customers across the United States. The Company also provides electrical
contracting services and data and communication services. The work is performed under fixed-price and modified fixed-price contracts
and time and materials contracts. The Company is incorporated in the State of Delaware and has its corporate headquarters in Williston,
Vermont.
On
September 8, 2021, iSun, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company,
iSun Residential Merger Sub, Inc., a Vermont corporation (the “Merger Sub”) and wholly-owned subsidiary of iSun Residential,
Inc., a Delaware corporation (“iSun Residential”) and wholly-owned subsidiary of the Company, SolarCommunities, Inc., a Vermont
benefit corporation (“SunCommon”), and Jeffrey Irish, James Moore, and Duane Peterson as a “Shareholder Representative
Group” of the holders of SunCommon’s capital stock (the “SunCommon Shareholders”), pursuant to which the Merger
Sub merged with and into SunCommon (the “Merger”) with SunCommon as the surviving company in the Merger and SunCommon became
a wholly-owned subsidiary of iSun Residential. The Merger was effective on October 1, 2021.
On
April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of iSun,
Inc., a Delaware corporation (the “Company”), Adani Solar USA, Inc., a Delaware corporation (Adani”), and Oakwood Construction
Services, Inc., a Delaware corporation (“Oakwood”) entered into an Assignment Agreement (the “Assignment”), pursuant
to which iSun Utility acquired all rights to the intellectual property of Oakwood and its affiliates (the “Project IP”).
Oakwood is a utility-scale solar EPC company and a wholly-owned subsidiary of Adani. The Project IP includes all of the intellectual
property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.
Effective
January 19, 2021, the Company changed its corporate name from The Peck Company Holdings, Inc. to iSun, Inc. (the “Name Change”).
The Name Change was effected through a parent/subsidiary short-form merger of iSun, Inc., our wholly-owned Delaware subsidiary formed
solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the short-form merger, we filed
a Certificate of Merger with the Secretary of State of the State of Delaware on January 19, 2021. The merger became effective on January
19, 2021 with the State of Delaware and, for purposes of the quotation of our Common Stock on the Nasdaq Capital Market (“Nasdaq”),
effective at the open of the market on January 20, 2021.
b) Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of iSun, Inc. and its direct and indirect wholly owned operating
subsidiaries, iSun Residential, Inc., SolarCommunities, Inc., iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility,
LLC, iSun Corporate, LLC and iSun Energy, LLC. All material intercompany transactions have been eliminated upon consolidation of these entities.
c) Emerging Growth Company Status
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”). Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities
registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard.
The
Company would cease to be an “emerging growth company” upon the earliest to occur of: the last day of the fiscal year in
which it has more than $1.07 billion in annual revenue; the date it qualifies as a “large accelerated filer,” with at least
$700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by it of more than $1.0 billion in
non-convertible debt or December 31, 2021.
d) Revenue Recognition
The
majority of the Company’s revenue arrangements generally consist of a single performance obligation to transfer promised goods
or services.
1)
Revenue Recognition Policy
Solar
Power Systems Sales and Engineering, Procurement, and Construction Services
The
Company recognizes revenue from the sale of solar power systems, Engineering, Procurement and Construction (“EPC”) services,
and other construction type contracts over time, as performance obligations are satisfied, due to the continuous transfer of control
to the customer. Construction contracts, such as the sale of a solar power system combined with EPC services, are generally accounted
for as a single unit of account (a single performance obligation) and are not segmented between types of services. Our contracts often
require significant services to integrate complex activities and equipment into a single deliverable, and are therefore generally accounted
for as a single performance obligation, even when delivering multiple distinct services. For such services, the Company recognizes revenue
using the cost to cost method, based primarily on contract cost incurred to date compared to total estimated contract cost. The cost
to cost method (an input method) is the most faithful depiction of the Company’s performance because it directly measures the value
of the services transferred to the customer. Cost of revenue includes an allocation of indirect costs including depreciation and amortization.
Subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the Company is
acting as a principal rather than as an agent (i.e., the Company integrates the materials, labor and equipment into the deliverables
promised to the customer). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are
determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from
the customer. As of December 31, 2022 and 2021, the Company had $0 in pre-contract costs classified as a current asset under contract
assets on the Consolidated Balance Sheet. Project mobilization costs are generally charged to project costs as incurred when they are
an integrated part of the performance obligation being transferred to the client. Customer payments on construction contracts are typically
due within 30 to 45 days of billing, depending on the contract. Sales and other taxes the Company collects concurrent with revenue-producing
activities are excluded from revenue.
For
sales of solar power systems in which the Company sells a controlling interest in the project to a customer, revenue is recognized for
the consideration received when control of the underlying project is transferred to the customer. Revenue may also be recognized for
the sale of a solar power system after it has been completed due to the timing of when a sales contract has been entered into with the
customer.
Energy
Generation
Revenue
from net metering credits is recorded as electricity is generated from the solar arrays and billed to customers (PPA off-taker) at the
price rate stated in the applicable power purchase agreement (PPA).
Operation
and Maintenance and Other Miscellaneous Services
Revenue
for time and materials contracts is recognized as the service is provided.
2)
Disaggregation of Revenue from Contracts with Customers
The
following table disaggregates the Company’s revenue, all recognized over time, based on the timing of satisfaction of performance
obligations for the years ended December 31:
(In
thousands)
SCHEDULE
OF DISAGGREGATION OF REVENUE
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Performance obligations satisfied over time | |
| | | |
| | |
| Solar | |
$ | 68,936 | | |
$ | 40,512 | |
| Electric | |
| 6,354 | | |
| 3,631 | |
| Data and Network | |
| 1,163 | | |
| 1,169 | |
| Totals | |
$ | 76,453 | | |
$ | 45,312 | |
The
following table disaggregates the Company’s revenue based operational division for the years ended December 31:
(In
thousands)
SCHEDULE
OF REVENUE BASED OPERATIONAL SEGMENT
| | |
2022 | | |
2021 | |
| Operations | |
| | | |
| | |
| Residential | |
$ | 39,513 | | |
$ | 12,525 | |
| Commercial and Industrial | |
| 32,750 | | |
| 31,413 | |
| Utility | |
| 4,190 | | |
| 1,374 | |
| Totals | |
$ | 76,453 | | |
$ | 45,312 | |
3)
Variable Consideration
The
nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders;
award and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is
probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount
of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the
most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated
with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized
include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances
that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs
are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable.
If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated
with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction
of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges
are recognized when the same requirements described above for claims accounting have been satisfied.
4)
Remaining Performance Obligation
Remaining
performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations
that the Company has not performed under its customer contracts. The Company has elected to use the optional exemption in ASC 606-10-50-14,
which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of
one year or less.
5)
Warranties
The
Company generally provides limited workmanship warranties up to five years for work performed under its construction contracts. The warranty
periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically,
warranty claims have not resulted in material costs incurred, and any estimated costs for warranties are included in the individual contract
cost estimates for purposes of accounting for long-term contracts.
e) Accounts Receivable
Accounts
receivable are recorded when invoices are issued and presented on the balance sheet net of the allowance for doubtful accounts. The allowance,
which was $302 at December 31, 2022 and $84 at December 31, 2021, is estimated based on historical losses, the existing economic condition,
and the financial stability of the Company’s customers. Accounts are written off against the reserve when they are determined to
be uncollectible.
f) Contract Assets and Liabilities
Contract
assets consist of (i) the earned, but unbilled, portion of a project for which payment is deferred by the customer until certain met;
(ii) direct costs, including commissions, labor related costs and permitting fees paid prior to recording revenue, and (iii) unbilled
receivables which represent revenue that has been recognized in advance of billing the customer, which is common for larger construction
contracts. Contract liabilities consist of deferred revenue, customer deposits and customer advances, which represent consideration received
from a customer prior to transferring control of goods or services to the customer under the terms of a contract. Total contract assets
and contract liabilities balances as of the respective dates are as follows:
SCHEDULE
OF CONTRACT ASSETS AND LIABILITIES
| | |
2022 | | |
2021 | |
| (In thousands) | |
| | | |
| | |
| Contract Assets | |
$ | 7,324 | | |
$ | 4,004 | |
| Contract Liabilities | |
| 5,419 | | |
| 2,389 | |
Project
Assets
Project
assets primarily consist of costs related to solar power projects that are in various stages of development that are capitalized prior
to the completion of the sale of the project, and are actively marketed and intended to be sold. In contrast to contract assets, the
Company holds a controlling interest in the project itself. These project related costs include costs for land, development, and construction
of a PV solar power system. Development costs may include legal, consulting, permitting, transmission upgrade, interconnection, and other
similar costs. The Company typically classifies project assets as noncurrent due to the nature of solar power projects (long-lived assets)
and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months.
Once the Company enters into a definitive sales agreement, such project assets are classified as current until the sale is completed
and the Company has met all of the criteria to recognize the sale as revenue. Any income generated by a project while it remains within
project assets is accounted for as a reduction to the basis in the project. If a project is completed and begins commercial operation
prior to the closing of a sales arrangement, the completed project will remain in project assets until placed in service. All expenditures
related to the development and construction of project assets, whether fully or partially owned, are presented as a component of cash
flows from operating activities. Project assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. A project is considered commercially viable or recoverable if it is anticipated to be sold
for a profit once it is either fully developed or fully constructed. A partially developed or partially constructed project is considered
to be commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets.
The Company examines a number of factors to determine if the project is expected to be recoverable, including whether there are any changes
in environmental, permitting, market pricing, regulatory, or other conditions that may impact the project. Such changes could cause the
costs of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair
the respective project assets and adjust the carrying value to the estimated fair value, with the resulting impairment recorded within
“Selling, general and administrative” expense.
Project
Asset were $0 for the years ended December 31, 2022 and 2021, respectively.
g) Property and Equipment
Property
and equipment greater than $5 are recorded at cost. Cost includes the price paid to acquire or construct the assets, required installation
costs, and any expenditures that substantially add to the value or substantially extend the useful life of the assets.
The
solar arrays represent project assets that the Company may temporarily own and operate after being placed into service. The Company reports
solar arrays at cost, less accumulated depreciation. The Company begins depreciation on the solar arrays when they are placed in service.
Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
SCHEDULE
OF ESTIMATED USEFUL LIVES
| Buildings
and improvements |
39
years |
| Vehicles |
3-5
years |
| Tools
and equipment |
3-7
years |
| Solar
arrays |
20
years |
| Software |
3-7
years |
Total
depreciation expense for the years ended December 31, 2022 and 2021 was $2,252 and $681, respectively.
The
cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation are eliminated from the accounts and
any resulting gain or loss is included in operations. The cost of maintenance and repairs are charged to expense as incurred, while significant
renewals or betterments are capitalized.
h)
Intangible Assets
Intangible
assets primarily consist of trademarks, intellectual property and backlog They are amortized ratably over a range of 1 to 10 years. The
Company assesses the carrying value of its intangible assets for impairment each year. Based on its assessments, the Company has recorded
any impairment during the years ended December 31, 2022 and 2021, respectively.
i)
Goodwill
The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,”
where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on
their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one
year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and
revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The
Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that
the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the
reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment,
the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that
the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs
a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
The
Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income
approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections
of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments
to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market
comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections,
micro and macro general economic condition projections, and its expectations. However, due to the decline in Company’s market price,
it was determined that it was more likely and not that the Goodwill was fully impaired as of December 31, 2022 and recorded an impairment
of $37,150, a nonrecurring fair value measurement.
j)
Long-Lived Assets
The
Company assesses long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances arise,
including consideration of technological obsolescence, that may indicate that the carrying amount of such assets may not be recoverable.
These events and changes in circumstances may include a significant decrease in the market price of a long-lived asset; a significant
adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; a significant adverse
change in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of
the amount originally expected for the acquisition or construction of a long-lived asset; a current period operating or cash flow loss
combined with a history of such losses or a projection of future losses associated with the use of a long-lived asset; or a current expectation
that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated
useful life. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities
at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
When
impairment indicators are present, the Company compares undiscounted future cash flows, including the eventual disposition of the asset
group at market value, to the asset group’s carrying value to determine if the asset group is recoverable. If the carrying value
of the asset group exceeds the undiscounted future cash flows, the Company measures any impairment by comparing the fair value of the
asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted cash flows for
the asset group, (ii) third-party valuations, and/or (iii) information available regarding the current market value for such assets.
If
the fair value of an asset group is determined to be less than its carrying value, an impairment in the amount of the difference is recorded
in the period that the impairment indicator occurs. Estimating future cash flows requires significant judgment, and such projections
may vary from the cash flows eventually realized.
The
Company considers a long-lived asset to be abandoned after the Company has ceased use of such asset and it has no intent to use or
repurpose the asset in the future. Abandoned long-lived assets are recorded at their salvage value, if any.
k)
Asset Retirement Obligations
The
Company develops, constructs, and operates certain solar arrays with land lease agreements that include a requirement for the removal
of the assets at the end of the term of the agreement. The Company recognizes such asset retirement obligations (“ARO”) in
the period in which they are incurred based on the present value of estimated third-party recommissioning costs, and it capitalizes
the associated asset retirement costs as part of the carrying amount of the related assets. Once an asset is placed into service, the
asset retirement cost is subsequently depreciated on a straight-line basis over the estimated useful life of the asset. Changes in AROs
resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense. The
AROs were not deemed significant to the financial statements and were therefore, not recorded as a liability at December 31, 2022 and
2021.
l) Concentration and Credit Risks
The
Company occasionally has cash balances in a single financial institution during the year in excess of the Federal Deposit Insurance Corporation
(FDIC) limit of up to $250 per financial institution. The differences between book and bank balances
are outstanding checks and deposits in transit. At December 31, 2022 and 2021, the uninsured balances were approximately $3,300 and $900,
respectively.
m) Income Taxes
The
Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The financial statements of the Company account for deferred tax assets and liabilities in accordance with Accounting
Standards Codification (“ASC”) 740, Income taxes.
The
Company also uses a more-likely-than-not measurement for all tax positions taken or expected to be taken on a tax return in order for
those tax positions to be recognized in the financial statements. If the Company were to incur interest and penalties related to income
taxes, these would be included in the provision for income taxes. Generally, the three tax years previously filed remain subject to examination
by federal and state tax authorities.
o) Sales Tax
The
Company’s accounting policy is to exclude state sales tax collected and remitted from revenues and costs of sales, respectively.
p) Use of Estimates
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates
their estimates, including those related to inputs used to recognize revenue over time, estimates in recording the business combinations,
discount rate used in lease analysis, investments, impairment on investments and valuation of deferred tax assets. Actual results could
differ from those estimates.
q) Recently Issued Accounting Pronouncements
The
Company is an emerging growth company until at minimum December 31, 2023. The Company will maintain the election available to an emerging
growth company to use any extended transition period applicable to non-public companies when complying with a new or revised accounting
standard. The Company retains its emerging growth status and therefore elects to adopt new or revised accounting standards on the adoption
date required for a private company.
In
October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination
to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, Revenue
from Contracts with Customers, as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December
15, 2022, and early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial
statements and related disclosures.
On
May 03, 2021, the FASB issued Accounting Standards Update (ASU) 2021-04, Earnings Per Share (Topic 260), Debt— Modifications
and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts
in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options. The FASB issued ASU 2021-04 to clarify and reduce diversity in an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The ASU was effective years beginning after December 15, 2021, including interim periods within those years and the Company
is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In
August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments
by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share
calculation in certain areas. The ASU is effective for public companies, excluding entities eligible to be smaller reporting
companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption
was permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption had to be as of the beginning of the
Company’s annual fiscal year. The Company is currently evaluating the impact of this standard on its consolidated financial
statements and related disclosures.
In
September 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470). This ASU amends SEC paragraphs pursuant to SEC release No.
33-10762. We are currently assessing the provisions of this guidance to determine whether or not its adoption will have an impact on
our consolidated financial statements and related disclosures. This guidance is effective for fiscal years beginning after December 15,
2021 with early adoption permitted. The adoption of this standard does not have a material impact on the consolidated financial statements
and related disclosures.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations
by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases
will be classified as either operating or financing, with such classifications affecting the pattern of expense recognition in the income
statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. This standard
is effective for the Company’s annual reporting period beginning after December 15, 2021.
In
June 2016 the FASB issued ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326). This new guidance will change how
entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments.
The update will replace the current incurred loss model with an expected loss model. Under the incurred loss model, a loss (or allowance)
is recognized only when an event has occurred (such as a payment delinquency) that causes the entity to believe that a loss is probable
(that is has been “incurred”). Under the expected loss model, a loss (or allowance) is recognized upon initial recognitions
of the asset that reflects all future events that leads to a loss being realized, regardless of whether it is probable that the future
event will occur. The incurred loss model considers past events and conditions, while the expected loss model includes expectations for
the future which have yet to occur. ASU 2018-19 was issued in November 2018 and excludes operating leases from the new guidance. The
standard will require entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting
period in which the guidance is effective. As an emerging growth company, the standard was effective for the Company’s 2021 annual
reporting period and interim periods beginning first quarter of 2022. The adoption of this standard does not have a material impact on
the Company’s consolidated financial statements and related disclosures.
r) Deferred Finance Costs
Deferred
financing costs relate to the Company’s debt and equity instruments. Deferred financing costs relating to debt instruments are
amortized over the terms of the related instrument using the effective interest method. The Company incurred $1,654 and $400 of deferred
financing costs during the year ended December 31, 2022 and 2021, respectively. Amortization expense associated with deferred financing
costs, which is included in interest expense, totaled $413 and $103 for the years ended December 31, 2022 and 2021, respectively.
s) Fair Value of Financial Instruments
The
Company’s financial instruments include cash and cash equivalents, accounts receivable, cash collateral deposited with insurance
carriers, deferred compensation plan liabilities, accounts payable and other current liabilities, and debt obligations.
Fair
value is the price that would be received to sell an asset or the amount paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair
value. The three levels of inputs that may be used are: (i) Level 1 - quoted market prices in active markets for identical assets or
liabilities; (ii) Level 2 - observable market-based inputs or other observable inputs; and (iii) Level 3 - significant unobservable inputs
that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management
estimates of market participant assumptions. In instances in which the inputs used to measure fair value fall into different levels of
the fair value hierarchy, the fair value measurement classification is determined based on the lowest level input that is significant
to the fair value measurement in its entirety. Management’s assessment of the significance of a particular item to the fair value
measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Fair
values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information.
Due to their short-term maturity, the carrying amounts of cash, accounts receivable, accounts payable and other current liabilities approximate
their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers,
and outstanding balances on its line of credit and long-term debt approximate their fair values as these amounts are estimated using
public market prices, quotes from financial institutions and other available information.
t) Debt Extinguishment
Under
ASC 470, debt should be derecognized when the debt is extinguished, in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments
of Liabilities. Under this guidance, debt is extinguished when the debt is paid, or the debtor is legally released from being the
primary obligor by the creditor. On January 21, 2022, SunCommon received notification from Citizens Bank N.A. that the Small Business
Administration has approved the forgiveness of the PPP loan in its entirety and as such, the full $2,592 has been recognized in the income
statement as a gain upon debt extinguishment for the year ended December 31, 2022. On December 6, 2021, SunCommon received notification
from Citizens Bank N.A. that the Small Business Administration has approved the forgiveness of the PPP loan in its entirety and as such,
the full $2,000 has been recognized in the income statement as a gain upon debt extinguishment for the year ended December 31, 2021.
u)
Inventory
Inventory
is valued at lower of cost or net realizable value determined by the first-in, first-out method. Inventory primarily consists of solar
panels and other materials. The Company reviews the cost of inventories against their estimated net realizable value and records write-downs
if any inventories have costs in excess of their net realizable values. No inventory allowance exists at December 31, 2022 and December
31, 2021, respectively.
v)
Warrant liability
The
Company accounts for warrants to acquire shares of Common Stock as liabilities held at fair value on the consolidated balance sheets.
The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a change in fair value
of warrant liabilities in the Company’s consolidated statements of operations. The Company will continue to adjust the liability
for changes in fair value until the earlier of the exercise or expiration of the warrants. At that time, the warrant liability will be
reclassified to additional paid-in capital.
w) Segment Information
Operating
segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by
the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The
Company currently has one reportable segment with different product offerings for financial reporting purposes, which represents the
Company’s core business.
x) Legal Contingencies
The
Company accounts for liabilities resulting from legal proceedings when it is possible to evaluate the likelihood of an unfavorable outcome
in order to provide an estimate for the contingent liability. At December 31, 2022 and 2021, there are no material contingent liabilities
arising from pending litigation.
2. ACQUISITIONS
iSun
Energy, LLC
On
January 19, 2021, the Company entered into an Agreement and Plan of Merger and Reorganization with iSun Energy LLC. iSun Energy LLC became
a wholly-owned subsidiary of the Company. iSun Energy, LLC is a provider of products and services designed to support the electric vehicle
market. In connection with Merger, Sassoon Peress, the sole member, will receive 400,000 shares of the Company’s Common Stock over
five years valued at $2,404, 200,000 shares of which were issued at the closing, warrants to purchase up 200,000 shares of the Company’s
Common Stock, valued at $518, cash considerations of $85 and up to 240,000 shares of the Company’s Common Stock based on certain
performance milestones for an aggregate value of $3,007.
The
400,000 shares of Company’s Common Stock were valued utilizing the market close price of $6.01 on the date, December 30, 2020,
which the binding letter of intent was executed. For the warrants, the Company determined the fair market value of these options by using
the Black Scholes option valuation model. The key assumptions used in the valuation of the warrants were as follows; a) volatility of
103.32%, b) term of 3 years, c) risk free rate of 0.36% and d) a dividend yield of 0%.
At
December 31, 2022 and 2021, the amount of $2,406 and $2,706, net of amortization of $601 and $301, respectively, is included as an Intangible
Asset. The Company deemed the acquisition an asset acquisition in as much as the acquired assets consisted primarily of the iSun brand
and know-how and contained no other business processes. Amortization is computed using the straight-line method over the estimated useful
lives of the assets. The estimated useful life is 10 years. For the year ending December 31, 2022 and 2021, amortization expense is $600
and $301, respectively.
Assignment
Agreement
On
April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of Company,
Adani Solar USA, Inc., a Delaware corporation (Adani”), and Oakwood Construction Services, Inc., a Delaware corporation (“Oakwood”)
entered into an Assignment Agreement (the “Assignment”), pursuant to which iSun Utility will acquire all rights to the intellectual
property of Oakwood and its affiliates (the “Project IP”). Oakwood was a utility-scale solar EPC company and a wholly-owned
subsidiary of Adani. The Project IP includes all of the intellectual property, project references, templates, client lists, agreements,
forms and processes of Adani’s U.S. solar business.
Under
the Assignment, iSun Utility purchased the Project IP from Adani and Oakwood for total consideration of $2.7 million, with $1.0 million
due immediately and the remaining $1.7 million contingent upon the achievement of certain milestones, as described in this paragraph.
Under the Assignment provides that iSun Utility acquired all membership interests in Hartsel Solar, LLC (“Hartsel”), and
through this transaction iSun Utility acquired all rights to Hartsel’s in-process solar project (the “Hartsel Project”).
If Hartsel achieves certain milestones, iSun Utility will pay to Adani $0.7 million to secure equipment previously purchased allowing
for safe harbor of the 30% ITC and an additional amount of $1.0 million for key development milestones. The contingent provisions of
the Assignment Agreement entered into with Oakwood and Adani are considered Level 3 measurements. Given that the probability of such
provisions being achieved is highly unlikely and still remote at December 31, 2022, no value was assigned to the contingent provision.
At
December 31, 2022 and 2021, the amount of $800 and $1,000, net of amortization of $150 and $0, respectively, is included as an Intangible
Asset. The Company deemed the acquisition an asset acquisition in as much as the acquired assets consisted primarily of the know-how
and contained no other business processes. Amortization is computed using the straight-line method over the estimated useful lives of
the assets. The estimated useful life is 10 years. For the year ending December 31, 2022 and 2021, amortization expense is $150 and $0,
respectively.
Business
Combination
On
September 8, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company,
iSun Residential Merger Sub, Inc., a Vermont corporation (the “Merger Sub”) and wholly-owned subsidiary of iSun Residential,
Inc., a Delaware corporation (“iSun Residential”) and wholly-owned subsidiary of the Company, SolarCommunities, Inc., a Vermont
benefit corporation (“SunCommon”), and Jeffrey Irish, James Moore, and Duane Peterson as a “Shareholder Representative
Group” of the holders of SunCommon’s capital stock (the “SunCommon Shareholders”), pursuant to which the Merger
Sub merged with and into SunCommon (the “Merger”) with SunCommon as the surviving company in the Merger and SunCommon became
a wholly-owned subsidiary of iSun Residential. In connection with Merger, the SunCommon Shareholders received merger consideration totaling
$48,300 consisting of (i) cash in the amount of $25,535; (ii) Common Stock of the Company (“Common Stock”) in the amount
of $15,965, priced at $8.816 per share; and (iii) earn out consideration of up to $10,000 upon the fulfillment of certain conditions.
The net present value of the earnout provision was determined to be $6,800 and the Company has included the $3,500 and $3,300 as current
in accrued expenses and long-term liabilities in other liabilities, respectively. The shares of the Common Stock issued in connection
with the Merger were listed on the NASDAQ Capital Market. The Merger closed and was effective on October 1, 2021.
The
Company will begin reporting in segments in the future as we do not currently allocate labor amongst the operating divisions.
The
purchase price for SolarCommunities, Inc. consisted of approximately $48,300,000 in cash, equity and earnout provision subject to post-closing
adjustments related to working capital, cash, indebtedness and transaction expenses. The Acquisition was accounted for under ASC 805
and the financial results of SunCommon have been included in the Company’s consolidated financial statements since the date of
the Acquisition.
Purchase
Price Allocation
Under
the purchase method of accounting, the transaction was valued for accounting purposes at approximately $48,300,000 which was the fair
value of SolarCommunities, Inc. at the time of acquisition. The assets and liabilities of SolarCommunities, Inc. were recorded at their
respective fair values as of the date of acquisition. Any difference between the purchase price of SolarCommunities, Inc. and the fair value of
the assets acquired and liabilities assumed is recorded as goodwill. There were no material changes between the preliminary and final
estimated fair values. The acquisition date preliminary estimated fair value of the consideration transferred consisted of the following:
SCHEDULE OF BUSINESS ACQUISITIONS
| Purchase price (in 000’s): | |
| | |
| |
| Fair value of iSun’s shares of Common Stock issued (1,810,955 shares), at $8.816 per share | |
| | | |
$ | 15,965 | |
| Cash paid | |
| | | |
| 25,535 | |
| Earnout provision | |
| | | |
| 6,800 | |
| Total consideration transferred | |
| | | |
$ | 48,300 | |
| Fair value of identifiable assets acquired: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 581 | | |
| | |
| Accounts receivable | |
| 3,409 | | |
| | |
| Inventory | |
| 2,653 | | |
| | |
| Contract assets | |
| 610 | | |
| | |
| Premises and equipment | |
| 4,447 | | |
| | |
| Trademark and brand | |
| 11,980 | | |
| | |
| Backlog | |
| 3,220 | | |
| | |
| Other current assets | |
| 762 | | |
| | |
| Total identifiable assets | |
$ | 27,662 | | |
| | |
| Fair value of identifiable liabilities assumed: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 5,562 | | |
| | |
| Contract liabilities | |
| 1,103 | | |
| | |
| Customer deposits | |
| 355 | | |
| | |
| Deferred tax liabilities | |
| 2,070 | | |
| | |
| Loans payable | |
| 6,282 | | |
| | |
| Other liabilities | |
| 260 | | |
| | |
| Total identifiable liabilities | |
$ | 15,632 | | |
| | |
| Net assets acquired including identifiable intangible assets | |
| | | |
| 12,030 | |
| Goodwill | |
| | | |
$ | 36,270 | |
During
the year ended December 31, 2021, we recorded non-recurring total transaction costs related to the Acquisition of $1,235. These expenses
were accounted for separately from the net assets acquired and are included in general and administrative expense.
Business
Combination
On
November 18, 2021, John Stark Electric, Inc., a New Hampshire corporation (“JSI”) and wholly-owned subsidiary of iSun,
Inc., a Delaware corporation (the “Company”), Liberty Electric, Inc., a New Hampshire Corporation
(“Liberty”) and John P. Comeau (“Comeau”) after obtaining required consents released signature pages and
closed an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which JSI acquired all of the assets of
Liberty (the “Acquisition”) for a purchase price of $1,400,
subject to a post-closing working capital adjustment. The purchase price was paid as follows: (i) cash in the amount of $1,200;
(ii) Common Stock of the Company in the amount of $250,
priced at $8.4035
per share, which was the 10-day volume weighted average Nasdaq closing price immediately prior to the Closing Date; and (iii) earn
out consideration of up to $300 upon the fulfillment of certain conditions.
The
purchase price for Liberty Electric, Inc. consisted of $1,400 in cash, equity and cash consideration for existing working capital subject
to post-closing adjustments related to working capital, cash, indebtedness and transaction expenses. The Acquisition was accounted for
under ASC 805 and the financial results of Liberty have been included in the Company’s consolidated financial statements since
the date of the Acquisition.
Purchase
Price Allocation
Under
the purchase method of accounting, the transaction was valued for accounting purposes at $1,400
which was the fair value of Liberty Electric, Inc. at the time of acquisition. The assets and liabilities of Liberty Electric, Inc.
were recorded at their respective fair values as of the date of acquisition. Any difference between the purchase price of Liberty
Electric, Inc. and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date
estimated fair value of the consideration transferred consisted of the following:
SCHEDULE OF BUSINESS ACQUISITIONS
| Purchase
price (in 000’s): |
|
|
|
|
|
|
| Fair
value of iSun’s shares of Common Stock issued (29,749 shares), at $8.4035 per share |
|
|
|
|
$ |
250 |
|
| Cash
paid |
|
|
|
|
|
1,195 |
|
| Earnout
provision |
|
|
|
|
|
- |
|
| Total
consideration transferred |
|
|
|
|
$ |
1,445 |
|
| Fair
value of identifiable assets acquired: |
|
|
|
|
|
|
|
| Accounts
receivable |
|
$ |
562 |
|
|
|
|
|
| Inventory
|
|
|
90 |
|
|
|
|
|
| Contract
assets |
|
|
97 |
|
|
|
|
|
| Premises
and equipment |
|
|
38 |
|
|
|
|
|
| Other
current assets |
|
|
2 |
|
|
|
|
|
| Total
identifiable assets |
|
$ |
789 |
|
|
|
|
|
| Fair
value of identifiable liabilities assumed: |
|
|
|
|
|
|
|
|
| Accounts
payable and accrued liabilities |
|
$ |
219 |
|
|
|
|
|
| Contract
liabilities |
|
|
5 |
|
|
|
|
|
| Total
identifiable liabilities |
|
$ |
224 |
|
|
|
|
|
| Net
assets acquired including identifiable intangible assets |
|
|
|
|
|
|
565 |
|
| Goodwill |
|
|
|
|
|
$ |
880 |
|
| (1) |
The
earnout provision has not been met and has not been included in the allocation of the purchase price. |
Pro
Forma Information (Unaudited)
The
results of operations for the acquisitions of SolarCommunities, Inc. and Liberty Electric Inc. since the October 1, 2021 and November
1, 2021 closing dates, respectively, have been included in our December 31, 2021 consolidated financial statements and include approximately
$12,500 and $700 of total revenue. The following unaudited pro forma financial information represents a summary of the consolidated results
of operations for the years ended December 31, 2022 and 2021, assuming the acquisition had been completed as of January 1, 2020. The
pro forma financial information includes certain non-recurring pro forma adjustments that were directly attributable to the business
combination. The proforma adjustments include the elimination of acquisition transaction expenses totaling $1,235 incurred in 2021. The
pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisition
had been effective as of these dates, or of future results.
SCHEDULE OF BUSINESS PRO FORMA INFORMATION
| (in 000’s) | |
2022 | | |
2021 | |
| | |
Year Ended December 31, | |
| (in 000’s) | |
2022 | | |
2021 | |
| Revenue, net | |
$ | 76,453 | | |
$ | 72,501 | |
| | |
| | | |
| | |
| Net loss | |
$ | (53,779 | ) | |
$ | (9,202 | ) |
| | |
| | | |
| | |
| Weighted average shares of common stock outstanding, basic and diluted | |
| 14,089,499 | | |
| 10,657,665 | |
| | |
| | | |
| | |
| Net loss per share, basic and diluted | |
$ | (3.82 | ) | |
$ | (0.86 | ) |
3. LIQUIDITY AND FINANCIAL CONDITION
In
2022, the Company experienced a net operating loss and negative cash flow from operations. At December 31, 2022, the Company had balances
of cash of $5,455,
working capital deficit of $4,498,
and total stockholders’ equity of $19,287.
To date, the Company has relied predominantly on operating cash flow to fund its operations, borrowings from its credit facilities, sales
of Common Stock and exercise of public warrants. Cash
used in operations gives rise to substantial doubt however the availability of financing and the cash flow from operations mitigates
the potential for substantial doubt. In November 2022, the Company borrowed funds pursuant to a secured fixed rate debt facility and
paid and terminated its previously existing line of credit. The new debt facility allows for repayment of the obligation in shares of
Common Stock which, if the Company choses to do, will conserve cash.
The
Company does not expect to continue to incur losses from operations. For the years ended December 31, 2022 and 2021, margin
was impacted significantly due to material and commodity price increases and inefficiencies resulting from labor shortages. The Company
modified contract terms to allow for an adjustment in contract terms to account for any fluctuations in material pricing.
The
demand for solar and electric vehicle infrastructure continues to increase across all customer groups. Our residential division has customer
orders of approximately $20,500 expected to be completed within four to six months, our commercial division has a contracted backlog
of approximately $11,200 expected to be completed within six to eight months, our industrial division has a contracted backlog of approximately
$132,500 expected to be completed within twelve to eighteen months and our utility division has 1.6 GW of projects currently under development
that will transition to the respective divisions backlog when approaching notice to proceed.. The customer demand across our segments
will provide short-term operational cash flow.
As
of March 16, 2023, the Company had approximately $16,000 in
gross proceeds potentially available from sales of Common Stock pursuant to the S-3 Registration Statement which could be utilized to
support any short-term deficiencies in operating cash flow.
The
Company believes its operating cash flow, current cash on hand, and additional sales of Common Stock, the collectability of its
accounts receivable and proceeds generated from its project backlog are sufficient to meet its operating and capital requirements
for at least the next twelve months from the date these financial statements are issued.
4. ACCOUNTS RECEIVABLE
Accounts
receivable consist of:
SCHEDULE OF ACCOUNTS RECEIVABLE
| |
December 31, 2022 | | |
December 31, 2021 | |
| Accounts receivable - contracts in progress | |
$ | 8,502 | | |
$ | 13,886 | |
| Accounts receivable - retainage | |
| 583 | | |
| 535 | |
| Accounts receivable | |
| 9,085 | | |
| 14,421 | |
| Allowance for doubtful accounts | |
| (302 | ) | |
| (84 | ) |
| Total | |
$ | 8,783 | | |
$ | 14,337 | |
Bad
debt expense was $145 and $0 for the years ended December 31, 2022 and 2021, respectively.
Contract
assets represent revenue recognized in excess of amounts billed, unbilled receivables, and retainage. Unbilled receivables represent
an unconditional right to payment subject only to the passage of time, which are reclassified to accounts receivable when they are billed
under the terms of the contract. Contract assets were as follows at December 31, 2022 and 2021:
SUMMARY
OF CONTRACT ASSETS AND LIABILITIES
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Contract assets | |
$ | 7,231 | | |
$ | 3,452 | |
| | |
| - | | |
| - | |
| Unbilled receivables, included in costs in excess of billings | |
| 93 | | |
| 552 | |
| Costs and estimated earnings in excess of billings | |
| 7,324 | | |
| 4,004 | |
| Retainage, included in Accounts Receivable | |
| 583 | | |
| 535 | |
| Total | |
$ | 7,907 | | |
$ | 4,539 | |
Contract
liabilities represent amounts billed to clients in excess of revenue recognized to date, billings in excess of costs, and retainage.
The Company anticipates that substantially all incurred costs associated with contract assets as of December 31, 2022 will be billed and
collected within one year. Contract liabilities were as follows at December 31, 2022 and 2021:
| |
December 31, 2022 | | |
December 31, 2021 | |
| Contract Liabilities | |
$ | 5,419 | | |
$ | 2,389 | |
| Retainage | |
| - | | |
| - | |
| Total | |
$ | 5,419 | | |
$ | 2,389 | |
5. CONTRACTS IN PROGRESS
Information
with respect to contracts in progress are as follows:
SCHEDULE OF CONTRACTS IN PROGRESS
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Expenditures to date on uncompleted contracts | |
$ | 31,215 | | |
$ | 13,716 | |
| Estimated earnings thereon | |
| 2,509 | | |
| 2,784 | |
| Contract costs | |
| 33,744 | | |
| 16,499 | |
| Less billings to date | |
| (31,912 | ) | |
| (15,436 | ) |
| Contract costs, net of billings | |
| 1,812 | | |
| 1,063 | ) |
| Plus under billings remaining on contracts 100% complete | |
| 93 | | |
| 552 | |
| Total | |
$ | 1,905 | | |
$ | 1,615 | |
Included
in accompany balance sheets under the following captions:
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Contract assets | |
$ | 7,324 | | |
$ | 4,004 | |
| Contract liabilities | |
| (5,419 | ) | |
| (2,389 | ) |
| Total | |
$ | 1,905 | | |
$ | 1,615 | |
6. LEASES
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. This update requires that lessees recognize
right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at lease commencement date.
The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged
and shall continue to depend on its classification as a finance or operating lease. The Company adopted the ASU and related amendments
on January 1, 2022 and elected certain practical expedients permitted under the transition guidance. The Company elected the optional
transition method that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods, retained
historical lease classification, and not applying hindsight in determining the lease term. The Company also elected the short-term lease
exception for all classes of assets, and therefore does not apply the recognition requirements for leases of 12 months or less.
Under
the new guidance, the majority of the Company’s leases continued to be classified as operating. During the fourth quarter of 2022,
the Company completed its implementation of its processes and policies to support the new lease accounting and reporting requirements.
Based on the Company’s lease portfolio as of January 1, 2022, the impact of adopting ASU 2016-02 increased both the Company’s
total assets and total liabilities by approximately $7,539 and $7,808 respectively. The adoption of this ASU did not have a significant
impact on the Company’s Consolidated Statements of Operations or Cash Flows.
The
Company has operating leases for offices, warehouse, vehicles, office equipment and land leases for its solar assets. The Company’s
leases have remaining lease terms of 1 year to 18 years, some of which include options to extend.
The
Company’s lease expense for the year ended December 31, 2022 was entirely comprised of operating leases and amounted to $753. Operating
lease payments, which reduced operating cash flows for the year ended December 31, 2022 amounted to $835. The difference between the
ROU asset amortization of $660 and the associated lease expense of $642 consists of interest, new vehicles, new facilities and lease
extensions, office and office equipment leases originated during the year ended December 31, 2022.
SCHEDULE
OF OPERATING LEASE
| | |
December 31, 2022 | |
| Operating lease right-of-use assets | |
$ | 6,960 | |
| | |
| | |
| Operating lease liabilities—short term | |
| 588 | |
| Operating lease liabilities—long term | |
| 6,711 | |
| Total operating lease liabilities | |
$ | 7,299 | |
As
of December 31, 2022, the weighted average remaining lease term for operating leases was 10.94 years and the weighted average discount
rate for the Company’s operating leases was 3.33%.
Estimated
minimum future lease obligations are as follows:
SCHEDULE
OF ESTIMATED FUTURE MINIMUM LEASE
| Year ending December 31: | |
Amount | |
| 2023 | |
$ | 817 | |
| 2024 | |
| 805 | |
| 2025 | |
| 798 | |
| 2026 | |
| 796 | |
| 2027 | |
| 797 | |
| Thereafter | |
| 4,740 | |
| Total lease payments | |
| 8,753 | |
| Less: interest | |
| (1,454 | ) |
| Total | |
$ | 7,299 | |
7. LONG-TERM DEBT
A
summary of long-term debt is as follows:
SUMMARY OF LONG-TERM DEBT
| | |
December 31, 2022 | | |
December 31, 2021 | |
| NBT Bank, National Association, 4.25% interest rate, secured by all business assets, payable in monthly installments of $5,869 through September 2026, with a balloon payment at maturity. | |
$ | 598 | | |
$ | 641 | |
| NBT Bank, National Association, 4.20% interest rate, secured by building, payable in monthly installments of $3,293 through September 2026, with a balloon payment at maturity. | |
| - | | |
| 216 | |
| NBT Bank, National Association, 4.15% interest rate, secured by all business assets, payable in monthly installments of $3,677 through April 2026. | |
| 137 | | |
| 174 | |
| NBT Bank, National Association, 4.20% interest rate, secured by all business assets, payable in monthly installments of $5,598 through October 2026, with a balloon payment at maturity. | |
| 325 | | |
| 377 | |
| NBT Bank, National Association, 4.85% interest rate, secured by a piece of equipment, payable in monthly installments of $2,932 including interest, through May 2023. | |
| 14 | | |
| 48 | |
| Various vehicle loans, interest ranging from 0% to 10.09%, total current monthly installments of approximately $34,878 secured by vehicles, with varying terms through 2027. | |
| 1,271 | | |
| 1,147 | |
| National Bank of Middlebury, 3.95% interest rate for the initial 5 years, after which the loan rate will adjust equal to the Federal Home Loan Bank of Boston 5/10 – year Advance Rate plus 2.75%, loan is subject to a floor rate of 3.95%, secured by solar panels and related equipment, payable in monthly installments of $2,388 including interest, through December 2024. | |
| 21 | | |
| 48 | |
| B. Riley Commercial Capital, LLC, 8.0% interest rate, payable in full on October 15, 2022 | |
| - | | |
| 6,046 | |
| Unsecured note payable in connection with the PPP, established by the federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which bears interest at 1% through April 2026. The Company has not yet applied for forgiveness. | |
| - | | |
| 2,592 | |
| Senior secured convertible notes payable, 5% interest rate, monthly payments of 1/26th of the original purchase amount plus accrued but unpaid interest beginning March 1, 2023 until maturity date of May 4, 2025. | |
| 12,500 | | |
| - | |
| | |
December 31, 2022 | | |
December 31, 2021 | |
| CSA 5: Payable in monthly installments of $2,414, including interest at 5.5%, due August 2026. | |
| - | | |
| 119 | |
| CSA 17: Payable in monthly installments of $2,414, including interest at 5.5%. The interest rate will become variable at the VEDA Prime Rate from April 2025 through maturity in April 2027. | |
| - | | |
| 133 | |
| CSA 36: Payable in monthly installments of $2,414, including interest at 5.5%. The interest rate will become variable at the VEDA Prime Rate from June 2025 through maturity in June 2027. | |
| 115 | | |
| 137 | |
| CSA 5: Payable in monthly interest only installments of $1,104 through August 2019; then payments of $552, representing half of monthly interest only payments, through August 2026 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due August 2034; interest at 11.25% throughout the loan term. | |
| - | | |
| 118 | |
| CSA 17: Payable in monthly interest only installments of $1,104 through April 2020; then payments of $552, representing half of monthly interest only payments, through April 2027 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due April 2035; interest at 11.25% throughout the loan term. | |
| - | | |
| 118 | |
| CSA 36: Payable in monthly interest only installments of $1,104 through June 2020; then payments of $552, representing half of monthly interest only payments, through June 2027 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due June 2035; interest at 11.25% throughout the loan term. | |
| 118 | | |
| 118 | |
| Equipment loans | |
| 56 | | |
| 94 | |
| Easement liabilities | |
| - | | |
| 31 | |
| Long-term debt | |
| 15,155 | | |
| 12,157 | |
| Less current portion | |
| (5,374 | ) | |
| (6,694 | ) |
| Long-term debt, including debt issuance costs | |
| 9,781 | | |
| 5,463 | |
| Less debt issuance costs | |
| (1,555 | ) | |
| (314 | ) |
| Long-term debt | |
$ | 8,226 | | |
$ | 5,149 | |
Maturities
of long-term debt are as follows:
SCHEDULE
OF MATURITIES OF LONG-TERM DEBT
| Year ending December 31: | |
Amount | |
| 2023 | |
$ | 5,374 | |
| 2024 | |
| 6,285 | |
| 2025 | |
| 2,356 | |
| 2026 | |
| 836 | |
| 2027 | |
| 129 | |
| Thereafter | |
| 175 | |
| Total | |
$ | 15,155 | |
Senior
Secured Convertible Notes Payable
On
November 4, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with two affiliated investors. At
the Closing, the Company issued and sold to each Purchaser a Senior Secured Convertible Note, the aggregate original principal
amount of the two Notes was $12,500.
The Purchase Agreement provided for a six percent (6%)
original interest discount resulting in gross proceeds to the Company of $11,750.
Upon (i) the effectiveness of a Registration Statement covering the Registrable Securities (as defined in the SPA), (ii) the
Stockholder Approval (as defined in the SPA), (iii) the Company’s achievement of certain revenue and EBITDA targets, (iv) the
Company having sufficient authorized shares of Common Stock (v) the Company’s maintenance of certain balance sheet
requirements and (vi) certain other conditions, the Company and the Purchasers will consummate a second closing in which the Company
will issue and sell to each Purchaser a second Note, the two notes being in the aggregate principal amount of $12,500
having identical terms and conditions as the original Note, including a six percent (6%)
original interest discount, for an aggregate principal amount of $25,000
in Notes that may be issued and sold pursuant to the Purchase Agreement. The Conversion Price of $2.66 is subject to customary adjustments for stock
dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common
Stock, or securities convertible, exercisable or exchangeable for, Common Stock at a price below the then-applicable Conversion Price
(subject to certain exceptions). Beginning on March 1, 2023 and on the first day of each month thereafter, the Company will be required
to redeem 1/26th of
the original principal amount of each Note, plus accrued but unpaid interest, until the maturity date of May 4, 2025.
Payroll
Protection Loan
In
June, 2020, SolarCommunities, Inc. entered into a Promissory Note with Citizens Bank, N.A. as the lender (“Lender”),
pursuant to which the Lender agreed to make a loan to the Company under the Payroll Protection Program (“PPP Loan”)
offered by the U.S. Small Business Administration (“SBA”) in a principal amount of $2,592
pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (“CARES”). On January 21, 2022,
SolarCommunities, Inc. received notification from Citizens Bank, N.A. that the Small Business Administration had approved the
forgiveness of the PPP loan in its entirety and accordingly $2,592
was recognized in the consolidated income statement as a gain upon debt extinguishment for the year ended December 31,
2022.
In
February 2021, SolarCommunities, Inc., an indirect wholly-owned subsidiary of the Company, entered into a Promissory Note with
Citizens Bank, N.A. as the lender (“Lender”), pursuant to which the Lender agreed to make a loan to the Company under
the Payroll Protection Program (“PPP Loan”) offered by the U.S. Small Business Administration (“SBA”) in a
principal amount of $2,000
pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (“CARES”). On December 6, 2021,
SolarCommunities, Inc. received notification from the Lender that the Small Business Administration has approved the forgiveness of
the PPP loan in its entirety and accordingly $2,000
has been recognized in the consolidated income statement as a gain upon debt extinguishment for the year ended December 31,
2021.
8. LINE OF CREDIT
The
Company had a working capital line of credit with NBT Bank N.A. with a limit of $6,000
and a variable interest rate based on the Wall
Street Journal Prime rate. The balance outstanding was $0
and $4,468
at December 31, 2022 and December 31, 2021, respectively.
The line was paid in full and terminated during November 2022.
9. COMMITMENTS AND CONTINGENCIES
In
2020, the Company entered into a ten-year lease agreement for a new headquarters in Williston, Vermont consisting of approximately 6,250
square feet of office space and 6,500 square feet of warehouse. The lease has annual rent of $108 with an annual increase of 2%.
The
Company leases an office and warehouse facilities in Waterbury, Vermont under agreements expiring in May 2028 and August 2026, respectively.
The monthly base rent for the office and warehouse facilities currently approximates $28, subject to annual 3% increases.
The
Company leases an office and warehouse facility in Rhinebeck, New York from a stockholder. Monthly base rent currently approximates $7
and is on a month-to-month basis.
In
2015, the Company entered into two twenty-five-year non-cancelable lease agreements for land on which they constructed solar arrays.
One lease has fixed annual rent of $3. The second lease has annual rent of $3 with an annual increase of 2%.
In
2017, the Company entered into a twenty-year non-cancelable lease agreement for land on which it constructed solar arrays. The lease
has annual rent of $4 with an annual increase of 2%.
In
2018, the Company entered into a twenty-year non-cancelable lease agreement for land on which it constructed solar arrays. The lease
has annual rent of $26.
In
2019, the Company entered into a two-year non-cancelable lease agreement for equipment used in solar installations. The lease has an
annual rent of $50 and expired in 2021.
The
Company leases a vehicle under a non-cancelable operating lease. In addition, the Company occasionally pays rent for storage on a month-to-month
basis.
The
Company leases vehicles and office equipment under various agreements expiring through June 2026. As of December 31, 2022, aggregate
monthly payments required under these leases approximates $35.
Settlement
of Pending Litigation
On January 26, 2022 a Complaint was filed in the U.S. District Court for the District of Vermont by Sassoon Peress
and Renewz Sustainable Solutions, Inc. against the Company, alleging various claims including breach of contract, defamation, and unjust
enrichment arising out of the acquisition of iSun Energy LLC, the sole owner of which was Mr. Peress. The litigation sought legal and
equitable remedies. On January 17, 2023, the Company entered into a Settlement Agreement resolving all claims in consideration of a modification
of the timing of the delivery of the Acquisition consideration and payment of Mr. Peress’ attorneys’ fees. The matter was
dismissed with prejudice on March 13, 2023.
10. WARRANTS
On
March 9, 2021, the Company announced its intention to redeem all of its outstanding public warrants to purchase shares of the Company’s
Common Stock that were issued under the Warrant Agreement.
On
April 12, 2021, the Company redeemed approximately 453,764 Warrants for $0.01 per warrant that remained outstanding on the Redemption
Date, in accordance with the Public Warrant terms. After the redemption, as of April 12, 2021, the Company had no outstanding public
warrants outstanding.
As
of December 31, 2021, the Company received notification that (3,641,018) warrants issued in connection with the Company’s (Jensyn
Acquisition Corp.) initial public offering were exercised and 1,820,509 shares of Common Stock were issued in connection with such exercise
resulting in cash proceeds to the Company of $20,906.
SCHEDULE
OF WARRANTS
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Beginning balance | |
| 69,144 | | |
| 4,163,926 | |
| Granted | |
| - | | |
| - | |
| Exercised | |
| - | | |
| (3,641,018 | ) |
| Redeemed | |
| - | | |
| (453,764 | ) |
| Ending balance | |
| 69,144 | | |
| 69,144 | |
11. FAIR VALUE MEASUREMENTS
The
Public Warrants were traded under the symbol ISUNW and the fair values were based upon the closing price of the Public Warrants at each
measurement date. The Private Warrants were valued using a Black-Scholes model, pursuant to the inputs provided in the table below:
SCHEDULE
OF FAIR VALUE MEASUREMENT INPUTS
| Input | |
Mark-to-Market Measurement at December 31, 2022 | | |
Mark-to-Market Measurement at December 31, 2021 | |
| Risk-free rate | |
| 3.88 | % | |
| 0.06 | % |
| Remaining term in years | |
| 1.47 | | |
| 2.47 | |
| Expected volatility | |
| 147.02 | % | |
| 152.90 | % |
| Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
| Fair value of common stock | |
$ | 1.30 | | |
$ | 5.96 | |
The
following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level
within the fair value hierarchy:
SCHEDULE
OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| | |
| | |
Fair Value Measurement as of December 31, 2022 | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Public Warrants | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| Private Warrants | |
| 10 | | |
| - | | |
| - | | |
| 10 | |
| |
|
|
|
|
Fair
Value Measurement as of
December
31, 2021 |
|
| |
|
Total |
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Public
Warrants |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Private
Warrants |
|
|
148 |
|
|
|
- |
|
|
|
- |
|
|
|
148 |
|
The
following is a roll forward of the Company’s Level 3 instruments:
SCHEDULE
OF ROLL FORWARD OF LEVEL 3 INSTRUMENTS
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Beginning balance | |
$ | 148 | | |
$ | 350 | |
| Fair value adjustment – Warrant liability | |
| (138 | ) | |
| (202 | ) |
| Ending balance | |
$ | 10 | | |
$ | 148 | |
12. UNION ASSESSMENTS
The
Company employs members of the International Brotherhood of Electrical Workers Local 300 (IBEW). The union fee assessments payable are
both withholdings from employees and employer assessments. Union fees are for monthly dues, defined contribution pension, health and
welfare funds as part of multi-employer plans. All union assessments are based on the number of hours worked or a percentage of gross
wages as stipulated in the agreement with the Union.
The
Company has an agreement with the IBEW in respect to rates of pay, hours, benefits, and other employment conditions that expires May
31, 2023. During the years ended December 31, 2022 and 2021, the Company incurred the following union assessments (in thousands):
SCHEDULE
OF UNION ASSESSMENTS
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Pension fund | |
$ | 350 | | |
$ | 322 | |
| Welfare fund | |
| 1,120 | | |
| 981 | |
| National employees benefit fund | |
| 100 | | |
| 91 | |
| Joint apprenticeship and training committee | |
| 43 | | |
| 33 | |
| 401(k) matching | |
| 172 | | |
| 111 | |
| Total | |
$ | 1,785 | | |
$ | 1,538 | |
Multiemployer
Plans
The
Company is party to collective bargaining agreements with unions representing certain of their employees, which require the Company to
pay specified wages, provide certain benefits to their union employees and contribute certain amounts to Multi-Employer Pension Plans
(“MEPP”). The Pension Plan Agreement (“PPA”) defines the funding rules for defined benefit pension plans and
establishes funding classifications for U.S.-registered multiemployer pension plans. Under the PPA, plans are classified into one of
the following five categories, based on multiple factors, also referred to as a plan’s “zone status”: Green (safe),
Yellow (endangered), Orange (seriously endangered), and Red (critical or critical and declining). Factors included in the determination
of a plan’s zone status include: funded percentage, cash flow position and whether the plan is projecting a minimum funding deficiency.
A
multiemployer plan that is so underfunded as to be in “endangered,” “seriously endangered,” “critical,”
or “critical and declining” status (as determined under the PPA) is required to adopt a funding improvement plan (“FIP”)
or a rehabilitation plan (“RP”), which, among other actions, could include decreased benefits and increased employer contributions,
which could take the form of a surcharge on benefit contributions. These actions are intended to improve their funding status over a
period of years. If a pension fund is in critical status, a participating employer must pay an automatic surcharge in addition to contributions
otherwise required under the collective bargaining agreement (“CBA”). With some exceptions, the surcharge is equal to 5%
of required contributions for the initial critical year and 10% for each succeeding plan year in which the plan remains in critical status.
The surcharge ceases on the effective date of a CBA (or other agreement) that includes contribution and benefit terms consistent with
the rehabilitation plan. Certain plans in which the Company participates are in “endangered,” “seriously endangered,”
“critical,” or “critical and declining” status. The amount of additional funds, if any, that the Company may
be obligated to contribute to these plans in the future cannot be estimated due to the uncertainty of the future levels of work that
could be required of the union employees covered by these plans, as well as the required future contribution rates and possible surcharges
applicable to these plans.
Details
of significant multiemployer pension plans as of and for the periods indicated, based upon information available to the Company from
plan administrators as well as publicly available information on the U.S. Department of Labor website, are provided in the following
table:
SCHEDULE
OF MULTIEMPLOYER PLANS
| Multiemployer | |
Employer Identification | |
Plan | | |
Contributions For the Years Ended December 31, | | |
Expiration Date of | | |
Pension Protection Act Zone Status | | |
FIP/RP | | |
| |
| Pension Plan | |
Number | |
Number | | |
2022 | | |
2021 | | |
CBA | | |
2022 | | |
As of | | |
2021 | | |
As of | | |
Status | | |
Surcharge | |
| National Electrical Benefit Fund | |
53-0181657 | |
| 1 | | |
| 99,907 | | |
| 91,180 | | |
5/31/2023 | | |
Green | | |
12/31/2022 | | |
Green | | |
12/31/2021 | | |
NA | | |
| No | |
13. INCOME TAXES
The
provision for income taxes for the years ended December 31, 2022 and 2021 consists of the following:
SCHEDULE
OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
| | |
2022 | | |
2021 | |
| Current | |
| | | |
| | |
| Federal | |
$ | - | | |
$ | (1 | ) |
| State | |
| 20 | | |
| (5 | ) |
| | |
| | | |
| | |
| Total Current | |
| 20 | | |
| (6 | ) |
| | |
| | | |
| | |
| Deferred | |
| | | |
| | |
| Federal | |
| (585 | ) | |
| (1,447 | ) |
| State | |
| (187 | ) | |
| (462 | ) |
| | |
| | | |
| | |
| Total Deferred | |
$ | (772 | ) | |
| (1,909 | ) |
| | |
| | | |
| | |
| Benefit for Income Taxes | |
$ | (752 | ) | |
$ | (1,915 | ) |
The
Company’s total deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| | |
2022 | | |
2021 | |
| Deferred tax assets (liabilities) | |
| | | |
| | |
| Accruals and reserves | |
$ | 219 | | |
$ | 170 | |
| Tax credits | |
| 592 | | |
| 514 | |
| Net operating loss | |
| 19,673 | | |
| 6,182 | |
| Stock-based compensation | |
| 22 | | |
| - | |
| Less valuation allowance | |
| (15,171 | ) | |
| - | |
| Total deferred tax assets | |
| 5,335 | | |
| 6,866 | |
| | |
| | | |
| | |
| Property and equipment | |
| (5,335 | ) | |
| (3,466 | ) |
| Intangibles | |
| - | | |
| (3,857 | ) |
| Stock-based compensation | |
| - | | |
| (315 | ) |
| Total deferred tax liabilities | |
| (5,335 | ) | |
| (7,638 | ) |
| | |
| | | |
| | |
| Net deferred tax liability | |
$ | - | | |
$ | (772 | ) |
The
Company uses a more-likely-than-not measurement for all tax positions taken or expected to be taken on a tax return in order for those
tax positions to be recognized in the financial statements. There were no uncertain tax positions as of December 31, 2022 and 2021. If
the Company were to incur interest and penalties related to income taxes, these would be included in the provision for income taxes,
there were none for the year ended December 31, 2022 and 2021 respectively. Generally, the tax years previously filed remain subject
to examination by federal and state tax authorities. The Company does not expect a material change in uncertain tax positions to occur
within the next 12 months.
For
the years ended December 31, 2022 and 2021, respectively, the reconciliation between the effective tax of 4.36% and 23.48% on income
from operations and the statutory tax rate of 21% and 21% is as follows:
SCHEDULE
OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| | |
2022 | | |
2021 | |
| Income tax expense at federal statutory rate | |
$ | (11,450 | ) | |
$ | (1,683 | ) |
| Paycheck Protection Program tax exempt loan forgiveness | |
| (544 | ) | |
| (420 | ) |
| Permanent differences | |
| 2 | | |
| 23 | |
| Permanent differences for change in fair value of warrants | |
| (29 | ) | |
| (205 | ) |
| Stock compensation subject to §162(m) limitation | |
| - | | |
| 205 | |
| Non-deductible intangible assets | |
| - | | |
| 833 | |
| Other adjustments | |
| - | | |
| 3 | |
| State and local taxes net of federal benefit | |
| (3,902 | ) | |
| (671 | ) |
| Valuation allowance | |
| 15,171 | | |
| - | |
The
Company received a loan under the CARES Act Payroll Protection Program (“PPP”) of $1,488.
The Company’s acquisition of SolarCommunities, Inc. and its subsidiaries included the assumption of outstanding
“PPP” loans of $2,592
and $2,000.
The “PPP” loan was forgiven in its entirety in 2020 and the income is deemed to be non-taxable which results in the
Company’s effective tax rate differing from the statutory rate. The SolarCommunities, Inc and its subsidiaries PPP loan were
forgiven in its entirety in 2022 and 2021.
The
Company has federal net operating losses of approximately $34,000
of which $2,200
will expire beginning in 2035, $31,800
of the net operating losses do not expire. Net operating losses incurred beginning in 2018 are not subject to expiration under the
Tax Cuts and Jobs Act, but the annual usage is limited to 80% of pre net operating loss taxable income for years beginning after
December 31, 2020. The Company has state net operating losses of approximately $29,600 which will expire beginning in 2029. The
Company has tax credit carryforwards of approximately $592
which will expire beginning in 2034. A valuation allowance has been recorded for a portion of the tax credits and net operating loss. The deferred tax assets for the net operating losses are presented net with deferred tax
liabilities, which primarily consist of book and tax depreciation differences. Utilization of net operating losses and tax credit carryforwards may be limited by ownership change rules, as defined
in Section 382 and 383 of the Internal Revenue Code.
14. CAPTIVE INSURANCE
The
Company and other companies are members of an offshore heterogeneous group captive insurance holding company entitled Navigator Casualty,
LTD. (NCL). NCL is located in the Cayman Islands and insures claims relating to workers’ compensation, general liability, and auto
liability coverage.
Premiums
are developed through the use of an actuarially determined loss forecast. Premiums paid totaled $235 and $248 for the years ended December
31, 2022 and 2021, respectively. The loss funding, derived from the actuarial forecast, is broken-out into two categories by the actuary
known as the “A & B” Funds. The “A” Fund pays for the first $100,000 of any loss and the “B”
Fund contributes to the remainder of the loss layer up to $300,000 total per occurrence.
Each
shareholder has equal ownership and invests a one-time cash capitalization of $36,000. This is broken out into two categories, $35,900
of redeemable preference shares and $100 for a single common share. Each shareholder represents a single and equal vote on NCL’s
Board of Directors.
Summary
financial information on NCL as of September 30, 2022 is:
SUMMARY
OF FINANCIAL INFORMATION
| Total assets | |
$ | 147,394 | |
| Total liabilities | |
$ | 80,785 | |
| Comprehensive income | |
$ | 2,137 | |
NCL’s
fiscal year end is September 30, 2022.
| | |
December 31, 2022 | | |
December 31, 2021 | |
| Investment in NCL | |
| | | |
| | |
| Capital | |
$ | 36 | | |
$ | 36 | |
| Cash security | |
| 218 | | |
| 194 | |
| Investment income in excess of losses (incurred and reserves) | |
| 16 | | |
| 40 | |
| Total | |
$ | 270 | | |
$ | 270 | |
15. RELATED PARTY TRANSACTIONS
In
2014, the minority stockholders of Peck Electric Co., who sold the building that the Company formerly occupied, lent the proceeds to
the majority stockholders of Peck Electric Co. who contributed $400 of the net proceeds as paid in capital. At December 31, 2022 and
December 31, 2021, the amount owed of $0 and $21, respectively, is included in the “due to stockholders” as there is a right
to offset.
In
May 2018, stockholders of the Company bought out a minority stockholder of Peck Electric Co. The Company advanced $250 for the stock
purchase which is included in the “due from stockholders”. At December 31, 2022 and December 31, 2021, the amounts due of
$0 and $39, respectively, are included in the “due to stockholders” as there is a right to offset.
In
2019, the Company’s majority stockholders lent proceeds to the Company to help with cash flow needs. At December 31, 2022 and December
31, 2021, the amounts owed of $0 and $60, respectively, are included in the “due to stockholders” as there is a right to
offset.
16. DEFERRED COMPENSATION PLAN
In
2018, the Company entered into a deferred compensation agreement with a former minority stockholder. The agreement provides for deferred
income benefits and is payable over the post-retirement period. The Company accrues the present value of the estimated future benefit
payments over the period from the date of the agreement to the retirement date. The minimum commitment for future compensation under
the agreement is $155, the net present value of which is $59. The Company will also pay the former stockholder a solar management fee
of 24.5% of the available cash flow from the solar arrays put into service on or before December 31, 2017 over the life of the arrays.
The amount is de minimis and therefore not recorded on the balance sheet as of December 31, 2022 and 2021 and recorded in the statement
of operations when incurred.
17. EARNINGS (LOSS) PER SHARE
Basic
earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted
average number of shares of Common Stock outstanding during the period, excluding the effects of any potentially dilutive securities.
Diluted EPS gives effect to the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised
or converted into Common Stock.
SCHEDULE
OF POTENTIAL SHARE ISSUANCES EXCLUDED FROM COMPUTATION OF EARNINGS (LOSS) PER SHARE
| | |
2022 | | |
2021 | |
| | |
Years Ended December 31, | |
| | |
2022 | | |
2021 | |
| Option to purchase Common Stock, from Jensyn’s IPO | |
| 429,000 | | |
| 429,000 | |
| Warrants to purchase Common Stock, from Jensyn’s IPO | |
| 34,572 | | |
| 34,572 | |
| Unvested restricted stock awards | |
| 305,023 | | |
| 160,667 | |
| Unexercised options to purchase Common Stock | |
| 225,666 | | |
| - | |
| Unvested options to purchase Common Stock | |
| 350,667 | | |
| 201,334 | |
| Totals | |
| 1,344,928 | | |
| 825,573 | |
The
Company has contingent share arrangements and warrants with the potential issuance of additional shares of Common Stock from these
arrangements which were excluded from the diluted EPS calculation because the prevailing market and operating conditions at the
present time do not indicate that any additional shares of Common Stock will be issued. These instruments could result in dilution
in future periods.
18. RESTRICTED STOCK AND STOCK OPTIONS
Options
As
of December 31, 2022, the Company has 201,334 non-qualified stock options outstanding to purchase 201,334 shares of Common Stock, per
the terms set forth in the option agreements. The stock options vest at various times and are exercisable for a period of five years
from the date of grant at an exercise price of $1.49 per share, the fair market value of the Company’s Common Stock on the date
of each grant. The Company determined the fair market value of these options to be $1.7 million by using the Black Scholes option valuation
model. The key assumptions used in the valuation of the options were as follows; a) volatility of 187.94%, b) term of 2 years, c) risk
free rate of 0.13% and d) a dividend yield of 0%.
SCHEDULE
OF SHARE BASED PAYMENT ARRANGEMENT, OPTION, ACTIVITY
| | |
December 31, 2022 | |
| | |
Number of Options | | |
Weighted average exercise price | |
| Outstanding, beginning January 1, 2022 | |
| 201,334 | | |
$ | 1.49 | |
| Granted | |
| 375,000 | | |
$ | 5.04 | |
| Exercised | |
| - | | |
$ | 1.49 | |
| Outstanding, ending December 31, 2022 | |
| 576,334 | | |
$ | 3.80 | |
| Exercisable at December 31, 2022 | |
| 225,666 | | |
$ | 3.46 | |
| | |
December 31, 2021 | |
| | |
Number of Options | | |
Weighted average exercise price | |
| Outstanding, beginning January 1, 2021 | |
| - | | |
$ | - | |
| Granted | |
| 302,000 | | |
$ | 1.49 | |
| Exercised | |
| 100,666 | | |
$ | 1.49 | |
| Outstanding, ending December 31, 2021 | |
| 201,334 | | |
$ | 1.49 | |
| Exercisable at December 31, 2021 | |
| - | | |
$ | - | |
The
above table does not include the 429,000 options issued as part of the Jensyn IPO.
Aggregate
intrinsic value of options outstanding at December 31, 2022 and 2021 was $0 and $900. Aggregate intrinsic value represents the difference
between the Company’s closing stock price on the last trading day of the fiscal period which was $5.96 as of December 31, 2021
and the exercise price multiplied by the number of options outstanding.
During
the years ended December 31, 2022 and 2021, the Company charged a total of $1,359 and $1,136, respectively to operations to recognize
stock based compensation expense for stock options. As of December 31, 2021, the Company had $395 in unrecognized stock-based compensation
expense related to 576,334 stock option awards, which is expected to be recognized over a weighted average period of less than three
years. All options are expected to vest.
During
the years ended December 31, 2022 and 2021, stock options were exercised for 0
and 100,666
shares of Common Stock providing approximately $0
and $100
of proceeds to the Company, respectively.
Restricted
Stock Grant to Executives
With
an effective date of January 4, 2021, subject to the iSun, Inc. 2020 Equity Incentive Plan, (the “2020 Plan”), the Company
entered into a Restricted Stock Grant Agreement with our Chief Executive Officer Jeffrey Peck, Chief Financial Officer John Sullivan,
Executive Vice President Fredrick Myrick, and Chief Strategy Officer Michael dAmato in January 2021 (the January 2021 RSGAs). All shares
issuable under the January 2021 RSGA are valued as of the grant date at $6.15 per share representing the fair market value. The January
2021 RSGA provides for the issuance of up to 241,000 shares of the Company’s Common Stock. The restricted shares shall vest as
follows: 80,333 of the restricted shares shall vest immediately, 80,333 of the restricted shares shall vest on the one (1) year anniversary
of the effective date, and the balance, or 80,334 restricted shares, shall vest on the two (2) year anniversary of the effective date.
With
an effective date of January 24, 2022, subject to the iSun, Inc. 2020 Equity Incentive Plan, (the “2020 Plan”), the Company
entered into a Restricted Stock Grant Agreement with our Chief Executive Officer Jeffrey Peck, Chief Financial Officer John Sullivan,
Executive Vice President Fredrick Myrick, and Chief Strategy Officer Michael dAmato in January 2022 (the January 2022 RSGAs). All shares
issuable under the January 2022 RSGA are valued as of the grant date at $5.04 per share representing the fair market value. The January
2022 RSGA provides for the issuance of up to 187,500 shares of the Company’s Common Stock. The restricted shares shall vest as
follows: 62,500 of the restricted shares shall vest immediately, 62,500 of the restricted shares shall vest on the one (1) year anniversary
of the effective date, and the balance, or 62,500 restricted shares, shall vest on the two (2) year anniversary of the effective date.
With
an effective date of April 18, 2022, subject to the iSun, Inc. 2020 Equity Incentive Plan, (the “2020 Plan”), the Company
entered into a Restricted Stock Grant Agreement with our Chief Executive Officer Jeffrey Peck, Chief Financial Officer John Sullivan,
Executive Vice President Fredrick Myrick, and Chief Strategy Officer Michael dAmato in April 2022 (the April 2022 RSGAs). All shares
issuable under the April 2022 RSGA are valued as of the grant date at $3.63 per share representing the fair market value. The April 2022
RSGA provides for the issuance of up to 337,033 shares of the Company’s Common Stock. The restricted shares shall vest as follows:
112,345 of the restricted shares shall vest on December 31, 2022, 112,345 of the restricted shares shall vest on December 31, 2023, and
the balance, or 112,343 restricted shares, shall vest on December 31, 2024.
During
the year ended December 31, 2022 and 2021, stock-based compensation expense of $1,532 and $915 was recognized for the January 2021 RSGA,
January 2022 RSGA and April 2022 RSGA, respectively.
Stock-based
compensation, excluding the January 2021 RSGA, January 2022 RSGA and April 2022 RSGA, related to employee and director options totaled
$90 and $264 for the year ended December 31, 2021 and 2020, respectively.
On
December 17, 2021, the stockholders approved an amendment to the 2020 Equity Incentive Plan increasing the available shares of Common
Stock to 3,000,000 shares of Common Stock.
19. INVESTMENTS
Investments
consist of:
SCHEDULE OF INVESTMENT
| | |
December 31, 2022 | | |
December 31, 2021 | |
| GreenSeed Investors, LLC | |
$ | 3,924 | | |
$ | 4,324 | |
| Investment in Solar Project Partners, LLC | |
| 96 | | |
| 96 | |
| Investment in Gemini Electric Mobility Co. | |
| 2,000 | | |
| 2,000 | |
| Investment in NAD Grid Corp. d/b/a AmpUp | |
| 1,000 | | |
| 1,000 | |
| Investment in Encore Renewables | |
| 5,000 | | |
| 5,000 | |
| Total | |
$ | 12,020 | | |
$ | 12,420 | |
GreenSeed
Investors, LLC (“GSI”) and Solar Project Partners, LLC (“SPP”)
For
the year ended December 31, 2022, the Company received a return of capital from GSI in the amount of $400. The dividend receivable of
$400 is included in other current assets as of December 31, 2022.
The
GSI and SPP investments are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes
in ordinary transactions for the identical or similar investment of the same issuer. As the Company does not have significant influence
over operating or financial policies of GSI and SPP, the cost method of accounting for the investment was determined to be appropriate.
Changes in the fair value of the investment are recorded as net appreciation in fair value of investment in the Consolidated Statements
of Operations. No net appreciation or depreciation in fair value of the investments was recorded during the year ended December 31, 2021,
as there were no observable price changes.
Gemini
and AmpUp
On
March 18, 2021, the Company made a minority investment of $1,500
in Gemini Electric Mobility Co. (“Gemini”) pursuant to a Simple Agreement for Future Equity. On May 6, 2021, the Company
made an additional minority investment of $500
in Gemini.
On
March 18, 2021, the Company made a minority investment of $1,000
in Nad Grid Corp (“AmpUp”) pursuant to a Simple Agreement for Future Equity.
The
Gemini and AmpUp investments are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes
in ordinary transactions for the identical or similar investment of the same issuer. These investments are minority investments intended
to support electric vehicle infrastructure development. The Company has no control in these entities. Changes in the fair value of the
investment are recorded as net appreciation in fair value of investment in the Consolidated Statements of Operations. At December 31,
2022 and 2021, the equity investment for Gemini and AmpUp was $2,000 and $1,000, respectively. No net appreciation or depreciation in
fair value of the investments was recorded during the year ended December 31, 2022 and 2021, respectively, as there were no observable
price changes.
Encore
Renewables
On
November 24, 2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company invested $5,000 in Encore
Redevelopment, LLC (“Encore”) representing a fully-diluted 9.1% ownership interest.
The
Encore investment is measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes in ordinary
transactions for the identical or similar investment of the same issuer. As the Company does not have significant influence over operating
or financial policies of Encore, the cost method of accounting for the investment was determined to be appropriate. Changes in the fair
value of the investment are recorded as net appreciation in fair value of investment in the Consolidated Statements of Operations. No
net appreciation or depreciation in fair value of the investments was recorded during the year ended December 31, 2022 and2021, respectively,
as there were no observable price changes.
20. INTANGIBLES
The
Company’s intangible assets at December 31, 2022 consist of:
SCHEDULE
OF FINITE LIVED INTANGIBLE ASSETS
| | |
Amortization
periods | |
December 31,
2022 | | |
December 31,
2021 | |
| iSun Trademark and Brand | |
10 Years | |
$ | 3,007 | | |
$ | 3,007 | |
| Intellectual property | |
10 Years | |
| 1,000 | | |
| 1,000 | |
| Backlog of projects | |
12 Months | |
| 3,220 | | |
| 3,220 | |
| SunCommon Trademark and Brand | |
10 Years | |
| 11,980 | | |
| 11,980 | |
| Accumulated amortization | |
| |
| (5,169 | ) | |
| (349 | ) |
| Total | |
| |
$ | 14,038 | | |
$ | 18,858 | |
At
December 31, 2022 and 2021, amortization expense was $4,819 and $107, respectively.
Estimated
future amortization expense for the Company’s intangible assets as of December 31, 2022 is as follows:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION
EXPENSE
| | |
Cost | |
| 2023 | |
$ | 1,599 | |
| 2024 | |
| 1,599 | |
| 2025 | |
| 1,599 | |
| 2026 | |
| 1,599 | |
| 2027 | |
| 1,599 | |
| Thereafter | |
| 6,043 | |
| Total | |
$ | 14,038 | |
The
estimated weighted average remaining period of amortization is 9 years.
21. STOCK REDEMPTION
On
January 25, 2021, the Company purchased 34,190 shares of Common Stock from certain executives at $19.68, which was the 5-day average
of the closing prices for the Common Stock as reported by the Nasdaq Capital Market for the five trading days immediately preceding January
22, 2021, for a total of approximately $673,000. Upon redemption, the shares of Common Stock were retired.
22. EXERCISE OF PUT AGREEMENTS
As
part of the Merger Agreement with SunCommon, Shareholders were provided the right (the “Put Right”) to cause the Company
to purchase all or any of the shares of Common Stock issued at closing at the Put Purchase Price of $8.816. During the year ended December
31, 2022, Shareholders exercised the Put Right for the sale of 575,966 shares of Common Stock for $5,079. At December 31, 2022, all unexercised
Put Rights have expired.
23. SUBSEQUENT EVENTS
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements
were issued. Other than as described below, the Company did not identify any subsequent events that would have required adjustment or
disclosure in the financial statements.
Settlement
of Pending Litigation
On January 26, 2022 a Complaint was filed in the U.S. District Court for the District of Vermont by Sassoon Peress
and Renewz Sustainable Solutions, Inc. against the Company, alleging various claims including breach of contract, defamation, and unjust
enrichment arising out of the acquisition of iSun Energy LLC, the sole owner of which was Mr. Peress. The litigation sought legal and
equitable remedies. On January 17, 2023, the Company entered into a Settlement Agreement resolving all claims in consideration of a modification
of the timing of the delivery of the Acquisition consideration and payment of Mr. Peress’ attorneys’ fees. The matter was
dismissed with prejudice on March 13, 2023.