ISUN iSun Inc

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iSun, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2022

(In thousands, except number of shares)

iSun, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2021

(In thousands, except number of shares)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

iSun, Inc.

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months ended March   31, 2022 and 2021

(In thousands)

The accompanying notes are an integral part of these consolidated financial statements.

iSun, Inc

Notes to Consolidated Financial Statements

March 31, 2022 and 2021

(Dollars in thousands, except share and per share data)

1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

a) Organization

iSun, Inc. is a solar engineering, construction and procurement contractor for commercial, industrial, residential and utility customers. 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.

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 affected 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.

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.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other period. The accompanying financial statements should be read in conjunction with the Company’s audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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) 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 March 31, 2022 and December 31, 2021, the Company had $0 in pre-contract costs classified as a current asset under contract assets on its 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 based on the timing of satisfaction of performance obligations for the three months ended March 31, 2022 and March 31, 2021:

(In thousands)

The following table disaggregates the Company’s Solar Operations revenue based operational segment for the three months ended March 31, 2022 and March 31, 2021:

(In thousands)

 SCHEDULE OF REVENUE BASED OPERATIONAL SEGMENT

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.

d) 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 $84,000 at March 31, 2022 and $84,000 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.

e) Concentration and Credit Risks

(In thousands)

The Company occasionally has cash balances in a single financial institution during the year in excess of the Federal Deposit Insurance Corporation (FDIC) limits. The differences between book and bank balances are outstanding checks and deposits in transit. At March 31, 2022, the uninsured balances were approximately $1,893.  

f) 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, goodwill, intangibles, investments, impairment on investments, warranty liability and valuation of deferred tax assets. Actual results could differ from those estimates.

g) Recently Issued Accounting Pronouncements  

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 is 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 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 ASU is effective for the Company’s annual reporting period beginning December 31, 2022. 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.

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. This ASU is effective for the Company’s annual reporting period beginning December 31, 2022. 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.

h) 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.

i) 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 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 $2,000,000 has been recognized in the income statement as a gain upon debt extinguishment for the year ended December 31, 2021. 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 $2,591,500 has been recognized in the income statement as a gain upon debt extinguishment for the three months ended March 31, 2022.

j) 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. Inventory is presented net of an allowance of $0 at March 31, 2022 and December 31, 2021.

k) 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.

l) 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.

m) 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 March 31, 2022 and 2021, there are no material contingent liabilities arising from pending litigation.

2. BUSINESS ACQUISITIONS

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 $48,300,000 consisting of (i) cash in the amount of $25,534,621; (ii) Common Stock of the Company (“Common Stock”) in the amount of $15,965,027, priced at $8.816 per share; and (iii) earn out consideration of up to $10,000,000 upon the fulfillment of certain conditions. The net present value of the earnout provision was determined to be $6.8 million and the Company has included the $3.5 million and $3.3 million 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 report 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 cost of SolarCommunities, Inc. and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date preliminary estimated fair value of the consideration transferred consisted of the following:  

During the year ended December 31, 2021, we recorded non-recurring total transaction costs related to the Acquisition of $1.235 million. These expenses were accounted for separately from the net assets acquired and are included in general and administrative expense.

We will continue to conduct assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. We expect that it may take into the second quarter of 2022 until all post-closing assessments and adjustments are finalized.

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 for a purchase price of $1.4 million, subject to a post-closing working capital adjustment. The purchase price was paid as follows: (i) cash in the amount of $1.2 million; (ii) Common Stock of the Company in the amount of $250,000, priced at $8.4035 per share, which is the 10-day volume weighted average Nasdaq closing price immediately prior to the Closing Date; and (iii) earn out consideration of up to $300,000 (1) upon the fulfillment of certain conditions.

The purchase price for Liberty Electric, Inc. consisted of $1.4 million 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 $1.4 million 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 cost 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:

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 $12.5 million and $0.7 million 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, 2021 and 2020, 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 million 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.

3. LIQUIDITY AND FINANCIAL CONDITION

In the three months ended March 31, 2022, the Company experienced a net operating loss and negative cash flow from operations. At March 31, 2022, the Company had cash on hand of approximately $1.3 million and a working capital deficit of approximately $2.3 million. The Company utilized approximately $7.0 million in cash to support operations during the three months ending March 31, 2022. 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. The availability of financing and the cash flow from operations mitigates the potential for substantial doubt.

The demand for solar and electric vehicle infrastructure continues to increase across all customer groups. Our residential division has customer orders of approximately $26.2 million expected to be completed within three to five months, our commercial division has a contracted backlog of approximately $10.8 million expected to be completed within six to eight months, our industrial division has a contracted backlog of approximately $91.3 million expected to be completed within twelve to eighteen months and our utility division has 550 MW of projects currently under development with an estimated commencement date in the fourth quarter of 2022. The customer demand across our segments will provide short-term operational cash flow.

As of March 31, 2022, the Company had approximately $21.2 million 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 current cash on hand, proceeds generated from the registered direct offering and additional sales of Common Stock, the availability under the equity line of credits, the collectability of its accounts receivable and 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:

(In thousands)

Bad debt expense was $0 for the three months ended March 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 March 31, 2022 and 2021:

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 cost associated with contract assets as of March 31, 2022 will be billed and collected within one year. Contract liabilities were as follows at March 31, 2022 and December 31, 2021:

Included in accompany balance sheets under the following captions:

Maturities of long-term debt are as follows:

(In thousands)

On September 30, 2021, the Company entered into a Loan and Security Agreement with B. Riley Commercial Capital, LLC, as Lender. The proceeds of the Loan Agreement are expected to be used for acquisition finance, general corporate purposes and working capital. The Loan Agreement provides for a $10,000,000 loan facility with a maturity date of October 15, 2022, at an interest rate of 8.0% per annum. As of March 31, 2022, the balance was paid in full.

7. LINE OF CREDIT

The Company’s wholly owned subsidiary, Peck Electric Co., has a working capital line of credit with NBT Bank with a limit of $6 million and a variable interest rate based on the Wall Street Journal Prime rate, currently 3.5%. The line of credit is payable upon demand and is subject to an annual review in September 2022. The balance outstanding was $5.4 million and $4.5 million, at March 31, 2022 and December 31, 2021, respectively. Borrowing is based on 80% of eligible accounts receivable. The line is secured by all business assets and is subject to certain financial covenants. These financial covenants consist of a minimum debt service coverage ratio of 1.20 to 1.00 measured on a quarterly basis. As of March 31, 2022, the Company was not in compliance with the financial covenants but received a waiver of covenant default from NBT Bank.  

8. COMMITMENTS AND CONTINGENCIES 

(All dollar amounts in thousands)

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. 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.

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.

Total rent expense for all of the non-cancelable leases above were $195 and $62 for the three months ended March 31, 2022 and 2021, respectively.

The Company leases vehicles and office equipment under various agreements expiring through June 2026. As of March 31, 2021, aggregate monthly payments required under these leases approximates $25.

The Company also rents equipment to be used on jobs under varying terms not exceeding one year. Total rent expense under short term rental agreements was $210 and $98 for the three months ended March 31, 2022 and 2021, respectively.

On January 27, 2022, the Company became aware of pending litigation in the U.S. District Court for the District of Vermont entitled Sassoon Peress and Renewz Sustainable Solutions, Inc. v. iSun, Inc. 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 seeks legal and equitable remedies. The Company was granted an extension to plead to Plaintiffs’ Amended Complaint until April 29, 2022. On April 29, 2022, the Company filed an Answer and Counter-Claims. The Company plans to vigorously contest the litigation. It is not possible to evaluate the likelihood of an unfavorable outcome or provide an estimate or range of potential loss.

Future minimum lease payments required under all of the non-cancelable operating leases are as follows:  

9. 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 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 March 31, 2022, 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 $20,906,015.

10. 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:

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:

The following is a roll forward of the Company’s Level 3 instruments:

11. 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, 2022. During the three months ended March 31, 2022 and 2021, the Company incurred the following union assessments.

The Company’s total deferred tax assets and liabilities at March 31, 2022 and December 31, 2021 are as follows:

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 March 31, 2022 and December 31, 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 as of March 31, 2022 and December 31, 2021, respectively. Generally, the three 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.

Reconciliation between the effective tax on income from operations and the statutory tax rate is as follows:

The Company received a loan under the CARES Act Payroll Protection Program (“PPP”) of $1,487,624. The Company’s acquisition of SolarCommunities, Inc. & Subsidiaries included the acquisition of outstanding “PPP” loans of $2,591,500 and $2,000,000. Proceeds from the loans were used to cover documented expenses related to payroll, rent and utilities, during the 24-week period, subsequent to the cash being received by the Company, are eligible to be forgiven. 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 & Subsidiaries PPP loans of $2,000,000 were forgiven in its entirety in 2021 and $2,591,500 in its entirety in 2022.

The Company has federal net operating losses of approximately $27,000,000 of which $2,200,000 will expire beginning in 2035, $24,800,000 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 tax credit carryforwards of approximately $514,000 which will expire beginning in 2034. We believe that it is more likely than not that the tax benefit of these net operating losses will be fully realized, as such no valuation allowance has been recorded. 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.

13. 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 $74 and $248 for the three months ending March 31, 2022 and the year ended December 31, 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, 2021 is: (In thousands)

14. RELATED PARTY TRANSACTIONS

(All dollar amounts in thousands)

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 March 31, 2022 and December 31, 2021, the amount owed of $8 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 $250,000 for the stock purchase which is included in the “due from stockholders”. At March 31, 2022 and December 31, 2021, the amounts due of $9 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 March 31, 2022 and December 31, 2021, the amounts owed of $17 and $60, respectively, are included in the “due to stockholders” as there is a right to offset.

15. DEFERRED COMPENSATION PLAN

(All dollar amounts in thousands)

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 March 31, 2022 and December 31, 2021 and recorded in the statement of operations when incurred.

16. 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.

The Company has contingent share arrangements and warrants with the potential issuance of additional shares of Common Stock from these arrangements 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.

17. RESTRICTED STOCK AND STOCK OPTIONS

Options

As of March 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 executed in January 2021. 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%.

As of March 31, 2022, the Company has 375,000 non-qualified stock options outstanding to purchase 375,000 shares of Common Stock, per the terms set forth in the option agreements executed in January 2022. 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 $5.04 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 $1.2 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 125.96%, b) term of 2 years, c) risk free rate of 0.06% and d) a dividend yield of 0%.

The above table does not include the 429,000 options issued as part of the Jensyn IPO.

Aggregate intrinsic value of options outstanding at March 31, 2022 was $0.5 million. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period which was $4.10 as of March 31, 2022 and the exercise price multiplied by the number of options outstanding.

During the three months ended March 31, 2022 and 2021, the Company charged a total of $0.6 million and $0.1, respectively to operations to recognize stock-based compensation expense. As of March 31, 2022, the Company had $1.1 million in unrecognized stock based compensation related to 576,334 stock option awards, which is expected to be recognized over a weighted average period of less than three years. All units are expected to vest.

The stock options were exercised for 100,667 shares of Common Stock providing approximately $0.1 million of cash flow to the Company.

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.

In the three months ended March 31, 2022 and 2021, stock-based compensation expense of $0.5 million and $0.1, respectively was recognized for the January 2021 and January 2022 RSGA.

Stock-based compensation, excluding the January 2022 and 2021 RSGA, related to employee and director options totaled $0.1 and $0.0 for the three months ended March 31, 2022 and 2021, 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.

GreenSeed Investors, LLC and Solar Project Partners, LLC

The Company entered into an Exchange and Subscription Agreement (the “Exchange Agreement”) dated April 22, 2020 with GreenSeed Investors, LLC, a Delaware limited liability company (“GSI”), and Solar Project Partners, LLC, a Delaware limited liability company (“SPP”).

The primary purpose of GSI is to facilitate the green bond platform and provide capital for the acquisition of solar projects by SPP. The investment in GSI provides access to early stage financing to support the Company’s EPC operations while establishing a large pipeline of projects. The investment in SPP provides the Company with the opportunity to retain a long-term ownership in the completed solar projects. As such, the Company recorded the investments as long-term other assets.

Pursuant to the Exchange Agreement, the Company subscribed for 500,000 Units of Class B Preferred Membership units of GSI in exchange for 200,000 shares of the Company’s Series A Preferred Stock (the “Preferred Shares”). In addition to the investment by GSI in the Preferred Shares, GSI obtained additional capital contributions which valued the Units at $10.00 per Unit. As the Company acquired 500,000 Units, the market transactions were utilized as a Level 1 fair value instruments in determining the valuation of the investment. As of April 22, 2020, the fair value of the investment in GSI was $5.0 million. Separately, the Company subscribed for and purchased 100,000 Units of SPP in exchange for the issuance by the Company of a Warrant to acquire 275,000 shares of the Company’s Common Stock at an exercise price of $15.00 per share. As of March 31, 2022, the warrant was converted to 117,376 shares of Common Stock on a cashless basis.

The Exchange Agreement provides that as long as the dividend payment on the Preferred Shares in each calendar quarter is equal to the aggregate distribution with respect to the GSI Units, such payments and distributions shall be offset and neither GSI nor the Company need to make any cash payments to the other. For the three months ended March 31, 2022, the Company received a return of capital from GSI in the amount of $100,000. The dividend receivable of $100,000 is included in other current assets as of March 31, 2022.

The Company granted to GSI the right to repurchase up to 400,000 (in tranches of 50,000) of the Units at a valuation of $10.00 per Unit totaling $4.0 million.

The Company granted to GSI registration rights with respect to the Preferred Shares, the Warrant, and the Common Stock underlying the Warrant.

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 March 31, 2022, as there were no observable price changes.

Gemini and AmpUp

On March 18, 2021, the Company made a minority investment of $1.5 million in Gemini Electric Mobility Co. (“Gemini”) utilizing a Simple Agreement for Future Equity. On May 6, 2021, the Company made an additional minority investment of $0.5 million in Gemini.

On March 18, 2021, the Company made a minority investment of $1.0 million in Nad Grid Corp (“AmpUp”) utilizing 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 March 31, 2022, the equity investment for Gemini and AmpUp was $2.0 million and $1.0 million, respectively. No net appreciation or depreciation in fair value of the investments was recorded during the three months ending March 31, 2022, 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 $5.0 million 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, 2021, as there were no observable price changes.

19. STOCK REDEMPTION

On January 25, 2021, the Company purchased 34,190 shares of Common Stock from certain executives at $19.68 per share, 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.

20. SUBSEQUENT EVENTS

2020 Equity Incentive Plan

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 Agreements 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 April 2022 RSGAs). All shares issuable under the April 2022 RSGAs are valued as of the grant date at $5.04 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 December 31, 2022, 112,345 of the restricted shares shall vest on December 31, 2023, and the balance, or 112,343 shall vest on December 31, 2024.

Sale of Common Stock pursuant to S-3 Registration Statement

Subsequent to March 31, 2022, 309,038 shares of Common Stock were sold under the B. Riley Sales Agreement between April 1, 2022 and May 11, 2022, pursuant to a prospectus supplement that was filed with the SEC on February 10, 2021. Total gross proceeds for the shares were $1.28 million or $4.14 per share. Net proceeds after issuance costs were $1.24 million or $4.01 per share.