iSun(ISUN) - 2022 Q4 - Annual Report

PART I Covers iSun, Inc.'s business, market strategy, operations, key risks, and regulatory environment Item 1. Business iSun, Inc. is a solar energy services and infrastructure deployment company accelerating clean solar adoption - iSun is a solar energy services and infrastructure deployment company targeting residential, commercial, industrial, and utility segments, offering solar, storage, and EV infrastructure services[16][18] - Founded in 1972 as Peck Electric Co., the company expanded into the solar industry under CEO Jeffrey Peck since 1994[18] - The company's mission is to facilitate the reduction of carbon emissions through clean, renewable energy, guided by a 'people, environment, and profit' triple bottom line[18][24] - iSun has installed over 600 megawatts of solar systems since its inception[25] Core Revenue Stream Breakdown | Service Type | Revenue Percentage | | :----------- | :----------------- | | Solar EPC | ~85% | | Electrical & Data | ~10% | | Project Origination, Development & Design | ~5% | - The company operates in Vermont, Maine, New Hampshire, New York, Massachusetts, Maryland, Alabama, Georgia, North and South Carolina[26] - iSun owns approximately three megawatts of operating solar arrays under long-term power purchase agreements, aiming for recurring revenue streams[27] Business Combinations iSun expanded capabilities via strategic 2021 acquisitions: iSun Energy, Oakwood IP, and SolarCommunities - Acquired iSun Energy LLC in January 2021, leading to the company's name change to iSun, Inc.[20][28] - iSun Utility acquired intellectual property (Project IP) from Oakwood Construction Services, Inc., a utility-scale solar EPC company, in April 2021[21][29] - SolarCommunities, Inc. (d/b/a SunCommon) merged with iSun Residential Merger Sub, Inc. in October 2021, becoming a wholly-owned subsidiary[22][30] - All business operations are now conducted through direct and indirect wholly-owned subsidiaries[23][31] Market Overview Domestic solar market growth driven by electricity demand, EV adoption, and IRA incentives - Domestic solar capacity is projected to increase by 700% by 2050 (US DOE Solar Futures Study) and by 1150% to 760-1000 GW by 2035 with modest decarbonization efforts[33] - The EIA forecasts electricity demand growth of 30% from 2020 to 2035 and an additional 34% from 2035 to 2050 due to electrification of buildings, transportation, and industry[34] - The Inflation Reduction Act of 2022 (IRA) invests nearly $370 billion in energy security and climate change, renewing the 30% Investment Tax Credit (ITC) and offering direct pay provisions and bonus credits[24][35][68] - Widespread adoption of electric vehicles (EVs) is expected to significantly increase electricity demand, potentially doubling household demand for a 2-car family, driving demand for solar solutions[37] Strategy iSun's strategy targets automotive electrification and decarbonization across all solar market segments - iSun's Solar Platform is uniquely positioned to address automotive electrification and decarbonization across all solar market segments[38] - The Residential solar brand, SunCommon, supports at-home EV charging, solar + storage, and smart home energy upgrades[38] - The Commercial & Industrial Division supports EV fleet/workplace charging and solar projects for businesses, municipalities, and communities[41] - The Utility and Development Division assists utilities with increased demand and infrastructure upgrades through utility-scale solar projects and project origination[41] Customer Acquisition Acquires residential customers, fosters C&I organic growth, and expanded utility capabilities - SunCommon (Residential division) reported new customer acquisition costs of $0.30/w for the 12 months ending December 31, 2022, leveraging high-touch customer service[44] - The Commercial and Industrial division experiences organic growth from established relationships and made a strategic investment in Encore Redevelopment LLC (9.1% ownership) to access a robust project pipeline[45] - The Utility division expanded capabilities to include EPC, development, and professional services through the acquisition of Oakwood Construction Services intellectual property, securing contracts for 566MW of solar projects[46] Ancillary Markets iSun expands into high-growth adjacent markets: EV charging, data centers, and energy storage - iSun's capabilities allow for expansion into high-growth adjacent markets such as EV charging stations, data centers, and energy storage[47] - The EV charging market is expected to expand to over $30 billion by 2024 with a CAGR of 40% over the next two years[47] - The energy storage market is projected to grow into a $4.7 billion market by 2024, with 44% year-over-year growth in megawatts in 2018[47] Operational Aspects iSun employs 290 staff, uses union labor, manages installation, and provides after-sales support - As of March 30, 2023, iSun employed approximately 290 full-time employees and utilizes unionized labor for efficient workforce scaling[48][49] - The company assists residential customers in obtaining financing options through relationships with private and public sources[50] - iSun purchases solar panels, inverters, and materials from multiple manufacturers and distributors, reducing reliance on any single supplier[52][53] - As a licensed contractor, iSun manages the entire installation process from permitting to interconnection, ensuring quality and customer satisfaction[55] - After-sales support includes a 5-year limited workmanship warranty and an operations and maintenance program, with manufacturer warranties typically up to 25 years[57] Customers iSun serves residential, commercial, industrial, and utility customers, strong in New England commercial solar Revenue Mix by Customer Segment (2021 vs 2022) | Customer Segment | 2022 Revenue Mix | 2021 Revenue Mix | | :--------------- | :--------------- | :--------------- | | Residential | 52% | 28% | | Commercial & Industrial | 33% | 58% | | Electrical & Data | 10% | 11% | | Project Origination | 5% | 3% | - iSun holds an advantage in the commercial solar market in New England due to its extensive contact list and trusted relationships[60] Competitors Competes with solar installers, finance firms, construction, utilities, and electrical/roofing companies - The company competes with other solar installers, finance-driven organizations, large construction companies, utilities, and electrical/roofing companies[61][114] - iSun competes on its expertise, proven track record of performance, pricing, service, and ability to arrange financing[61] Seasonality Seasonality and weather cause financial fluctuations, with stronger Q3/Q4 sales from year-end subsidy bookings - Customers tend to book projects by year-end to realize subsidy benefits, resulting in stronger third and fourth-quarter sales at the expense of the first quarter[62][141] - Seasonality and weather conditions can cause fluctuations in financial results and affect project timelines[62][141] Technology and Intellectual Property Acquired IP from Oakwood Construction Services, LLC, for solar asset development capabilities - The company acquired intellectual property from Oakwood Construction Services, LLC, providing proprietary capabilities for solar asset development and utility-scale projects[63] Government Regulation and Incentives iSun benefits from IRA's 30% ITC and accelerated depreciation under various regulations - iSun is not regulated as a public utility and obtains interconnection permission from local electric utilities[64][65] - The company's operations are subject to stringent federal, state, and local laws, including OSHA and DOT, governing occupational health, safety, and wages[66] - Government incentives, such as rebates, tax credits, and performance payments, promote solar energy adoption and enable iSun to offer competitive pricing[67][70] - The Inflation Reduction Act of 2022 (IRA) renews the 30% Investment Tax Credit (ITC), offers direct pay for tax-exempt entities, and provides bonus credits, enhancing solar asset valuation[24][35][68] - Eligibility for accelerated depreciation (MACRS) further improves the economics and return on investment for solar energy systems[69] Environmental, Social and Corporate Governance (ESG) iSun formalized 2022 ESG strategy focusing on climate, environment, and DEI, with committee oversight - iSun formalized an enterprise-level ESG strategy in 2022, overseen by an ESG Executive Committee and the Corporate Governance Committee[72] - Material ESG issues identified include climate change, environmental stewardship, diversity, equity and inclusion (DEI), labor management, human rights, and stakeholder engagement[72] - The company is integrating impact programs from its subsidiary, SunCommon, a Vermont benefit corporation and certified B corporation[74] iSun, Inc. Board Diversity Matrix | | Female | Male | Did Not Disclose Gender | Non-Binary | | :-------------------------- | :----- | :--- | :---------------------- | :--------- | | Directors | 1 | 4 | 0 | 0 | | | African American or Black | Alaskan Native or Native American | Asian | Hispanic or Latin | Native Hawaiian or Pacific Islander | White | Two or more Races/Ethnicities | LGBTQ+ | Did Not Disclose Demographic Background | | :-------------------------- | :------------------------ | :-------------------------------- | :---- | :---------------- | :---------------------------------- | :---- | :-------------------------- | :----- | :-------------------------------------- | | Directors | 0 | 0 | 0 | 0 | 0 | 5 | 0 | 0 | 0 | - Climate change objectives include measuring and reducing emissions (scopes 1, 2, and 3 GHG), enhancing operational climate risk resilience, and developing customer-supporting service offerings, with progress to be reported in a 2023 TCFD report[79][83] - Human capital objectives include increasing workforce and procurement partner diversity, creating upward mobility opportunities, and increasing the visibility of trades, with progress to be reported using SASB metrics in 2023[80][84] - ESG governance structure has been revamped, utilizing ESGProgram.io, and internal/external communication plans and ESG education for leadership are being implemented[81] Item 1A. Risk Factors Investing in iSun involves risks from global events, financial challenges, internal control, and market volatility General Risks General risks include adverse impacts from global events like COVID-19 and Russia-Ukraine conflict - A subsequent wave of the COVID-19 pandemic could materially adversely affect business and results of operations, despite no material impact anticipated as of the report date[10][90] - The Russia-Ukraine conflict and related sanctions may impact the business through global supply chain disruptions[10][91] Risks Related to Our Financial Position and Capital Requirements Financial risks: operating losses, funding needs, and material weaknesses in financial reporting - The company operated at a loss in 2022 and 2021, and there is no assurance of achieving profitability, which depends on market share growth, geographic expansion, and synergistic acquisitions[10][92] - Substantial additional funding may be required for operations, capital expenditures, and acquisitions, and its unavailability could harm the business or lead to cessation of operations[10][93][94][95][96] - Management discovered a material weakness in disclosure controls and procedures and internal control over financial reporting as of December 31, 2022, due to a lack of supervisory review and formal documentation in the financial statement close process[10][97] Risks Related to Our Business and Industry Business risks: electricity prices, regulations, competition, supply chain, construction, and technology - A material reduction in the retail price of traditional utility-generated electricity or electricity from other sources could harm the business by making solar less economically attractive[10][99][100] - Existing and changing electric utility industry regulations and policies may present technical, regulatory, and economic barriers that could significantly reduce demand for solar energy systems[10][101][103] - The company's growth strategy depends on the widespread adoption of solar power technology, which operates in an emerging and rapidly evolving market[10][104] - The business relies on the availability of rebates, tax credits, and other financial incentives; their expiration, elimination, or reduction would adversely impact the business[10][105][106] - The business depends in part on the regulatory treatment of third-party owned solar energy systems; changes could reduce demand and impact access to capital[10][108] - The ability to provide solar energy systems on an economically viable basis depends on helping customers arrange financing, which relies on tax-advantaged structures[10][109][110] - Rising interest rates could adversely impact the business by increasing the cost of capital and making customer financing less favorable, potentially depressing sales[111][112][113] - The solar and energy industries are intensely competitive, with competition from other solar companies, traditional utilities, and energy service providers, many with greater resources[114][115][126][127][128] - Adverse economic conditions, such as recession or inflation, may materially affect the business strategy and ability to generate liquidity[116] - The business is concentrated in certain markets, primarily the Northeast, making it susceptible to region-specific disruptions[117] - Inability to retain and recruit qualified technicians, advisors, and key executives could delay development efforts and harm the business[118][119][120] - The company may not realize the anticipated benefits of completed and future acquisitions, and integration efforts may disrupt business and management[10][124][125] - Developments in alternative technologies or improvements in distributed solar energy generation could materially adversely affect demand for iSun's offerings[129] - Due to a limited number of suppliers, shortages, delays, price changes, tariffs, or duties in obtaining components could result in sales and installation delays and loss of market share[17][130][132][133] - As a licensed general contractor, iSun is subject to risks associated with construction, cost overruns, delays, regulatory compliance, and potential liability for damages[134][135] - A significant disruption in information technology systems or a cyberattack could adversely affect business, leading to lost revenues and additional costs[10][136] - Compliance with occupational safety and health requirements (OSHA, DOT) can be costly, and noncompliance may result in penalties, operational delays, and adverse publicity[137][138] - Problems with product quality or performance may cause warranty expenses, damage market reputation, and prevent market share growth[139][140] - Seasonality, driven by customers booking projects by year-end for subsidy benefits, may cause fluctuations in financial results[62][141] - Failure to comply with laws and regulations relating to interactions with commercial or residential customers could result in negative publicity, claims, and litigation[142] - Changes in laws or regulations, or a failure to comply, may adversely affect the business, investments, and results of operations[143] Risks Related to the Regulation of Our Company Regulatory risks: stock resale limits, EGC disclosure, and potential Nasdaq delisting - As a former 'shell company,' investors may not be able to rely on the Rule 144 resale exemption until certain requirements are satisfied, potentially limiting the resale of securities[144] - As an 'emerging growth company' under the JOBS Act, iSun benefits from reduced disclosure requirements, which may make its common stock less attractive to some investors[4][145] - The company is not required to obtain auditor attestation on the effectiveness of its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act for as long as it remains an 'emerging growth company'[146] - Failure to comply with Nasdaq's continued listing requirements or standards could lead to the delisting of common stock[148] - The trading market for common stock on Nasdaq has been limited, and a more active market may not develop, making it difficult for investors to sell shares[149] - If delisted from Nasdaq, common stock could be considered 'penny stock,' subjecting it to rules that discourage broker-dealers and severely limit market liquidity[150][151][152] - Anti-takeover provisions in the company's Certificate of Incorporation and Bylaws, as well as Delaware law, could impair takeover attempts[153][154] Risks Related to Offerings and Ownership of Our Common Stock Common stock risks: dilution, negative working capital, price volatility, and stockholder control - The issuance of common stock pursuant to the S-3 Registration Statement (up to $50 million, with $23.5 million already sold via ATM as of March 16, 2023) may cause dilution and could lead to a decline in stock price[155][156][157][158] - With a negative working capital of $4.5 million and a net loss of $53.8 million in 2022, the company may require additional financing, the terms of which could adversely impact stockholders through dilution or restrictive covenants[10][160][161][162] - The value of Convertible Notes will likely be significantly affected by the volatile price of the company's common stock[163] - Management has broad discretion over the use of net proceeds from common stock sales, and these proceeds may not be invested successfully[164] - The share price of common stock is subject to significant fluctuation and volatility, potentially resulting in substantial losses for investors[10][165][166] - The company has no history of paying dividends and does not anticipate paying them in the foreseeable future, requiring investors to rely on stock price appreciation for returns[167][182] - Authorization to issue shares of blank check preferred stock could result in immediate dilution to existing stockholders[168] - A sustained active trading market for securities may not develop, adversely affecting liquidity and price[169] - If securities or industry analysts do not publish or cease publishing research, or change recommendations adversely, the price and trading volume of common stock could decline[170] - Executive officers, directors, and principal stockholders own approximately 30% of outstanding common stock, enabling them to exert significant control over matters subject to stockholder approval[171] Implications of Being an "Emerging Growth Company" As an EGC, iSun benefits from reduced reporting and extended accounting standard transition - As an 'emerging growth company' under the JOBS Act, iSun benefits from reduced reporting requirements, including exemption from auditor attestation on internal controls and reduced executive compensation disclosure[172][173][174] - The company has elected not to opt out of the extended transition period for complying with new or revised accounting standards, adopting them at the same time as private companies[147][264] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments - There are no unresolved staff comments[176] Item 2. Properties iSun leases office and warehouse spaces in VT and NY, sufficient for current needs - The company leases 6,250 square feet of office space and 6,750 square feet of warehouse space for its headquarters in Williston, VT[177] - Solar Communities, Inc., a subsidiary, leases 8,640 square feet of office space and 5,360 square feet of warehouse space in Waterbury, VT, and 15,000 square feet of warehouse, 10,000 square feet of shop, and 5,000 square feet of office space in Rhinebeck, NY[177] - Management believes these spaces are sufficient to meet current needs across all business segments[177] Item 3. Legal Proceedings Litigation with Sassoon Peress and Renewz Sustainable Solutions, Inc. settled in January 2023 - A lawsuit, Sassoon Peress and Renewz Sustainable Solutions, Inc. v. iSun, Inc., was filed on January 27, 2022, alleging breach of contract, defamation, and unjust enrichment related to the iSun Energy LLC acquisition[178][362] - The litigation was resolved through a settlement agreement on January 17, 2023, with no additional consideration paid, and was dismissed with prejudice on March 13, 2023[178][362] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to iSun, Inc.[179] PART II Details iSun's common equity market, management's financial analysis, and market risk disclosures Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities iSun's Common Stock trades on Nasdaq; no cash dividends anticipated, prioritizing growth - iSun's Common Stock is traded on Nasdaq under the symbol "ISUN"[181] - The last reported sale price of Common Stock on March 31, 2023, was $1.03 per share[181] - As of March 29, 2023, there were 461 registered holders of the company's Common Stock[181] - The company has never declared or paid any cash dividend on its Common Stock and does not intend to do so in the foreseeable future, expecting to retain earnings for business growth and development[167][182] Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[183] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of iSun's financial condition, operations, growth, net loss, policies, and liquidity Business Introduction / Overview iSun is a solar energy services and infrastructure deployment company offering solutions across all markets - iSun is a solar energy services and infrastructure deployment company, offering solar, storage, and electric vehicle infrastructure, design, development, professional services, engineering, procurement, installation, and O&M[187] - The company targets all solar markets: residential, commercial, industrial, and utility segments[187] - iSun's core values, established as Peck Electric Co. in 1972, align people, purpose, and profitability, guiding its expansion into the solar industry[188] - Strategic acquisitions in 2021 included iSun Energy LLC (January), intellectual property from Oakwood Construction Services, Inc. (April), and SolarCommunities, Inc. (SunCommon) (October)[189][190][191] - The company operates through wholly-owned subsidiaries, including iSun Residential, SolarCommunities, iSun Industrial, Peck Electric Co., Liberty Electric, iSun Utility, iSun Energy, and iSun Corporate[192] - iSun is positioned for the transition to an all-renewable energy economy, supported by state renewable energy goals and the Inflation Reduction Act of 2022[193][194] - The company has installed over 600 megawatts of solar systems since inception[194] Core Revenue Stream Breakdown | Service Type | Revenue Percentage | | :----------- | :----------------- | | Solar EPC | ~85% | | Electrical & Data | ~10% | | Project Origination, Development & Design | ~5% | - iSun operates in Vermont, Maine, New Hampshire, New York, Massachusetts, Maryland, Alabama, Georgia, North and South Carolina, with union crews enabling rapid expansion[195] - The company invests in solar development projects and owns approximately three megawatts of operating solar arrays under long-term power purchase agreements to establish recurring revenue streams[196] Equity and Ownership Structure Company's equity and ownership structure evolved through strategic 2021 acquisitions - The company acquired iSun Energy LLC in January 2021, which became a wholly-owned subsidiary, and subsequently changed its name to iSun, Inc.[197][261] - iSun Utility acquired all rights to the intellectual property of Oakwood Construction Services, Inc. in April 2021[198][260] - SolarCommunities, Inc. (SunCommon) merged with iSun Residential Merger Sub, Inc. in October 2021, becoming a wholly-owned subsidiary of iSun Residential[199][259] - All business operations are conducted exclusively through wholly-owned direct and indirect subsidiaries[200][263] Critical Accounting Policies Critical accounting policies involve revenue recognition estimates and extended transition for new standards - Financial statements are prepared in accordance with U.S. GAAP, requiring management to make significant estimates and judgments[201][202] - Revenue is recognized over time under ASC Topic 606, primarily utilizing the cost-to-cost method for construction projects, reflecting the continuous transfer of control to customers[203][267] - Estimates for total contract transaction price and total project costs are reviewed on an ongoing basis, and changes can materially affect consolidated results[205] - The company utilizes union labor and makes contributions to various union funds, believing this provides a unique advantage for growth by efficiently scaling workforce resources[208][209] - iSun joined a captive insurance group in 2018 to stabilize business insurance expenses and lock in lower rates[210] - Revenue recognition varies significantly depending on whether solar arrays are built for customers (percentage of completion) or for the company's own account (electricity sales)[211] - As an emerging growth company, iSun has elected to use the extended transition period for complying with new or revised accounting standards, adopting them at the same time as private companies[264] Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 iSun reported significant 2022 revenue growth but a substantial net loss from goodwill impairment Revenue and Cost of Earned Revenue (in millions) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :------------------ | :----- | :----- | :--------- | | Revenue | $76.5 | $45.3 | +68.7% | | Cost of Earned Revenue | $60.5 | $38.9 | +55.4% | Revenue Mix by Division | Division | 2022 Revenue Mix | 2021 Revenue Mix | | :------- | :--------------- | :--------------- | | Residential | 52% | 28% | | Commercial & Industrial | 43% | 69% | | Utility, Design & Development | 5% | 3% | Gross Profit and Margin (in millions) | Metric | 2022 (in millions) | 2021 (in millions) | | :---------- | :----- | :----- | | Gross Profit | $16.0 | $6.4 | | Gross Margin | 20.89% | 14.10% | - The margin enhancement in 2022 was driven by the increased residential installation revenue mix, which operates at a higher margin[213] - The company anticipates an increase in revenue for 2023 due to growing demand for solar and electric vehicle infrastructure across all customer groups[214] Contracted Backlog and Development Pipeline (as of report date) | Division | Backlog (in millions) | Expected Completion | | :--------- | :-------------------- | :------------------ | | Residential | ~$20.5 | 4-6 months | | Commercial | ~$11.2 | 6-8 months | | Industrial | ~$132.5 | 12-18 months | | Utility | 1.6 GW (under development) | Transitions to backlog upon notice to proceed | - Selling and marketing expenses increased to $1.2 million in 2022 from $0.2 million in 2021, primarily due to marketing efforts by SunCommon, the residential division brand[215] - General and administrative (G&A) expenses increased to $22.4 million in 2022 from $13.2 million in 2021, remaining consistent as a percentage of revenue (29.3% vs 29.2%) due to the full year of operations of newly acquired entities[216] - Warehouse and other operating expenses increased to $1.8 million in 2022 from $0.6 million in 2021, also attributed to the full year of operations of acquired entities[217] - A goodwill impairment charge of $37.15 million was recorded in 2022 due to a significant decline in market capitalization, despite internal valuations exceeding carrying value[218][219][286] Other Income (Expenses) (in millions) | Item | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----- | :----- | | Interest Expense | $(1.4) | $(0.5) | | Gain on PPP Loan Forgiveness | $2.6 | $2.0 | | Change in Fair Value of Warrant Liability | $0.1 | $1.0 | Income Tax Expense (Benefit) | Metric | 2022 | 2021 | | :------------------ | :----- | :----- | | U.S. GAAP Effective Tax Rate | 4.36% | 23.48% | | Proforma Effective Tax Rate | 21.0% | 21.0% | Net Loss (in millions) | Metric | 2022 (in millions) | 2021 (in millions) | | :------- | :----- | :----- | | Net Loss | $(53.8) | $(6.2) | Basic and Diluted EPS | Metric | 2022 | 2021 | | :------------------ | :----- | :----- | | Basic and Diluted EPS | $(3.82) | $(0.67) | Certain Non-GAAP Measures EBITDA and Adjusted EBITDA are non-GAAP measures for evaluating business trends and performance - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate business trends, measure performance, and make strategic decisions, excluding certain non-cash, non-recurring, or non-core expenses[223][224] Reconciliation of EBITDA and Adjusted EBITDA to Net Loss (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------- | :------- | :------- | | Net loss | $(53,779) | $(6,241) | | Depreciation and amortization | 7,071 | 982 | | Impairment of goodwill | 37,150 | - | | Interest expense | 1,351 | 518 | | Stock compensation | 2,981 | 2,315 | | Change in fair value of warrant liability | (138) | (976) | | Income tax (benefit) | (752) | (1,915) | | EBITDA | $(6,116) | $(5,317) | | Other costs | 514 | 1,418 | | Adjusted EBITDA | $(5,602) | $(3,899) | | Weighted Average shares outstanding | 14,089,499 | 9,264,919 | | Adjusted EPS | $(0.40) | $(0.42) | Liquidity and Capital Resources Liquidity relies on operating cash flow, credit facilities, and stock sales, with new debt preserving cash - Unrestricted cash was $5.5 million at December 31, 2022, an increase from $2.2 million at December 31, 2021[227] - The working capital deficit improved to $4.5 million at December 31, 2022, from $10.3 million at December 31, 2021[228] - The company relies predominantly on operating cash flow, borrowings from credit facilities, and sales of Common Stock to fund operations[228] - Indebtedness was restructured in November 2022 with a new debt facility that allows for repayment in Common Stock, preserving cash[228] - The company believes its existing cash, debt facility, and potential sales of Common Stock (approximately $16.0 million available as of March 16, 2023) will be sufficient to meet operating cash requirements for at least 12 months[229][230][337] - Cash flow used by operating activities increased to $6.3 million in 2022 from $5.2 million in 2021, primarily due to a decrease in accrued liabilities[231] - Net cash provided by investing activities was $1.2 million in 2022 (due to solar asset sales), a significant change from $36.7 million used in 2021 (due to acquisitions and minority investments)[232] - Net cash provided by financing activities was $8.4 million in 2022, compared to $43.4 million in 2021, primarily driven by proceeds from the sale of common stock[233] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Fixed interest rate debt poses no current risk, but refinancing could; no off-balance sheet arrangements - As of December 31, 2022, fixed interest rate debt of $13.6 million (weighted average 5.0%) does not subject the company to interest rate risk, but refinancing may[234] - The company does not have any off-balance sheet arrangements[235] Item 8. Financial Statements and Supplementary Data Presents iSun's audited consolidated financial statements for 2022 and 2021, with notes and unqualified auditor opinion Report of Independent Registered Public Accounting Firm Marcum LLP issued unqualified opinion on 2022/2021 financials, noting a lease accounting change - Marcum LLP (PCAOB ID: 688) served as the company's auditor since 2019[237][244] - An unqualified opinion was issued on the consolidated financial statements for December 31, 2022 and 2021, stating they present fairly in all material respects[239] - The report noted a change in accounting principle for leases on January 1, 2022, due to the adoption of ASC 842[240] - The auditor was not engaged to perform an audit of the company's internal control over financial reporting[242] Consolidated Balance Sheets Presents iSun's financial position, detailing assets, liabilities, and equity for 2022 and 2021 Consolidated Balance Sheet Highlights (in thousands) | Asset Category | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Cash | $5,455 | $2,242 | | Accounts receivable, net | $8,783 | $14,337 | | Contract assets | $7,324 | $4,004 | | Inventory | $2,536 | $2,480 | | Total current assets | $25,723 | $24,134 | | Property and equipment, net | $8,440 | $11,091 | | Operating lease right-of-use asset | $6,960 | - | | Goodwill | - | $36,907 | | Intangible assets | $14,038 | $18,858 | | Investments | $12,020 | $12,420 | | Total assets | $67,481 | $103,728 | | Accounts payable | $12,941 | $13,188 | | Accrued expenses | $5,868 | $7,628 | | Operating lease liability (current) | $588 | - | | Contract liabilities | $5,419 | $2,389 | | Line of credit | - | $4,468 | | Current portion of long-term debt | $5,374 | $6,694 | | Total current liabilities | $30,221 | $34,398 | | Operating lease liability (long-term) | $6,711 | - | | Long-term debt, net | $8,226 | $5,149 | | Total liabilities | $48,194 | $43,870 | | Total Stockholders' equity | $19,287 | $59,858 | | Total liabilities and stockholders' equity | $67,481 | $103,728 | Consolidated Statements of Operations Details iSun's revenue, expenses, and net loss for 2022 and 2021 Consolidated Statements of Operations Highlights (in thousands) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------- | :----- | :----- | | Earned revenue | $76,453 | $45,312 | | Cost of earned revenue | $60,481 | $38,921 | | Gross profit | $15,972 | $6,391 | | Total operating expenses | $71,378 | $17,005 | | Operating loss | $(55,406) | $(10,614) | | Gain on forgiveness of PPP loan | $2,592 | $2,000 | | Change in fair value of warrant liability | $138 | $976 | | Interest expense | $(1,351) | $(518) | | Loss before income taxes | $(54,531) | $(8,156) | | Benefit for income taxes | $(752) | $(1,915) | | Net loss | $(53,779) | $(6,241) | | Net loss available to common stockholders | $(53,779) | $(6,311) | | Basic and diluted EPS | $(3.82) | $(0.67) | Consolidated Statements of Stockholders' Equity Presents changes in equity, including net loss, stock compensation, and stock sales for 2022 and 2021 Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------- | :------- | :------- | | Balance as of January 1 | $59,858 | $7,882 | | Registered Direct Offering | - | $9,585 | | Acquisition of iSun Energy, LLC | - | $2,922 | | Stock compensation under equity incentive plan | $3,866 | $2,315 | | Exercise of public warrants | - | $20,906 | | Acquisition of Solar Communities, Inc. | - | $15,965 | | Sale of Common Stock (S-3) | $14,421 | $6,866 | | Redemption of Put Agreements | $(5,079) | - | | Net loss | $(53,779) | $(6,241) | | Balance as of December 31 | $19,287 | $59,858 | Consolidated Statements of Cash Flows Summarizes cash movements from operating, investing, and financing activities for 2022 and 2021 Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(6,318) | $5,195 | | Net cash (used in) provided by investing activities | $1,155 | $(36,678) | | Net cash provided by financing activities | $8,376 | $43,416 | | Net increase in cash | $3,213 | $1,543 | | Cash, end of year | $5,455 | $2,242 | Supplemental Cash Flow Information (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :----- | :----- | | Cash paid for Interest | $1,351 | $36 | | Cash paid for Income taxes | $7 | - | Notes to Consolidated Financial Statements Provides detailed disclosures on iSun's accounting policies, acquisitions, liquidity, debt, and financials Summary of Operations and Significant Accounting Policies Outlines iSun's business, revenue recognition, and critical accounting policies as an EGC - iSun, Inc. is a solar energy company providing design, development, engineering, procurement, installation, storage, and electric vehicle infrastructure services, along with electrical contracting and data/communication services[258] - The company has elected not to opt out of the extended transition period for complying with new or revised accounting standards as an 'emerging growth company', adopting them at the same time as private companies[264] - Revenue from solar power systems sales and EPC services is recognized over time using the cost-to-cost method, as performance obligations are satisfied[267] Disaggregation of Revenue (in thousands) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :----- | :----- | | Performance obligations satisfied over time: | | | | Solar | $68,936 | $40,512 | | Electric | $6,354 | $3,631 | | Data and Network | $1,163 | $1,169 | | Operations: | | | | Residential | $39,513 | $12,525 | | Commercial and Industrial | $32,750 | $31,413 | | Utility | $4,190 | $1,374 | - The company recognizes revenue for variable consideration (claims, unpriced change orders, incentives) when it is probable that a significant reversal in cumulative revenue will not occur[271] - Limited workmanship warranties of up to five years are provided for construction contracts; historically, warranty claims have not resulted in material costs[273] - Accounts receivable are recorded net of an allowance for doubtful accounts, which was $302 thousand at December 31, 2022, and $84 thousand at December 31, 2021[274] Contract Assets and Liabilities (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Contract Assets | $7,324 | $4,004 | | Contract Liabilities | $5,419 | $2,389 | - Project assets, consisting of costs related to solar power projects in various stages of development, are capitalized and reviewed for impairment[276] - Property and equipment are recorded at cost and depreciated using the straight-line method; solar arrays are depreciated over 20 years[279][280][281] - Intangible assets, primarily trademarks, intellectual property, and backlog, are amortized over 1 to 10 years and assessed annually for impairment[283][406] - Goodwill is tested for impairment at least annually; a full impairment of $37.15 million was recorded as of December 31, 2022, due to a decline in market capitalization[285][286] - Long-lived assets are assessed for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable[287] - Asset retirement obligations (AROs) for land lease agreements requiring asset removal are recognized but were not deemed significant[292] - Cash balances occasionally exceed the FDIC limit; uninsured balances were approximately $3.3 million at December 31, 2022, and $0.9 million at December 31, 2021[294] - Income taxes are accounted for under the asset and liability method, with deferred tax assets reduced by a valuation allowance when realization is not likely[295] - Deferred financing costs of $1,654 thousand in 2022 and $400 thousand in 2021 are amortized over the terms of the related debt instruments[307] - Gains on the forgiveness of PPP loans were recognized as debt extinguishment gains of $2,592 thousand in 2022 and $2,000 thousand in 2021[311] - Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method, with no inventory allowance at December 31, 2022, and 2021[312] - Warrants to acquire Common Stock are accounted for as liabilities at fair value and are subject to remeasurement at each balance sheet date[313] - The company currently has one reportable segment but plans to report in segments in the future[314][323] Acquisitions Details iSun's strategic 2021 acquisitions and their financial impact - The acquisition of iSun Energy LLC in January 2021 for $3,007 thousand (shares, warrants, cash, earn-out) was treated as an asset acquisition, resulting in a $2,406 thousand intangible asset (iSun brand and know-how) amortized over 10 years[316][317][318] - The acquisition of intellectual property from Oakwood Construction Services, Inc. in April 2021 for $2.7 million ($1.0 million upfront, $1.7 million contingent) was treated as an asset acquisition, resulting in an $800 thousand intangible asset amortized over 10 years[319][320][321] - The business combination with SolarCommunities, Inc. (SunCommon) in October 2021 for $48.3 million (cash, common stock, earn-out) resulted in $36.27 million in goodwill[322][324][325] - The acquisition of assets from Liberty Electric, Inc. in November 2021 for $1.4 million (cash, common stock, earn-out) resulted in $880 thousand in goodwill[326][327][328][329] Unaudited Pro Forma Financial Information (in thousands) | (in 000's) | Year Ended December 31, 2022 (in thousands) | Year Ended December 31, 2021 (in thousands) | | :--------- | :--------------------------- | :--------------------------- | | 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) | Liquidity and Financial Condition Discusses iSun's cash, working capital, and funding strategies, including new debt to preserve cash Financial Position Highlights (in thousands) | Metric | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Cash | $5,455 | $2,242 | | Working Capital Deficit | $(4,498) | $(10,300) | | Total Stockholders' Equity | $19,287 | $59,858 | - The company relies on operating cash flow, credit facilities, and sales of Common Stock to fund operations[332] - A new secured fixed-rate debt facility was established in November 2022, allowing for repayment in Common Stock to conserve cash[332] - The company does not expect to continue incurring operating losses and has modified contract terms to account for material price fluctuations[333] - Significant customer orders and projects in development across all divisions are expected to provide short-term operational cash flow[334] - Approximately $16.0 million in gross proceeds were potentially available from sales of Common Stock pursuant to the S-3 Registration Statement as of March 16, 2023[336] - Management believes current cash, debt facility, stock sales, and project backlog are sufficient to meet operating and capital requirements for at least the next twelve months[337] Accounts Receivable Details accounts receivable composition, including contracts, retainage, and doubtful accounts Accounts Receivable Composition (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Accounts receivable - contracts in progress | $8,502 | $13,886 | | Accounts receivable - retainage | $583 | $535 | | Allowance for doubtful accounts | $(302) | $(84) | | Total Accounts Receivable, net | $8,783 | $14,337 | - Bad debt expense was $145 thousand for the year ended December 31, 2022, compared to $0 in 2021[338] Contract Assets (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Contract assets | $7,231 | $3,452 | | Unbilled receivables | $93 | $552 | | Total Contract Assets | $7,324 | $4,004 | Contracts in Progress Summarizes expenditures, earnings, and billings for uncompleted contracts, with balance sheet classification Contracts in Progress Summary (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Expenditures to date on uncompleted contracts | $31,215 | $13,716 | | Estimated earnings thereon | $2,509 | $2,784 | | Less billings to date | $(31,912) | $(15,436) | | Plus under billings remaining on contracts 100% complete | $93 | $552 | | Total Contracts in Progress | $1,905 | $1,615 | Contracts in Progress Balance Sheet Classification (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Contract assets | $7,324 | $4,004 | | Contract liabilities | $(5,419) | $(2,389) | | Net | $1,905 | $1,615 | Leases Details adoption of new lease accounting standards, financial impact, and future operating lease obligations - The company adopted ASU 2016-02 (Leases) on January 1, 2022, which increased total assets by approximately $7,539 thousand and total liabilities by $7,808 thousand, with no significant impact on the Consolidated Statements of Operations or Cash Flows[240][342][343] - Lease expense for the year ended December 31, 2022, was $753 thousand, entirely comprised of operating leases[345] Operating Lease Balances (in thousands) | Item | Dec 31, 2022 (in thousands) | | :-------------------------- | :----------- | | 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 was 3.33%[346] Estimated Minimum Future Lease Obligations (in thousands) | Year ending December 31: | Amount (in thousands) | | :----------------------- | :----- | | 2023 | $817 | | 2024 | $805 | | 2025 | $798 | | 2026 | $796 | | 2027 | $797 | | Thereafter | $4,740 | | Total lease payments | $8,753 | | Less: interest | $(1,454) | | Net | $7,299 | Long-Term Debt Summarizes iSun's long-term debt, including loans and convertible notes, with maturity schedules Summary of Long-Term Debt (in thousands) | Debt Type | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :---------------------------------- | :----------- | :----------- | | NBT Bank loans (various) | $1,105 | $1,456 | | Various vehicle loans | $1,271 | $1,147 | | National Bank of Middlebury | $21 | $48 | | B. Riley Commercial Capital, LLC | - | $6,046 | | PPP Loan (unsecured) | - | $2,592 | | Senior secured convertible notes payable (5%) | $12,500 | - | | CSA loans (various) | $233 | $625 | | Equipment loans | $56 | $94 | | Easement liabilities | - | $31 | | Total Long-Term Debt | $15,155 | $12,157 | | Less current portion | $(5,374) | $(6,694) | | Less debt issuance costs | $(1,555) | $(314) | | Long-Term Debt, net | $8,226 | $5,149 | Maturities of Long-Term Debt (in thousands) | Year ending December 31: | Amount (in thousands) | | :----------------------- | :----- | | 2023 | $5,374 | | 2024 | $6,285 | | 2025 | $2,356 | | 2026 | $836 | | 2027 | $129 | | Thereafter | $175 | | Total | $15,155 | - In November 2022, the company issued $12.5 million in Senior Secured Convertible Notes at a 5% interest rate, with a 6% original interest discount, resulting in $11.75 million in gross proceeds. Repayment begins March 1, 2023, in monthly installments until the May 4, 2025, maturity date, with a conversion price of $2.66[353] - SolarCommunities, Inc.'s PPP loans of $2,592 thousand (January 2022) and $2,000 thousand (December 2021) were fully forgiven and recognized as gains on debt extinguishment[354][355] Line of Credit Details the working capital line of credit with NBT Bank N.A., terminated in November 2022 - The working capital line of credit with NBT Bank N.A. (limit $6,000 thousand) was paid in full and terminated in November 2022[356] - The outstanding balance on the line of credit was $0 at December 31, 2022, compared to $4,468 thousand at December 31, 2021[356] Commitments and Contingencies Outlines lease agreements and litigation resolution, confirming no material contingent liabilities - The company has various lease agreements for its headquarters, office and warehouse facilities, land for solar arrays, and vehicles, with terms expiring through June 2026 for vehicles and August 2034 for some land leases[357][358][359][360][361] - Litigation with Sassoon Peress and Renewz Sustainable Solutions, Inc. was settled on January 17, 2023, and dismissed with prejudice on March 13, 2023, with no material contingent liabilities[362][315] Warrants Details redemption and exercise of public warrants, and outstanding warrants as of December 31, 2022 - The company redeemed all outstanding public warrants by April 12, 2021[363] - In 2021, 3,641,018 warrants were exercised, resulting in the issuance of 1,820,509 shares of Common Stock and cash proceeds of $20,906 thousand[364] - As of December 31, 2022, there were 69,144 warrants outstanding[365] Fair Value Measurements Describes fair value measurement of warrants using Level 1 and Level 3 inputs, and liability impact - Public warrants were valued using Level 1 inputs (quoted market prices), while private warrants were valued using Level 3 inputs (Black-Scholes model with unobservable inputs)[309][366] - Key assumptions for private warrants at December 31, 2022, included a common stock fair value of $1.30, an exercise price of $11.50, expected volatility of 147.02%, a remaining term of 1.47 years, and a risk-free rate of 3.88%[366] Liabilities Measured at Fair Value (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | Public Warrants | $0 | $0 | | Private Warrants | $10 | $148 | Roll Forward of Level 3 Instruments (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :----- | :----- | | Beginning balance | $148 | $350 | | Fair value adjustment – Warrant liability | $(138) | $(202) | | Ending balance | $10 | $148 | Union Assessments Details iSun's contributions to union funds and participation in Multi-Employer Pension Plans - The company employs members of the International Brotherhood of Electrical Workers Local 300 (IBEW) and makes contributions to various union funds[369] Union Assessments (in thousands) | Fund | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :----- | :----- | | 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 | - The company participates in Multi-Employer Pension Plans (MEPPs), some of which are in 'endangered,' 'seriously endangered,' 'critical,' or 'critical and declining' status, potentially requiring increased contributions or surcharges[371][372] - The National Electrical Benefit Fund was classified as 'Green' status as of December 31, 2022, and 2021[373] Income Taxes Provides details on income tax provision, deferred tax assets/liabilities, and effective tax rate Provision for Income Taxes (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :----- | :----- | | Current Federal | $0 | $(1) | | Current State | $20 | $(5) | | Deferred Federal | $(585) | $(1,447) | | Deferred State | $(187) | $(462) | | Benefit for Income Taxes | $(752) | $(1,915) | Deferred Tax Assets (Liabilities) (in thousands) | Item | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------- | :----------- | :----------- | | 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 | $0 | $(772) | Effective Tax Rate Reconciliation (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------- | :------- | :------- | | Income tax expense at federal statutory rate (21%) | $(11,450) | $(1,683) | | Paycheck Protection Program tax exempt loan forgiveness | $(544) | $(420) | | State and local taxes net of federal benefit | $(3,902) | $(671) | | Valuation allowance | $15,171 | - | | Income tax benefit | $(752) | $(1,915) | - The company has federal net operating losses (NOLs) of approximately $34,000 thousand ($2,200 thousand expiring in 2035, $31,800 thousand non-expiring) and state NOLs of approximately $29,600 thousand expiring in 2029[376] - Tax credit carryforwards amount to approximately $592 thousand, expiring beginning in