ISUN, INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2022

OR

For the transition period from     to    

Commission File No. 001-37707

iSUN, INC.

(Exact name of registrant as specified in its charter)

(802) 658-3378

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $0.0001

(Title of class)

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and, (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ☒ No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and, will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

YES  ☐ NO ☒

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

YES  ☐ NO ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ☐ NO ☒

The aggregate market value of the Common Stock held by non-affiliates as of June 30, 2022 was $33.2 million.

The number of shares of the Registrant’s Common Stock outstanding as of March 29, 2023 was 16,814,260.

TABLE OF CONTENTS

SUMMARY RISK FACTORS

Investing in our shares of Common Stock involves numerous risks, including the risks described in “Part I—Item 1A. Risk Factors” of this Annual Report on Form 10-K. Below are some of our principal risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects:

PART I

Forward-looking Statements

Statements in this Annual Report on Form 10-K that are not historical facts constitute forward-looking statements. Examples of forward-looking statements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, and may include certain assumptions that underlie forward-looking statements. Risks and uncertainties that may affect our future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements include, among other things, those listed under “Risk Factors” and elsewhere in this Annual Report.

These risks and uncertainties include but are not limited to:

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.

These statements are subject to business and economic risk and reflect management’s current expectations and involve subjects that are inherently uncertain and difficult to predict. Actual events or results may differ materially. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results.

Business Introduction/Summary

Throughout our 50-year history, we have always embraced innovative change. There has never been a more meaningful, or impactful time to be a leader in the innovation that will help fight climate change. We have built a team that is passionate about transitioning American power generation and consumption to clean solar energy. We are passionately focused on our mission to accelerate the adoption of solar energy.

We are one of the largest solar energy services and infrastructure deployment companies in the country and are expanding across the United States. Our services include solar, storage and electric vehicle infrastructure, design, development and professional services, engineering, procurement, installation, O&M and storage. We uniquely target all solar markets including residential, commercial, industrial and utility segments.

Prior to becoming a public company, we were a second-generation family business founded under the name Peck Electric Co. in 1972 as a traditional electrical contractor. Our core values were and still are to align people, purpose, and profitability, and since taking leadership in 1994, Jeffrey Peck, our Chief Executive Officer, has applied such core values to expand into the solar industry. We are guided by the mission to facilitate the reduction of carbon emissions through the expansion of clean, renewable energy and we believe that leveraging such core values to deploy resources to facilitate the adoption of solar energy is the only sustainable strategy to achieve these objectives. We have positioned the company to serve all segments of the rapidly evolving solar energy markets. We are able to originate valuable solar assets through our development and design services team. We are able to leverage our digital sales and marketing capabilities to generate high quality leads for our Residential, Commercial and Industrial and Utility divisions. Our experience provides for the high-quality craftsmanship required for installing long-term assets for all customers. Our team approach allows us to collaborate across divisions in order to efficiently utilize our internal labor resources. The diversity of our service offerings allows us to serve our customer needs in the evolving solar energy environment.

On January 19, 2021, we completed a business combination (the “Merger Agreement”) pursuant to which we acquired iSun Energy LLC (“iSun Energy”). The Business Combination was an acquisition treated as a merger and reorganization and iSun Energy became a wholly owned subsidiary of The Peck Company Holdings, Inc. Immediately prior to the business combination, we changed our name to iSun, Inc. (the “Company”).

On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of 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 was a utility-scale solar Engineering, Procurement, Construction, Development and Design company and a wholly-owned subsidiary of Adani. The Project IP included all of the intellectual property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.

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., d/b/a SunCommon, 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.

We now conduct all of our business operations exclusively through our direct and indirect wholly-owned subsidiaries, iSun Residential, Inc., SolarCommunities, Inc. iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility, LLC, iSun Energy, LLC and iSun Corporate, LLC.

The world recognizes the need to transition to a reliable, renewable energy grid in the next 50 years. States from Vermont to Hawaii are leading the way in the U.S. with renewable energy goals of 75% by 2032 and 100% by 2045, respectively. California committed to 100% carbon-free energy by 2045. The majority of the other states in the U.S. also have renewable energy goals, regardless of current Federal solar policy. We are a member of Renewable Energy Vermont, an organization that advocates for clean, practical and renewable solar energy. The benefits of the newly enacted Inflation Reduction Act of 2022 (“IRA”) provide stability and certainty of incentives for the next 10 years that create value to our shareholders and provides a long-term commitment for the energy transformation. Prior to the enactment of the IRA, the federal investment tax credits associated with solar projects had a planned reduction to 22% and 10% in 2023 and 2024. The IRA offers a stable tax rate over the next ten years as well as several potential adders to the fixed investment tax credit. These credits increase the valuation of solar assets which provides margin protection on future projects. Our triple bottom line, which is geared towards people, environment, and profit, has always been our guide since we began installing renewable energy and we intend that it remain our guide over the next 50 years as we construct our energy future.

We primarily provide services to solar energy customers for projects ranging in size from several kilowatts for residential loads to multi-megawatt systems for commercial, industrial and utility projects. To date, we have installed over 600 megawatts of solar systems since inception and are focused on contracting projects that meet our margin objectives. We believe that we are well-positioned for what we believe to be the coming transformation to an all renewable energy economy. We are expanding across the United States to serve the fast-growing demand for clean renewable energy. We are open to partnering with others to accelerate our growth process, and we are planning to expand our portfolio of company-owned solar arrays to establish recurring revenue streams for many years to come. We have established a leading presence in the market after five decades of successfully serving our customers, and we are now ready for new opportunities and the next five decades of success.

The diverse nature of our service offerings allows us to manage our operations based on the maximization of value for our customers in the evolving energy market. Our core revenue stream is generated from our engineering, procurement and installation services and products consisting of solar, electrical and data installations but has expanded to include project origination, design and development services as well. Approximately 85% of our revenue is derived from our solar Engineering, Procurement and Construction business, approximately 10% of revenue is derived from our electrical and data business and approximately 5% of revenue is derived from our project origination, development and design services. Recently our growth has been derived by increasing our solar customer base starting in 2013, mergers and acquisitions and expansion into new territories. We currently operate in Vermont, Maine, New Hampshire, New York, Massachusetts, Maryland, Alabama, Georgia and North and South Carolina. Our union crews are expert constructors, and union access to an additional workforce makes us ready for rapid expansion to other states while maintaining control of operating costs. The skillset provided by our workforce is transferrable among our service offerings depending on current demand.

We also plan to make investments in solar development projects and currently own approximately three megawatts of operating solar arrays operating under long-term power purchase agreements. Our joint ventures allow for a retained ownership in originated projects. These long-term recurring revenue streams, combined with our in-house development and construction capabilities, make this asset class a strategic long-term investment opportunity for us.

Consummation of the Business Combinations

On January 19, 2021, we completed a business combination (the “iSun Merger Agreement”) pursuant to which we acquired iSun Energy LLC (“iSun Energy”). The Business Combination was an acquisition treated as a merger and reorganization. iSun Energy, LLC became a wholly owned subsidiary of The Peck Company Holdings, Inc. Immediately prior to the iSun Merger Agreement, we changed our name to iSun, Inc.

On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of 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 was a utility-scale solar EPC company and a wholly-owned subsidiary of Adani. The Project IP included all of the intellectual property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.

On September 8, 2021, we entered into an Agreement and Plan of Merger (the “SunCommon 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., d/b/a SunCommon, 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 “SunCommon Merger”) with SunCommon as the surviving company in the Merger and SunCommon became a wholly-owned subsidiary of iSun Residential. The SunCommon Merger was effective on October 1, 2021.

We now conduct all of our business operations exclusively through our wholly owned subsidiaries, iSun Residential, Inc., SolarCommunities, Inc. iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility, LLC, iSun Energy, LLC and iSun Corporate, LLC.

Market Overview

We believe that domestic solar capacity and production will experience explosive growth over the short (through 2035) and long (2050) terms. Both short-term and long-term solar production estimates by research groups vary, however even the most conservative estimates project significant growth in domestic solar deployment through 2035 and again through 2050. Current domestic production is estimated at 100GW, which services only 3% of the rapidly growing US electricity demand. According to an October 2021 US DOE Solar Futures Studyⁱ, absent any concerted policy efforts towards decarbonization, domestic solar capacity is projected to increase by 700% by 2050. Modest decarbonization efforts such as those incorporated in the current administration’s Inflation Reduction Act would require cumulative solar deployment to increase much more significantly from current levels - 100 GW serving ~3% of US electricity demand in 2021 to 760-1000 GW serving 37-42% by 2035, an increase of 1150%, according to Solar Power World. The International Energy Agency (IEA) projects 270 GW of domestic solar capacity by 2026 – nearly 3x the current domestic production levels. As incentives increase and technology costs fall, the EIA also predicts renewables could account for nearly 60 percent of capacity additions through 2050. S&P Global Market Intelligence’s projections are significantly more aggressive, projecting that domestic production will achieve 87% of the IEA’s 2050 projection within the next 5 yearsⁱⁱ.

We agree with the conclusions of the aforementioned reports suggesting that broader decarbonization initiatives involving the decarbonization of the broader U.S. energy system through large-scale electrification of buildings, transportation, and industry will have an impact on both supply (solar deployment) and demand (electricity consumed). The EIA forecasts electricity demand growth owing to electrification of fuel-based building demands (e.g., heating), vehicles, and industrial processes of 30% from 2020 to 2035, and an additional 34% increase in energy demand from 2035 to 2050.

The Inflation Reduction Act of 2022 (“IRA”) legislation will invest nearly $370 billion in energy security and climate change programs over the next decade. The IRA renews the full 30% credit rate for Investment Tax Credit (“ITC”) eligible facilities that meet the prevailing wage and apprenticeship requirements. The IRA provides a direct pay provision for tax exempt entities including local government, tribal nations, nonprofits, cooperative and municipal utilities while also allowing for the transferability of those tax credits. The IRA allows for additional bonus credits for qualifications related to domestic content, energy communities and low- and moderate-income communities. The ITC will step down to 26% in 2033 and 22% in 2034.

While these efforts will further accelerate growth, iSun also concurs with the conclusions of these reports that domestic solar capacity and production will grow regardless of legislative efforts supporting the aforementioned decarbonization efforts. Each report concludes that decarbonization efforts occurring within specific geographic markets and select industries are already underway and are driving demand for additional domestic solar capacity accordingly:

Targeted High-Value Geographic Markets: These markets offer:

Targeted Rapidly Growing Industry Sectors: The anticipated widespread adoption of electric vehicles in the U.S. will dramatically change the landscape for domestic energy consumption and production. Mercedes, Ford, and General Motors have all committed to moving to electric or EV hybrid platforms within the decade, ensuring that by 2035, it will be difficult – if not impossible – for consumers to purchase a new car with an internal combustion engine. The average electric vehicle requires 30 kilowatt-hours to travel 100 miles - essentially the same amount of electricity an average American home uses each day. This will have a profound impact on electricity demand across each segment of the marketplace. Overnight, household electricity demand could double for the average American 2-car family. As widespread EV adoption begins to accelerate, consumers will begin looking for ways to reduce their electric bills, increasing demand for household solar solutions. Although consumer behaviors may change with EV adoption…expectations will not. Consumers will still expect that they will be able to recharge their cars quickly and easily at the places they most often frequent. This will in turn prompt commercial enterprises small and large to also look for ways to manage such expectations at reasonable costs. Expectations will be even greater at destination locations such as hotels, municipal facilities, or even remote trailheads or parks, prompting asset owners and municipalities to explore scalable solutions that may not be able to be addressed on-site. And of course, all this activity will in turn be met with an increase in electricity demand, prompting utilities to begin exploring ways of rapidly increasing their capacity.

Strategy

iSun is uniquely positioned in the marketplace to address the generational opportunity presented by automotive electrification and decarbonization. iSun’s Solar Platform serves the evolving energy needs and increased energy demands presented by automotive electrification and decarbonization within of each segment of the solar marketplace. Our:

ⁱ US Residential PV Customer Acquisition Costs and Trends, Woods Mackenzie Power & Renewables, October 2021 (Connelly, White). Page 5

ⁱⁱ Solar Power World Reference.

Some of the customer needs that will result from automotive electrification and decarbonization are agnostic to scale and will be universal across all segments. A customer-centric organization, iSun has created cross-division service teams to proactively address these needs. iSun’s:

Because we provide services to each segment of the marketplace, our Solar Platform enables us to adapt to the evolving range of customer demand and energy innovations resulting from decarbonization and vehicle electrification.

Customer Acquisition: iSun’s growth and new customer acquisition strategies are unique to each division.

Residential: SunCommon values high-touch customer service capabilities that foster long-term customer relationships. Our focus ideally suits the contemporary market environment, where recent technologies like EV charging, energy storage and grid management are arriving early and often. The rapid pace of these deployments mean consumers will be looking to enhance their systems more regularly, increasing long-term customer value. We can cultivate and maintain these relationships at an exceptionally low cost. SunCommon reported new customer acquisition costs of $0.30/w for the 12 months ending December 31, 2022.

Commercial and Industrial: We continue to experience organic growth from our established relationships with national developers requesting development and EPC services. Additionally, we have made strategic investments in entities capable of providing a robust pipeline of industrial-scale EPC projects. On November 24, 2021, iSun entered into a Membership Unit Purchase agreement (the “MUPA”) with Encore Redevelopment LLC (“Encore”) in exchange for a fully diluted 9.1% ownership interest in Encore. The investment provides for collaboration opportunities across Encore’s robust project pipeline, which has doubled in 2022 partially as a result of the capital infusion. Additionally, the transaction has provided insights into new prospective geographic markets, which has informed iSun’s geographic growth strategy for its Residential and Commercial divisions.

Utility: With the acquisition of Oakwood Construction Services intellectual property, we were able to expand our utility-scale capabilities to include EPC as well as our development and professional services. Unlike EPC services, development and professional services occur prior to the commencement of construction and are not contingent upon a project proceeding to construction status. Development and professional services not only enhance cash-flows and margins on a month-to-month basis, but also afford us the rights to construction services for each project that proceeds to construction, effectively transforming the lead generation funnel for iSun’s Utility Division into a revenue generator instead of an expense. Immediate success of this strategy is demonstrated by contracts for development and professional services work on 566MW of solar projects across 4 project sites across the US.

Ancillary Markets

Our capabilities allow for expansion into high-growth adjacent markets. We began operations as a traditional electric contractor and hold a wide range of capabilities to install electric equipment for a variety of end uses. Today, these core capabilities have developed our business in solar array installation, traditional electric, and data services. We can deploy these capabilities to other large, rapidly growing clean/renewable end market within each segment; namely electric vehicle (“EV”) charging stations, data centers, energy storage and other markets. The rapid proliferation of EV charging stations has followed the shift in auto sales to electronic vehicles, and the EV charging market is expected to expand to over $30 billion by 2024 with a CAGR of 40% over the next 2-year period. Energy storage measured by megawatts expanded by 44% year-over-year in 2018 and is projected to grow into a $4.7 billion market by 2024. Both markets represent adjacent, high growth expansion opportunities for us, and both require minimal investment of resources, infrastructure or capital spend given its complementary nature to our existing capabilities.

Employees

As of March 30, 2023, we employed approximately 290 full-time employees. We may also utilize outside subcontractors to assist with installing solar systems for our commercial and residential customers. Our direct installation labor is a combination of employees and contract labor.

We have direct access to unionized labor, which provides a unique advantage for growth, because workforce resources can be scaled efficiently utilizing local labor unions in other states to meet specific project needs in other states without increasing fixed labor costs for us.

Financing

To promote residential sales, we assist customers in obtaining financing options. Our objective is to arrange the most flexible terms that meet the needs and wants of the customer. Although we do not yet directly provide financing, we have relationships to arrange financing with numerous private and public sources, including SunLight, and the Vermont State Employees Credit Union, which offers VGreen financing to maximize solar investment savings.

We believe it is best for customers to own their own systems, but some customers prefer not to own their systems. We also have the ability to arrange financing with third parties through power purchase agreements and leases for our customers.

Suppliers

We purchase solar panels, inverters and materials directly from multiple manufacturers and through distributors. We intend to further coordinate purchases across all business segments and to optimize supply relationships to realize the advantages of greater scale.

If one or more of our suppliers fail to meet our supply needs, ceases or reduces production due to its financial condition, acquisition by a competitor or otherwise, it may be difficult to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and our ability to satisfy this demand may be adversely affected. We do not, however, rely on any single supplier and our management believes that we can obtain needed solar panels and materials from a number of different suppliers. Accordingly, we believe that the loss of any single supplier would not materially affect our business.

We also utilize companies with subcontractors for electrical installations, for racking and solar panel installations, as well as numerous subcontractors for grading, landscaping, and construction for our commercial, and industrial customers.

Installation

We are a licensed contractor in the markets that we serve, and we are responsible for every customer installation. We manage the entire process from permitting through inspection to interconnection to the power grid, thereby making the system installation process simple and seamless for its customers. Controlling every aspect of the installation process allows us to minimize costs, ensure quality and deliver high levels of customer satisfaction.

Even with controlling every aspect of the installation process, the ability to perform on a contract is subject to limitations. There remain jurisdictional approval processes outside our immediate control including, but not limited to, approvals of city, county, state or Federal government bodies or one of their respective agencies. Other aspects outside of our direct control include approvals from various utility companies and weather conditions.

After-Sales Support

It is our intent to provide continuing operation and maintenance services for our installed residential and commercial solar systems. We provide extended factory equipment technical support and act as a service liaison using our proprietary knowledge, technology, and solar electric energy engineering staff. We do this through a 5-year limited workmanship warranty and operations and maintenance program, which among other things, provides a service and technical support line to our customers. We generally respond to our job site related issues within 24 hours and offer assistance as long as required to maintain customer satisfaction. Our price to customers includes this warranty, and also includes the pass through of various manufacturers’ warranties that are typically up to 25 years.

Customers

Historically, the majority of our revenue came from commercial and industrial solar installations ranging in size from 100 kilowatts to 10 megawatts. In 2022, we expanded our capabilities to serve customers across the residential, commercial, industrial and utility markets. We expanded our services based on customer demand to include development and professional services, engineering, procurement, installation, storage, monitoring and electric vehicle infrastructure support.

In 2022, approximately 52% of revenues were generated by residential installations, approximately 33% of revenues were generated by commercial and industrial installations, 10% of revenues were generated from electrical and data contracts, and 5% of revenues were generated by project origination services. In 2021, approximately 28% of our revenues were generated by residential installations, approximately 58% of revenues were generated by commercial and industrial installations, 11% of revenue were generated from our electrical and data contracts, and 3% of revenues were generated by project origination services.

We believe that we have an advantage in the commercial solar market in New England given our extensive contact list, resulting from our experience in the commercial and industrial construction market, which also provides access to customers that trust us. Through our network of vendors, participation in variety of industry trade associations and independent sales consultants, we now have a growing list of repeat clients, as well as an active and loyal referral network. As new markets open in other key geographic regions, we are able to leverage our reputation and long-term customer relationships for market entry.

Competitors

In the solar installation market, we compete with companies that offer products similar to our products. Some of these companies have greater financial resources, operational experience, and technical capabilities than we do. When bidding for solar installation projects, however, our current experience suggests that we are the dominant or preferred competitor in the markets in which we compete. We do not believe that any competitor has more than 10% of the market across all the areas in which we currently operate. We compete with other solar installers on our expertise and proven track record of performance. Also, pricing, service and the ability to arrange financing may be important for a project award.

Seasonality

We often find that some customers tend to book projects by the end of a calendar year to realize the benefits of available subsidy programs prior to year-end. This results in third and fourth quarter sales being more robust usually at the expense of the first quarter. In the future, this seasonality may cause fluctuations in financial results. In addition, other seasonality trends may develop and the existing seasonality that we experience may change. Weather can also be an important factor affecting project timelines.

Technology and Intellectual Property

Generally, the solar EPC business is not dependent on intellectual property. We did acquire the intellectual property of Oakwood Construction Services, LLC which provides proprietary capabilities for solar asset development and execution of large utility scale solar projects at a significant value to our customers.

Government Regulation and Incentives

Government Regulation

We are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conduct business.

To operate our systems, we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility and we and/or our customer. In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction overnet metering procedures. As such, no additional regulatory approvals are required once interconnection permission is given.

Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of OSHA, the DOT and comparable state laws that protect and regulate employee health and safety.

Government Incentives

Federal, state and local government bodies provide incentives to owners, end users, distributors, system integrators and manufacturers of solar energy systems to promote solar energy in the form of rebates, tax credits and other financial incentives such as system performance payments, payments for renewable energy credits associated with renewable energy generation and exclusion of solar energy systems from property tax assessments. These incentives enable iSun to lower the price it charges customers to own or lease, our solar energy systems, helping to catalyze customer acceptance of solar energy as an alternative to utility-provided power.

The Inflation Reduction Act of 2022 (“IRA”) legislation will invest nearly $370 billion in energy security and climate change programs over the next decade. The Act renews the full 30% credit rate for Investment Tax Credit (“ITC”) of eligible facilities that meet the prevailing wage and apprenticeship requirements. The IRA provides a direct pay provision for tax exempt entities including local governments, tribal nations, nonprofits, cooperative and municipal utilities while also allowing for the transferability of those tax credits. The IRA allows for additional bonus credits for qualifications related to domestic content, energy communities and low- and moderate-income communities. The ITC will step down to 26% in 2033 and 22% in 2034.

The economics of purchasing a solar energy system are also improved by eligibility for accelerated depreciation, also known as the modified accelerated cost recovery system, or MACRS depreciation, which allows for the depreciation of equipment according to an accelerated schedule set forth by the Internal Revenue Service. The acceleration of depreciation creates a valuable tax benefit that reduces the overall cost of the solar energy system and increases the return on investment.

Approximately 50% of states in the U.S. offer a personal and/or corporate investment or production tax credit for solar energy that is additive to the ITC. Further, these states, and many local jurisdictions, have established property tax incentives for renewable energy systems that include exemptions, exclusions, abatements, and credits. Many state governments, traditional utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a solar energy system or energy efficiency measures. Capital costs or “up-front” rebates provide funds to solar customers based on the cost, size or expected production of a customer’s solar energy system. Performance-based incentives provide cash payments to a solar energy system owner based on the energy generated by their solar energy system during a pre-determined period, and they are paid over that time period. Depending on the cost of the system and other site-specific variables, tax incentives can typically cover 30-40% of the cost of a commercial or residential solar system.

Many states also have adopted procurement requirements for renewable energy production that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the State from eligible renewable energy sources, such as solar energy systems, by a specified date.

Environmental, Social and Corporate Governance

Governance and Strategic Overview

In 2022, iSun built upon its historic foundation of environmentally and socially responsible business by formalizing an enterprise-level ESG strategy. This strategy is overseen by an ESG Executive Committee and guided by the Corporate Governance Committee on the Board of Directors. Our governance efforts have included developing and publishing a core set of policies that speak to our position on and approach to a range of environmental, social, and governance issues. Through a stakeholder engagement process and iSun employee interviews, we have identified a set of material issues that are critical to both our business and to our key stakeholders. As such, we have developed policies and are implementing initiatives related to climate change and environmental stewardship, diversity, equity and inclusion (DEI), labor management and human rights, and stakeholder engagement. We are also formalizing and implementing a Business Code of Conduct as well as a Supplier Code of Conduct.

Our strategic plan is designed to mitigate the risks and capitalize on the opportunities associated with these issues, with an explicit focus on aligning our commercial goals and impact aspirations to drive both shareholder and broader stakeholder value. This strategy will be guided by cross-functional working groups comprised of leaders from across the company and will have explicit goals, key performance indicators (KPIs), and timelines for implementing the initiatives that address each issue.

iSun will be focused on integrating, aligning, and scaling the impact programs developed over the years by SunCommon, our recently purchased subsidiary, which is a Vermont benefit corporation and a certified B corporation and a recognized leader in the world of socially responsible business.

iSun is currently in compliance with all ESG-related requirements of the SEC and of Nasdaq including the Board Diversity Disclosure Matrix provided below.

iSun, Inc. Board Diversity Matrix

Total Number of Directors : 5

Risks and Opportunities

Climate change, and its associated issues like emissions, energy management, waste, and water management – have been identified as critical to our social mission and the concerns of our commercial customers, employees, and investors. Our mission to accelerate the world’s transition from dirty to clean energy can only be achieved if we are also decarbonizing our own operations and supply chains. We will be setting long-term goals on climate change and these associated environmental issues after we conduct our first enterprise Greenhouse Gas (GHG) accounting exercise to determine our scopes 1, 2, and 3 emissions.

Human capital, and diversity, equity, and inclusion (DEI), have been identified as critical to our long-term success and social impact aspirations. Human capital has become an increasingly important topic for investors and society at large. It is also integral to the long-term success of our business as we rely heavily on our installation teams and the union members we employ. In turn, we will be ramping up our focus on workforce development and upward mobility opportunities for our employees, advancing work opportunities for diverse and at-risk populations, as well as supporting economic inclusion within our supply chains through a minority-owned business procurement program.

Governance and corporate transparency, both internally and externally, is another core risk and opportunity to address. Our revamped ESG governance structure and utilization of the ESG project management platform, ESGProgram.io, will ensure alignment and integration of these efforts across the iSun enterprise. An internal and external ESG communications plan will also ensure our intentions, efforts, and outcomes are well understood by our external stakeholders and greater operational alignment with our internal teams. Lastly, we will be providing ESG education to our executive leaders and Board to ensure they can actively contribute to the success of our ESG strategy.

Climate Change and Human Capital Management

Climate change and human capital management are two leading ESG issues across industries. From investor expectations to SEC disclosure regulations, climate risk management and human capital management have emerged as the two most critical issues from a stakeholder and general public perspective.

Our objectives for climate change include measuring and reducing our emissions, waste, and water, enhancing our operational climate risk resilience, and developing service offerings that support the climate risk resilience of our customers. We will be setting long-term climate change goals, KPI’s, and timelines for achievement, as well as reporting our progress in a 2023 Task Force for Climate-Related Financial Disclosures (TCFD) report.

Our objectives for human capital management include increasing the diversity of our workforce and procurement partners, creating upward mobility opportunities for diverse employees and field staff, as well as increasing the visibility and importance of the trades in the communities we live and work. We will be setting long-term human capital goals, KPI’s, and timelines for achievement, as well as reporting our progress in 2023 with the relevant metrics from the Sustainable Accounting Standards Boards (SASB).

Commitments

We will be implementing our enterprise ESG strategic plan across our operations. As our cross-functional working groups get up and running, we will begin our enterprise GHG emissions assessment and develop the internal infrastructure for consistent ESG data collection. All material issues will be overseen by their relevant functional leaders and will have explicit and quantified goals, KPI’s, and timelines for achievement. We will be reporting on our progress throughout the year, culminating in a ESG report and complete with a Sustainable Accounting Standards Boards (SASB) and Task Force for Climate-related Financial Disclosures (TCFD) reports. Our progress will be actively communicated externally on our website and in governance documents to ensure full visibility into our ESG intentions, efforts, and results.

Corporate Information

Our address is 400 Avenue D, Suite 10, Williston, VT 05495 and our telephone number is (802) 658-3378. Our corporate website is: www.isunenergy.com. The content of our website shall not be deemed incorporated by reference in this Annual Report.

An investment in our Common Stock involves significant risks. You should carefully consider the risk factors contained in this Annual Report and in our filings with the SEC before you decide to invest in our Common Stock. Our business, prospects, financial condition and results of operations may be materially and adversely affected as a result of any of such risks. The value of our Common Stock could decline as a result of any of these risks. You could lose all or part of your investment in our Common Stock. Some of our statements in sections entitled “Risk Factors” are forward-looking statements. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

The impact of a subsequent wave of the coronavirus pandemic (COVID-19) on general market and economic conditions has yet to be determined and if it occurs it is likely to have a material adverse effect on our business and results of operations.

As of the date of this Annual Report on Form 10-K, the coronavirus pandemic (COVID-19) has resulted in widespread disruption to capital markets and general economic and business climate. For the year ended December 31, 2021, we experienced significant disruption to our supply chain, instability in material pricing and labor shortages due to the long-term impact of COVID-19. On June 14, 2021, Vermont Governor Phil Scott removed all COVID-19 restrictions and Vermont’s State of Emergency expired on June 15, 2021. The extent to which COVID-19 affects our results, or those of our suppliers, will depend on future developments, which are highly uncertain and cannot be predicted. At this time, no material impact to our business and operations is anticipated.

The Russian-Ukraine conflict and the impact of related sanctions may impact our business.

As of the date of this Annual Report on Form 10-K, the Russia-Ukraine conflict and related sanctions have not had any impact on our business. However, we may be impacted by the disruptions of the global supply chain.

Risks Related to Our Financial Position and Capital Requirements

We operated at a loss in 2022 and 2021 and cannot predict when we will achieve profitability.

Our management believes that achieving profitability will depend in large part on our ability to increase market share in our existing market segments and expand our geographic foot print and to consummate synergistic acquisitions. No assurance can be given that we will achieve profitably or that we will have adequate working capital to meet our obligations as they become due.

We may require substantial additional funding which may not be available to it on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to maintain our business and operations.

The Company was not profitable in 2022 and 2021. In order to grow our operations, we may increase our spending for our operating expenses, capital expenditures and acquisitions.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our organic growth or corporate acquisitions. Any of these events could significantly harm our business, financial condition, and strategy.

In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time, and we may choose to raise additional funds through strategic collaborations, public or private equity or debt financing, bank lines of credit, asset sales, government grants, or other arrangements. Our management cannot be sure that any additional funding, if needed, will be available on favorable terms or at all. Furthermore, any additional equity or equity-related financing obtained may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs.

An inability to raise capital when needed could harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we cease operations.

Our management discovered a material weakness in our disclosure controls and procedures and internal control over financial reporting as required to be implemented by Section 404 of the Sarbanes-Oxley Act of 2002.

We are currently subject to Section 404 of the Sarbanes-Oxley Act of 2002 and are required to provide management’s attestation on internal controls. Our management has identified control deficiencies and the need for a stronger internal control environment relating to the financial statement close process. The ineffectiveness of the design, implementation and operation of the controls surrounding these matters creates a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. Accordingly, our management concluded that this deficiency represents a material weakness in our internal control over financial reporting as of December 31, 2022. Although our management has taken significant steps to remediate this weakness, our management can give no assurance that all the measures it has taken will on a permanent and sustainable basis remediate the material weaknesses in our disclosure controls and procedures and internal control over financial reporting or that any other material weaknesses or restatements of financial results will not arise in the future. We plan to take additional steps to remedy this material weakness. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in the future, we will not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of our Common Stock.

Risks Related to Our Business and Industry

A material reduction in the retail price of traditional utility generated electricity or electricity from other sources could harm our business, financial condition, results of operations and prospects.

Our management believes that a significant number of our customers decide to buy solar energy because they want to pay less for electricity than what is offered by the traditional utilities.

The customer’s decision to choose solar energy may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the traditional utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from traditional utilities could decrease as a result of:

A reduction in utility electricity prices would make the purchase or the lease of our solar energy systems less economically attractive. If the retail price of energy available from traditional utilities were to decrease due to any of these reasons, or other reasons, we would be at a competitive disadvantage, may be unable to attract new customers and our growth would be limited.

Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our solar energy systems.

Federal, state and local government regulations and policies concerning the electric utility industry, and internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation. In the United States, governments and utilities continuously modify these regulations and policies. These regulations and policies could deter customers from purchasing renewable energy, including solar energy systems. This could result in a significant reduction in the potential demand for our solar energy systems. For example, utilities commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase our customers’ cost to use our systems and make them less desirable, thereby harming our business, prospects, financial condition and results of operations. In addition, depending on the region, electricity generated by solar energy systems competes most effectively with expensive peak-hour electricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities’ peak hour pricing policies or rate design, such as to a flat rate, would require us to lower the price of our solar energy systems to compete with the price of electricity from the electric grid.

In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness and cause a significant reduction in demand for our products and services. For example, certain jurisdictions have proposed assessing fees on customers purchasing energy from solar energy systems or imposing a new charge that would disproportionately impact solar energy system customers who utilize net metering, either of which would increase the cost of energy to those customers and could reduce demand for our solar energy systems. It is possible charges could be imposed on not just future customers but our existing customers, causing a potentially significant consumer relations problem and harming our reputation and business. Due to the current concentration of our business in Vermont, any such changes in these markets would be particularly harmful to our business, results of operations, and future growth.

Our growth strategy depends on the widespread adoption of solar power technology.

The market for solar power products is emerging and rapidly evolving, and our future success is uncertain. If solar power technology proves unsuitable for widespread commercial deployment or if demand for solar power products fails to develop sufficiently, we would be unable to generate enough revenues to achieve and sustain profitability and positive cash flow. The factors influencing the widespread adoption of solar power technology include but are not limited to:

Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.

U.S. federal, state and local government bodies provide incentives to end users, distributors, system integrators and manufacturers of solar energy systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments and payments for renewable energy credits associated with renewable energy generation. These governmental rebates, tax credits and other financial incentives enhance the return on investment for our customers and incent them to purchase solar systems. These incentives enables us to lower the price that we charge customers for energy and for solar energy systems. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as solar energy adoption rates increase. These reductions or terminations often occur without warning.

Reductions in, or eliminations or expirations of, governmental incentives could adversely impact our results of operations and our ability to compete in our industry, causing us to increase the prices of our solar energy systems, and reducing the size of our addressable market. In addition, this would adversely impact our ability to attract investment partners and to form new financing funds and our ability to offer attractive financing to prospective customers.

Our business depends in part on the regulatory treatment of third-party owned solar energy systems.

Our leases and any power purchase agreements are third-party ownership arrangements. Sales of electricity by third parties face regulatory challenges in some states and jurisdictions. Other challenges pertain to whether third-party owned systems qualify for the same levels of rebates or other non-tax incentives available for customer-owned solar energy systems, whether third-party owned systems are eligible at all for these incentives, and whether third-party owned systems are eligible for net metering and the associated significant cost savings. Reductions in, or eliminations of, this treatment of these third-party arrangements could reduce demand for our systems, adversely impact our access to capital and could cause us to increase the price that we charge our customers for energy.

Our ability to provide solar energy systems to customers on an economically viable basis depends on our ability to help customers arrange financing for such systems.

Our solar energy systems have been eligible for federal investment tax credits or U.S. Treasury grants, as well as depreciation benefits. We have relied on, and will continue to rely on, financing structures that monetize a substantial portion of those benefits and provide financing for our solar energy systems. With the lapse of the U.S. Treasury grant program, we anticipate that our customers’ reliance on these tax-advantaged financing structures will increase substantially. If, for any reason, our customers were unable to continue to monetize those benefits through these arrangements, we may be unable to provide and maintain solar energy systems for new customers on an economically viable basis.

The availability of this tax-advantaged financing depends upon many factors, including, but not limited to:

U.S. Treasury grants are no longer available for new solar energy systems. Changes in existing law and interpretations by the Internal Revenue Service and the courts could reduce the willingness of funding sources to provide funds to customers of these solar energy systems. We cannot assure you that this type of financing will be available to our customers. If, for any reason, we are unable to find financing for solar energy systems, we may no longer be able to provide solar energy systems to new customers on an economically viable basis. This would have a material adverse effect on our business, financial condition, and results of operations.

Rising interest rates could adversely impact our business.

Increases in interest rates could have an adverse impact on our business by increasing our cost of capital, which would increase our interest expense on any variable rate indebtedness and make acquisitions more expensive to undertake.

Further, rising interest rates may negatively impact our ability to arrange financing for our customers on favorable terms to facilitate our customers’ purchases of our solar energy systems. The majority of our cash flows to date have been from the sales of solar energy systems. Rising interest rates may have the effect of depressing the sales of solar energy systems because many consumers finance their purchases.

As a result, an increase in interest rates may negatively affect our costs and reduce our revenues, which would have an adverse effect on our business, financial condition, and results of operations.

If we cannot compete successfully against other solar and energy companies, we may not be successful in developing our operations and our business may suffer.

The solar and energy industries are characterized by intense competition and rapid technological advances, both in the United States and internationally. We compete with solar companies with business models that are similar to ours. In addition, we compete with solar companies in the downstream value chain of solar energy. For example, we face competition from purely finance driven organizations that acquire customers and then subcontract out the installation of solar energy systems, from installation businesses that seek financing from external parties, from large construction companies and utilities, and increasingly from sophisticated electrical and roofing companies. Some of these competitors specialize in the residential solar energy market, and some may provide energy at lower costs than we do. Further, some competitors are integrating vertically in order to ensure supply and to control costs. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets.

If we are unable to compete in the market, we will experience an adverse effect on our business, financial condition, and results of operations.

Adverse economic conditions may have material adverse consequences on our business, results of operations and financial condition.

Unpredictable and unstable changes in economic conditions, including recession, inflation, increased government intervention, or other changes, may adversely affect our general business strategy. We rely upon our ability to generate additional sources of liquidity and we may need to raise additional funds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including acquisitions of complementary businesses or technologies. Any adverse event would have a material adverse impact on our business, results of operations and financial condition.

Our business is concentrated in certain markets, putting it at risk of region-specific disruptions.

As of December 31, 2022, a vast majority of our total solar installations were in the Northeast. Our management expects our near-term future growth to occur throughout the Eastern United States, and to further expand our customer base and operational infrastructure. Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in such markets and in other markets that may become similarly concentrated.

If we are unable to retain and recruit qualified technicians and advisors, or if our key executives, key employees or consultants discontinue their employment or consulting relationship with us, we may delay our development efforts or otherwise harm our business.

We may not be able to attract or retain qualified management or technical personnel in the future due to the intense competition for qualified personnel among solar, energy, and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain, and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the successful development of any product candidates, our ability to raise additional capital, and our ability to implement our overall business strategy.

We are highly dependent on members of our management and technical staff. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior technical personnel. The loss of any of our executive officers, key employees, or consultants and our inability to find suitable replacements could potentially harm our business, financial condition, and prospects. We may be unable to attract and retain personnel on acceptable terms given the competition among solar and energy companies. Certain of our current officers, directors, and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors, and/or consultants of other solar and energy companies. We do not maintain “key man” insurance policies on any of our officers or employees. Other than certain members of our senior management team, all of our employees are employed “at will” and, therefore, each employee may leave our employment and join a competitor at any time.

We plan to grant stock options, restricted stock grants, or other forms of equity awards in the future as a method of attracting and retaining employees, motivating performance, and aligning the interests of employees with those of our stockholders. If we are unable to implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees and attract additional qualified candidates, our business and results of operations could be adversely affected.

The execution of our business plan and development strategy may be seriously harmed if integration of our senior management team is not successful.

As our business continues to grow and in the event that we acquire new businesses, we may experience significant changes in our senior management team. Failure to integrate our Board of Directors and senior management teams may negatively affect the operations of our business.

We may not successfully implement our business model.

Our business model is predicated on our ability to build and sell solar systems at a profit, and through organic growth, geographic expansion and strategic acquisitions. Our management intends to continue to operate our business as it has previously, with sourcing and marketing methods that we have used successfully in the past. However, our management cannot assure you that our methods will continue to attract new customers nor that we can achieve profitability in the very competitive solar systems marketplace.

We may not be able to effectively manage our growth.

Our future growth, if any, may cause a significant strain on our management and our operational, financial, and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial, and management systems and to expand, train, manage, and motivate our employees. These demands may require the hiring of additional management personnel and the development of additional expertise by our management. Any increase in resources used without a corresponding increase in our operational, financial, and management systems could have a material adverse effect on our business, financial condition, and results of operations.

We may not realize the anticipated benefits of completed and future acquisitions, and integration of these acquisitions may disrupt our business and management.

We have acquired and, in the future, we may acquire companies, project pipelines, products or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of these acquisition and any acquisition has numerous risks. These risks include the following:

Mergers and acquisitions of companies are inherently risky and, if we do not complete the integration of acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.

With respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies.

The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large traditional utilities. We believe that our primary competitors are the traditional utilities that supply electricity to our potential customers. Traditional utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result, these competitors may be able to devote more resources to the research, development, promotion, and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Traditional utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than that of ours. In addition, a majority of utilities’ sources of electricity is non-solar, which may allow utilities to sell electricity more cheaply than electricity generated by our solar energy systems.

We also compete with companies that are not regulated like traditional utilities, but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies. These energy service companies are able to offer customers electricity supply-only solutions that are competitive with our solar energy system options on both price and usage of renewable energy technology while avoiding the long-term agreements and physical installations that our current fund-financed business model requires. This may limit our ability to attract new customers; particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels on their roofs.

As the solar industry grows and evolves, we will also face new competitors who are not currently in the market. Low technological barriers to entry characterize our industry and well-capitalized companies could choose to enter the market and compete with it. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects.

Developments in alternative technologies or improvements in distributed solar energy generation may materially adversely affect demand for our offerings.

Significant developments in alternative technologies, such as advances in other forms of distributed solar power generation, storage solutions such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production may materially and adversely affect our business and prospects in ways management does not currently anticipate. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay deployment of our solar energy systems, which could result in product obsolescence, the loss of competitiveness of our systems, decreased revenue and a loss of market share to competitors.

Due to the limited number of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, price change, imposition of tariffs or duties or other limitation in our ability to obtain components or technologies that we use could result in sales and installation delays, cancellations, and loss of market share.

While we purchase our products from several different suppliers, if one or more of the suppliers on which we rely to meet anticipated demand ceases or reduces production due to its financial condition, is acquired by a competitor or otherwise is unable to increase production as industry demand increases, or is otherwise unable to allocate sufficient production to us, it may be difficult for us to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and our ability to satisfy this demand may be adversely affected. There are a limited number of suppliers of solar energy system components and technologies. While we believe there are other sources of supply for these products available, transitioning to a new supplier may result in additional costs and delays in acquiring our solar products and deploying our systems. These issues could harm our business or financial performance.

In addition, the acquisition of a component supplier or technology provider by one of our competitors could limit our access to such components or technologies and require significant redesigns of our solar energy systems or installation procedures and have a material adverse effect on our business.

There have also been periods of industry-wide shortages of key components, including solar panels, in times of industry disruption. The manufacturing infrastructure for some of these components has a long lead-time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. The solar industry is frequently experiencing significant disruption and, as a result, shortages of key components, including solar panels, may be more likely to occur, which in turn may result in price increases for such components. Even if industry-wide shortages do not occur, suppliers may decide to allocate key components with high demand or insufficient production capacity to more profitable customers, customers with long-term supply agreements or customers other than us and our supply of such components may be reduced as a result.

Typically, we purchase the components for our solar energy systems on an as-needed basis and do not operate under long-term supply agreements. The vast majority of our purchases are denominated in U.S. dollars. Since our revenue is also generated in U.S. dollars, we are mostly insulated from currency fluctuations. However, since our suppliers often incur a significant amount of their costs by purchasing raw materials and generating operating expenses in foreign currencies, if the value of the U.S. dollar depreciates significantly or for a prolonged period of time against these other currencies, this may cause our suppliers to raise the prices they charge us, which could harm our financial results. Any supply shortages, delays, price changes or other limitation in our ability to obtain components or technologies that we use could limit our growth, cause cancellations or adversely affect our profitability, and result in loss of market share and damage to our brand.

We act as the licensed general contractor for our customers and are subject to risks associated with construction, cost overruns, delays, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations.

We are a licensed contractor and we are normally the general contractor, electrician, construction manager, and installer for our solar energy systems. We may be liable to customers for any damage that we cause to the home, business premises, belongings or property of our customers during the installation of our systems. For example, we penetrate our customers’ roofs during the installation process and may incur liability for the failure to adequately weatherproof such penetrations following the completion of installation of solar energy systems. In addition, because the solar energy systems that we deploy are high-voltage energy systems, we may incur liability for the failure to comply with electrical standards and manufacturer recommendations. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays, or other execution issues may cause us to not achieve our expected results or cover our costs for that project.

In addition, the installation of solar energy systems is subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building, fire and electrical codes, safety, environmental protection, utility interconnection and metering, and related matters. We also rely on certain employees to maintain professional licenses in many of the jurisdictions in which we operate, and our failure to employ properly licensed personnel could adversely affect our licensing status in those jurisdictions. It is difficult and costly to track the requirements of every authority having jurisdiction over our operations and our solar energy systems. Any new government regulations or utility policies pertaining to our systems, or changes to existing government regulations or utility policies pertaining to our systems, may result in significant additional expenses to our customers and, as a result, could cause a significant reduction in demand for our systems.

If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business could be adversely affected. A cyberattack could lead to a material disruption of our information technology systems or the IT systems of our third-party providers and the loss of business information, which may hinder our ability to conduct our business effectively and may result in lost revenues and additional costs.

We depend on information systems throughout our company to process orders, manage inventory, process and bill shipments and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment, and record and pay amounts due vendors and other creditors. If we were to experience a prolonged disruption in our information systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our overall business operation.

Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant monetary penalties, operational delays, and adverse publicity.

The installation of solar energy systems requires our employees to work at heights with complicated and potentially dangerous electrical systems. The evaluation and modification of buildings as part of the installation process requires our employees to work in locations that may contain potentially dangerous levels of asbestos, lead, mold or other materials known or believed to be hazardous to human health. We also maintain a fleet of trucks and other vehicles to support our installers and operations. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act (“OSHA”), the U.S. Department of Transportation (“DOT”), and equivalent state laws. Changes to OSHA or DOT requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs.

If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures or suspend or limit operations. While we have not experienced a high level of injuries to date, high injury rates could expose us to increased liability. In the past, we have had workplace accidents and received citations from OSHA regulators for alleged safety violations, resulting in fines. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.

Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation, and prevent us from maintaining or increasing our market share.

If our products fail to perform as expected while under warranty, or if we are unable to support the warranties, sales of our products may be adversely affected, or our costs may increase, and our business, results of operations, and financial condition could be materially and adversely affected.

We may also be subject to warranty or product liability claims against us that are not covered by insurance or are in excess of our available insurance limits. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation. The possibility of future product failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share causing sales to decline.

Seasonality may cause fluctuations in our financial results.

We often find that some customers tend to book projects by the end of a calendar year to realize the benefits of available subsidy programs prior to year-end. This results in third and fourth quarter sales being more robust usually at the expense of the first quarter. In the future, this seasonality may cause fluctuations in financial results. In addition, other seasonality trends may develop and the existing seasonality that we experience may change. Weather can also be an important factor affecting project timelines.

A failure to comply with laws and regulations relating to our interactions with current or prospective commercial or residential customers could result in negative publicity, claims, investigations, and litigation, and adversely affect our financial performance.

Our business includes contracts and transactions with commercial and residential customers. We must comply with numerous federal, state, and local laws and regulations that govern matters relating to our interactions with residential consumers, including those pertaining to privacy and data security, consumer financial and credit transactions, home improvement contracts, warranties, and door-to-door solicitation. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, and manage and use information that we collect from and about current and prospective customers and the costs associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Non-compliance with any such law or regulations could also expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

We are subject to laws and regulations enacted by national, regional and local governments, including non-U.S. governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.

Risks Related to the Regulation of Our Company

Because we were previously considered to be a “shell company” under applicable securities laws and regulations, investors may not be able to rely on the resale exemption provided by Rule 144 of the Securities Act until certain requirements have been satisfied. As a result, investors may not be able to easily re-sell our securities and could lose their entire investment.

Prior to June 20, 2019, we were considered to be a “shell company” under Rule 405 of Regulation C of the Securities Act. A “shell company” is a company with either no or nominal operations or assets, or assets consisting solely of cash and cash equivalents. In order to rely on the resale exemption provided by Rule 144, certain requirements must be met, including that the Company is current in the filings required by the Securities Exchange of 1934, as amended. Because shareholders may not be able to rely on an exemption for the resale of their securities other than Rule 144, they may not be able to easily re-sell our securities in the future and could lose their entire investment as a result. See “Shares Eligible For Future Sale – Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies”.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company” upon the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering (“IPO”), (ii) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We cannot predict if investors will find shares of our Common Stock less attractive or us less comparable to certain other public companies because we will rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our Common Stock price may be more volatile.

Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an “emerging growth company.”

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, and generally requires in the same report a report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. We are required to provide management’s attestation on internal controls effective December 31, 2025 However, under the JOBS Act, our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company.” We will be an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period and, as a result, we must comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our Common Stock.

Our Common Stock is currently listed on Nasdaq. In order to maintain such listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards. Although we are currently in compliance with such listing standards, we may in the future fall out of compliance with such standards. If we are unable to maintain compliance with these Nasdaq requirements, our Common Stock will be delisted from Nasdaq.

Our Common Stock currently trades on Nasdaq, and, to date, trading of our Common Stock has been limited. If a more active market does not develop, it may be difficult for you to sell the Common Stock you own or result in your sale at a price that is less than the price you paid.

To date, trading of our Common Stock on Nasdaq has been limited and there can be no assurance that there will be a more active market for our Common Stock either now or in the future. If a more active and liquid trading market does not develop or if developed cannot be sustained, you may have difficulty selling any of the shares of Common Stock that you purchased. The market price for our Common Stock may decline below the price you paid, and you may not be able to sell your shares of Common Stock at or above the price you paid, or at all.

In the event that our Common Stock is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our Common Stock because they may be considered penny stocks and thus be subject to the penny stock rules.

The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on NASDAQ if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares of Common Stock have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Common Stock, which could severely limit the market liquidity of such shares of common stock and impede their sale in the secondary market.

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

Stockholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

Anti-takeover provisions contained in our Third Amended and Restated Certificate of Incorporation and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

The Company’s Third Amended and Restated Certificate of Incorporation and Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our Board of Directors. These provisions include:

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our Board of Directors and management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware (“DGCL”), which prevents some stockholders holding more than 15% of our outstanding Common Stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding Common Stock. Any provision of our Third Amended and Restated Certificate of Incorporation or Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock.

Risks Related to Offerings and Ownership of Our Common Stock

The issuance of our Common Stock pursuant to the Form S-3 Registration Statement may cause dilution and could cause the price of our Common Stock to fall.

A substantial majority of the outstanding shares of our Common Stock and exercisable options are freely tradable without restriction or further registration under the Securities Act of 1933, as amended.

The Company filed an S-3 Registration Statement which was declared effective by the SEC on December 11, 2020. The Registration Statement contains a Base Prospectus, which covers the offering, issuance and sale by iSun of up to $50,000,000 in the aggregate of our shares of Common Stock from time to time in one or more offerings.

Pursuant to a direct offering pursuant to the S-3 Registration Statement the Company sold an aggregate of 840,000 shares of Common Stock and received aggregate gross proceeds of approximately $10,500,000. The Company entered into a Sales Agreement dated September 30, 2021 as amended (the “Sales Agreement”), with B Riley Capital (the “Agent”). Pursuant to the Sales Agreement, iSun may offer and sell from time to time up to an aggregate of $39,500,000 of shares of Common Stock (the “Placement Shares”) through the Agent. Sales of the Placement Shares pursuant to the Sales Agreement, may be made in sales deemed to be “at the market offerings” (“ATM”) as defined in Rule 415 promulgated under the Securities Act. The Agent will act as sales agent and will use commercially reasonable efforts to sell on iSun’s behalf all of the Placement Shares requested to be sold by iSun, consistent with its normal trading and sales practices, on mutually agreed terms between the Agent and iSun. As of March 16, 2023, B. Riley has sold an aggregate of 4,995,212 shares of Common Stock in ATM offerings and the Company has received aggregate gross proceeds of approximately $23.5 million.

Sales of a substantial number of shares of our Common Stock in the public market, future sales of substantial amounts of shares of our Common Stock in the public market, or the perception that these sales could occur, could cause the market price of our Common Stock to decline. Increased sales of our Common Stock in the market for any reason could exert significant downward pressure on our stock price.

We may require additional financing to sustain our operations, without which we may not be able to continue operations, and the terms of subsequent financings may adversely impact our stockholders.

As of December 31, 2022, we had negative working capital of $4.5 million, net of non-cash liabilities, and had a net loss of $53.8 million for the year ended December 31, 2022. We may utilize proceeds from the sale of shares in ATM offerings to fund our business and operations. The extent that we rely on such sales as a source of funding will depend on a number of factors including, the prevailing market price of our Common Stock and the extent to which we are able to secure working capital from other sources. After the sale of shares in a registered direct offering providing gross proceeds of $10.5 million and sales of shares in ATM offerings providing gross proceeds of $23.5 million through March 16, 2023, the Company has the potential to generate approximately $16.0 million in gross proceeds from additional ATM offerings.

We may still need additional capital to finance our future plans and working capital needs, and we may have to raise funds through the issuance of equity or debt securities. Depending on the type and the terms of any financing we pursue, stockholders’ rights and the value of their investment in our Common Stock could be reduced. A financing could involve one or more types of securities including Common Stock, preferred stock, convertible debt or warrants to acquire Common Stock. These securities could be issued at or below the then prevailing market price for our Common Stock. In addition, if we issue secured debt securities, the holders of the debt would have a claim to our assets that would be prior to the rights of stockholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished rights to holders of our Common Stock, the market price of our Common Stock could be negatively impacted.

Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.

We expect that the value of the Convertible Notes will be significantly affected by the price of our common stock, which may be volatile.

The market price of our common stock, as well as the general level of interest rates and our credit quality, will likely significantly affect the market price of the Convertible Notes. This may result in significantly greater volatility in the value of the Convertible Notes than would be expected for nonconvertible debt securities we may issue. We cannot predict whether the price of our common stock or interest rates will rise or fall. Trading prices of our common stock will be influenced by our operating results and prospects and by economic, financial, regulatory and other factors. General market conditions, including the level of, and fluctuations in, the trading prices of stocks generally, could affect the price of our common stock. Holders who receive shares of our common stock upon the conversion of their Convertible Notes will be subject to the risk of volatile and depressed market prices of our common stock. There can be no assurances that the market price of our common stock will not fall in the future.

Our management has broad discretion over the use of the net proceeds from our sale of shares of Common Stock under the Sales Agreement with B. Riley Financial, LLC., you may not agree with how we use the proceeds and the proceeds may not be invested successfully.

Our management has broad discretion as to the use of the net proceeds from our sale of shares of Common Stock under the Sales Agreement with B. Riley Financial, LLC and we could use them for purposes other than those contemplated at the time of commencement of the offerings. Accordingly, you will be relying on the judgment of our management with regard to the use of those net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.

The share price of our Common Stock is subject to fluctuation, has been and may continue to be volatile and may decline regardless of our operating performance, resulting in substantial losses for investors who have purchased shares of our Common Stock.

We expect that the market price of our Common Stock may continue to be volatile for the foreseeable future. The market price of our Common Stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many energy companies. Stock prices of many energy companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, operating results, financial condition and cash flows.

We have no history of paying dividends on our Common Stock, and we do not anticipate paying dividends in the foreseeable future.

We have not previously paid dividends on our Common Stock. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other considerations that our Board of Directors deems relevant. Investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize a return on their investment.

Our Third Amended and Restated Certificate of Incorporation authorizes us to issue shares of blank check preferred stock, and issuances of such preferred stock, or securities convertible into or exercisable for such preferred stock, may result in immediate dilution to existing stockholders.

If we raise additional funds through future issuances of preferred stock or debt securities convertible into preferred stock, our stockholders could suffer significant dilution, and any new preferred stock or debt securities that we issue could have rights, preferences and privileges superior to those of holders of shares of Common Stock. Although we have no present plans to issue any additional shares of preferred stock, in the event that we issue additional shares of our preferred stock, or securities convertible into or exercisable for such preferred stock, the holders of Common Stock will be diluted. We may choose to raise additional capital using such preferred stock or debt securities because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.

The price of our securities may fluctuate significantly due to general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities become delisted from Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Common Stock adversely, the price and trading volume of our Common Stock could decline.

The trading market for our Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts provide coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our Common Stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our Common Stock price or trading volume to decline.

Our executive officers, directors and principal stockholders own a significant percentage of our Common Stock and will be able to exert significant control over matters subject to stockholder approval.

As of March 30, 2023, our directors, executive officers and holders of more than 5% of our equity securities, together with their affiliates, beneficially own approximately 30% of our outstanding shares of Common Stock. As a result, these stockholders have significant influence to determine the outcome of matters submitted to our stockholders for approval, including the ability to control the election of our directors, amend or prevent amendment of our Third Amended and Restated Certificate of Incorporation or Bylaws or effect or prevent a change in corporate control, merger, consolidation, takeover or other business combination. In addition, any sale of a significant amount of our Common Stock held by our directors, executive officers and principal stockholders, or the possibility of such sales, could adversely affect the market price of our Common Stock. Our management’s stock ownership may also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our Common Stock price or prevent our stockholders from realizing any gains from our Common Stock.

Implications of Being an “Emerging Growth Company”

As a public reporting company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under the SEC’s rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding internal control over financial reporting, are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure, and may present only two years of audited financial statements and related MD&A disclosure.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $700 million and annual revenue of less than $100 million as of the last business day of our most recently completed second fiscal quarter.

None.

We leased and occupy 6,250 square feet of office space and 6,750 square feet of warehouse space at 400 Avenue D, Suite 10, Williston, VT 05495. Solar Communities, Inc. our indirect wholly-owned subsidiary leases and occupies 8,640 square feet of office space and 5,360 square feet of warehouse space in Waterbury, Vermont and 15,000 square feet of warehouse space, 10,000 square feet of shop space and 5,000 square feet of office space in Rhinebeck, New York. We believe that these spaces are sufficient to meet our current needs across all business segments.

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 of time to plead to Plaintiffs’ Amended Complaint until April 29, 2022. On April 29, 2022, the Company filed its Answer and Counterclaims. Plaintiffs filed their Answer to the Company’s Counterclaims on May 31, 2022. The Court granted the parties’ Stipulated Discovery Schedule on September 8, 2022, setting forth discovery and other deadlines, and a Trial Readiness date of March 1, 2023. In accordance with the Stipulated Discovery Schedule, the parties served their respective Initial Disclosures on September 7, 2022, Plaintiffs served their 1st Set of Discovery on September 16, 2022, and the Company served its 1st Set of Discovery on July 18, 2022. The Company served its responses and objections to Plaintiffs’ 1st Set of Discovery on August 4, 2022, and Plaintiffs’ responses and objections to the Company’s 1st Set of Discovery are due September 6, 2022. Additionally, the case has been referred by the Court to Early Neutral Evaluation, which was conducted on September 30, 2022 before Mediator/ENE Evaluator Michael Marks, Esq. On January 17, 2023, the Company entered into a settlement agreement effectively resolving all claims with no additional consideration paid as a result of settlement.

Not applicable.

PART II

Our Common Stock is traded on Nasdaq under the symbol “ISUN.” The last reported sale price of our Common Stock on March 31, 2023 on Nasdaq was $1.03 per share

Holders of Common Stock.

On March 29, 2023, we had 461 registered holders of record of our Common Stock.

Dividends and dividend policy.

We have never declared or paid any cash dividend on our Common Stock, nor do we currently intend to pay any cash dividend on our Common Stock in the foreseeable future. We expect to retain our earnings, if any, for the growth and development of our business.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Business Introduction / Overview

Throughout our 50-year history, we have always embraced innovative change. There has never been a more meaningful, or impactful time to be a leader in the innovation that will help fight climate change. We have built a team that is passionate about transitioning American power generation and consumption to clean solar energy, we are passionately focused on our mission to accelerate the adoption of solar energy.

We are one of the largest solar energy services and infrastructure deployment companies in the country and are expanding across the United States. Our services include solar, storage and electric vehicle infrastructure, design, development and professional services, engineering, procurement, installation, O&M and storage. We uniquely target all solar markets including residential, commercial, industrial and utility segments.

Prior to becoming a public company, we were a second-generation family business founded under the name Peck Electric Co. in 1972 as a traditional electrical contractor. Our core values were and still are to align people, purpose, and profitability, and since taking leadership in 1994, Jeffrey Peck, our Chief Executive Officer, has applied such core values to expand into the solar industry. Today, we are guided by the mission to facilitate the reduction of carbon emissions through the expansion of clean, renewable energy and we believe that leveraging such core values to deploy resources toward profitable business is the only sustainable strategy to achieve these objectives. We have positioned the company to serve all segments of the rapidly evolving energy markets. We are able to originate valuable solar assets through our development and design services team. We are able to leverage our digital sales and marketing capabilities to generate high quality leads for our Residential, Commercial and Industrial divisions. Our experience provides for the high-quality craftsmanship required for installing long-term assets for all customers. Our team approach allows us to collaborate across divisions in order to efficiently utilize our internal labor resources. The diversity of our service offerings allows us to serve our customer needs in the evolving energy environment.

On January 19, 2021, we completed a business combination (the “Merger Agreement”) pursuant to which we acquired iSun Energy LLC (“iSun Energy”). The Business Combination was an acquisition treated as a merger and reorganization and iSun Energy became a wholly owned subsidiary of The Peck Company Holdings, Inc. Immediately prior to the business combination, we changed our name to iSun, Inc. (the “Company”).

On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of 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 was a utility-scale solar EPC, Development and Design company and a wholly-owned subsidiary of Adani. The Project IP included all of the intellectual property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.

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., d/b/a SunCommon, 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.

We now conduct all of our business operations exclusively through our direct and indirect wholly-owned subsidiaries, iSun Residential, Inc., SolarCommunities, Inc. iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility, LLC, iSun Energy, LLC and iSun Corporate, LLC.

The world recognizes the need to transition to a reliable, renewable energy grid in the next 50 years. States from Vermont to Hawaii are leading the way in the U.S. with renewable energy goals of 75% by 2032 and 100% by 2045, respectively. California committed to 100% carbon-free energy by 2045. The majority of the other states in the U.S. also have renewable energy goals, regardless of current Federal solar policy. We are a member of Renewable Energy Vermont, an organization that advocates for clean, practical and renewable solar energy. The benefits of the newly enacted Inflation Reduction Act of 2022 (“IRA”) provide stability and certainty of incentives for the next 10 years that create value to our shareholders and provides a long-term commitment for the energy transformation. Our triple bottom line, which is geared towards people, environment, and profit, has always been our guide since we began installing renewable energy and we intend that it remain our guide over the next 50 years as we construct our energy future.

We primarily provide services to solar energy customers for projects ranging in size from several kilowatts for residential loads to multi-megawatt systems for commercial, industrial and utility projects. We have installed over 600 megawatts of solar systems since inception and are focused on profitable growth opportunities. We believe that we are well-positioned for what we believe to be the coming transformation to an all renewable energy economy. We are expanding across the United States to serve the fast-growing demand for clean renewable energy. We are open to partnering with others to accelerate our growth process, and we are expanding our portfolio of company-owned solar arrays to establish recurring revenue streams for many years to come. We have established a leading presence in the market after five decades of successfully serving our customers, and we are now ready for new opportunities and the next five decades of success.

The diverse nature of our service offerings allows us to manage our operations based on the maximization of value for our customers in the evolving energy market. Our core revenue stream is generated from our engineering, procurement and installation services and products consisting of solar, electrical and data installations but has expanded to include project origination, design and development services as well. . Approximately 85% of our revenue is derived from our solar EPC business, approximately 10% of revenue is derived from our electrical and data business and approximately 5% of revenue is derived from our project origination, development and design services. Recently our growth has been derived by increasing our solar customer base starting in 2013, mergers and acquisitions and expansion into new territories. We currently operate in Vermont, Maine, New Hampshire, New York, Massachusetts, Maryland, Alabama, Georgia and North and South Carolina. Our union crews are expert constructors, and union access to an additional workforce makes us ready for rapid expansion to other states while maintaining control of operating costs. The skillset provided by our workforce is transferrable among our service offerings depending on current demand.

We also make investments in solar development projects and currently own approximately three megawatts of operating solar arrays operating under long-term power purchase agreements. Our joint ventures allow for a retained ownership in originated projects. These long-term recurring revenue streams, combined with our in-house development and construction capabilities, make this asset class a strategic long-term investment opportunity for us.

Equity and Ownership Structure

On January 19, 2021, we completed a business combination (the “Merger Agreement”) pursuant to which we acquired iSun Energy LLC (“iSun Energy”). The Business Combination was an acquisition treated as a merger and reorganization and iSun Energy became a wholly owned subsidiary of The Peck Company Holdings, Inc. Immediately prior to the Merger Agreement, we changed our name to iSun, Inc. (formerly The Peck Company Holdings, Inc,).

On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of iSun, 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 was 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.

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.

We now conduct all of our business operations exclusively through our wholly-owned direct and indirect subsidiaries, iSun Residential, Inc., SolarCommunities, Inc. iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility, LLC, iSun Energy, LLC and iSun Corporate, LLC.

Critical Accounting Policies

The following discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, intangibles, goodwill, investments, impairment on investment, estimates in recording business combinations, revenue recognition utilizing a cost to cost method, allowances for uncollectible accounts, warrant liability and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

We recognize revenue from contracts with customers under Accounting Standards Codification (“ASC”) Topic 606 (“Topic 606”). Under Topic 606, revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. We primarily recognize revenue over time utilizing the cost-to-cost measure of progress on contracts for specific projects and for certain master service and other service agreements.

Contracts. We derive revenue primarily from construction projects performed under: (i) master and other service agreements, which are typically priced using either a time and materials or a fixed price per unit basis; and (ii) contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system, which are subject to multiple pricing options, including fixed price, unit price, time and materials, or cost plus a markup.

The total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of our project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and our profit recognition. Changes in these factors could result in revisions to revenue in the period in which the revisions are determined, which could materially affect our consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined. For the years ended December 31, 2022 and 2021, project profit was affected by less than 5% as a result of changes in contract estimates included in projects that were in process as of December 31, 2022 and 2021.

Performance Obligations. A performance obligation is a contractual promise to transfer a distinct good or service to a customer and is the unit of account under Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. 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. Contract amendments and change orders, which are generally not distinct from the existing contract, are typically accounted for as a modification of the existing contract and performance obligation. The vast majority of our performance obligations are completed within one year.

When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.

Union Labor

The Company uses union labor in order to construct and maintain the solar, electric and data work that comprise the core activities of its business. As such, contributions were made by the Company to the National Joint Apprenticeship and Training Committee, the National Electrical Benefit Funds, Union Pension Plans and a union Health and Welfare Fund. Each employee contributes monthly to the International Brotherhood of Electrical Workers (“IBEW”). The Company’s contract with the IBEW expires May 31, 2023.

The Company’s management believes that access to unionized labor provides a unique advantage for growth, because workforce resources can be scaled efficiently utilizing labor unions in other states to meet specific project needs in other states without substantially increasing fixed costs for the Company.

Business Insurance / Captive Insurance Group

In 2018, Peck Electric joined a captive insurance group. The Company’s management believes that belonging to a captive insurance group will stabilize business insurance expenses and will lock in lower rates that are not subject to change from year-to-year and instead are based on the Company’s favorable experience modification rate.

Revenue Drivers

The Company’s business includes the design and construction of solar arrays for its customers. Revenue is recognized for each construction project on a percentage of completion basis. From time to time, the Company constructs solar arrays for its own account or purchases a solar array that must still be constructed. In these instances, no revenue is recognized for the construction of the solar array. In instances where the Company owns the solar array, revenue is recognized for the sale of the electricity generated to third parties. As a result, depending on whether it is building for others or for its own account, the Company’s revenue is subject to significant variation.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2022 COMPARED TO THE YEAR ENDED DECEMBER 31, 2021

REVENUE AND COST OF EARNED REVENUE

For the year ended December 31, 2022, our revenue increased 68.7% to a record of high of $76.5 million compared to $45.3 million for the year ended December 31, 2021. Cost of earned revenue for the year ended December 31, 2022, was 55.4% higher at $60.5 million compared to $38.9 million for the year ended December 31, 2021. Our revenue increased as a result of the deployment of our robust suite of services over a full year. In addition to our historical commercial and industrial customer base, we added the capabilities to serve residential, small commercial and utility customers as well as support the demand for electric vehicle infrastructure across all our customer demographics. For the year ended December 31, 2022, our residential division represented 52% of our revenue mix compared to 28% for the year ended December 31, 2021. For the year ended December 31, 2022, our commercial and industrial division represented 43% of our revenue mix compared to 69% for the year ended December 31, 2021. For the year ended December 31, 2022, our utility, design and development division represented 5% of our revenue mix compared to 3% for the year ended December 31, 2021.

Gross profit was $16.0 million for the year ended December 31, 2022. This compares to $6.4 million of gross profit for the year ended December 31, 2021. The gross margin was 20.89% in the year ended December 31, 2022 compared to 14.10% in the year ended December 31, 2021. Approximately 85% of revenues for the years ended December 31, 2022 and 2021 were from solar installations. The residential revenue, on an annualized basis, grew at a higher rate than the commercial and industrial revenue. The margin enhancement was driven by the increase in the residential installation revenue mix which operates at a higher margin than our commercial and industrial division. Since the residential backlog is completed on a more frequent basis than the other divisions, it is anticipated that the higher margin will be maintained on a go-forward basis.

For 2023, we anticipate an increase in revenue over 2022 due to several factors. The demand for solar and electric vehicle infrastructure continues to increase across all customer groups. Our residential division has customer orders of approximately $20.5 million expected to be completed within four to six months, our commercial division has a contracted backlog of approximately $11.2 million expected to be completed within six to eight months, our industrial division has a contracted backlog of approximately $132.5 million expected to be completed within twelve to eighteen months and our utility division has 1.6 GW of projects currently under development that will transition to the respective divisions backlog when approaching notice to proceed. Historically, we have engaged with existing customers throughout the Northeast. The capabilities of our development and professional services team have allowed us to engage in project development in new geographic regions which will further our expansion opportunities.

SELLING AND MARKETING EXPENSES

We rely on referrals from customers and on our industry reputation, and therefore have not historically incurred significant selling and marketing expenses. Total selling and marketing expenses, included in general and administrative expenses, increased to $1.2 million for the year ended December 31, 2022 compared to $0.2 million for the year ended December 31, 2021. Selling and marketing expenses were incurred by SunCommon. SunCommon is a wholly-owned subsidiary and our residential division brand and will incur marketing expenses as a means to generate sales demand.

GENERAL AND ADMINISTRATIVE EXPENSES

Total general and administrative (“G&A”) expenses were $22.4 million for the year ended December 31, 2022, compared to $13.2 million for the year ended December 31, 2021. As a percentage of revenue, G&A expenses were consistent year over year at 29.3% in the year ended December 31, 2022 compared to 29.2% in the year ended December 31, 2021. In total dollars, G&A increased as we developed our internal platform to support the growth of our new customer revenue channels. For the year ended December 31, 2022, our G&A increased significantly as this was the first full year of operations of our newly acquired entities. As we continue to generate efficiencies through shared services and a consolidation of overhead, we anticipate our G&A expenses to remain consistent through our next revenue scale but decrease as a percentage of revenue.

WAREHOUSE AND OTHER OPERATING EXPENSES

Warehousing and other operating expenses increased to $1.8 million for the year ended December 31, 2022, compared to $0.6 million for the year ended December 31, 2021. The main contributions to the increase were a full year of operations of the entities acquired in 2021.

IMPAIRMENT

During the year ended December 31, 2022, we experienced a significant decline in our market capitalization, which continued into the first quarter of 2023, and management deemed such decline a triggering event related to goodwill. As a result, we performed an impairment assessment as of December 31, 2022 and determined that impacts of supply chain shortage, the anti-circumvention investigation and labor shortages have depressed market capitalizations across our peer group in the solar industry.

We utilized a weighted combination of the income-based approach and market-based approach to determine the fair value. Key assumptions used in the income-based approach included forecasts of revenue, operating income, cash flows, terminal growth rates and discount rates associated for the risks associated with the operations at the time of the assessment. Key assumptions used in the market-based approach included the selection of recent acquisitions by appropriate peer companies and associated valuation multiples. Our assessment, which was largely based on our current backlog of $164.2 million of revenue, yielded a range of valuations that were approximately 15% to 20% above carrying value. Due to the depressed market capitalizations across our peer groups, we believe that the current market capitalization is not an appropriate indicator of our valuation. Our income-based valuation, as well as that of independent analysts, provided results in excess of our carrying value. As we continue our growth towards cash flow positive operations, we believe that our market capitalization will appreciate to reflect our appropriate valuation. Although we believe, but we cannot say with a high degree of certainty that the decline in our market capitalization is temporary, in reconciling our current market capitalization to our carrying value, an impairment in the amount of $37.15 million was recorded consistent with U.S. GAAP.

OTHER INCOME (EXPENSES)

Interest expense for the twelve months ended December 31, 2022, was $1.4 million compared to $0.5 million for the same period of the prior year as a result of the B. Riley Capital credit facility utilized to support the acquisition of SunCommon. We recognized a gain on the forgiveness of PPP loan of $2.6 million and $2.0 million for the twelve months ended December 31, 2022 and December 31, 2021, respectively. We recognized gains from the change in fair value of the warrant liability of $0.1 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively.

INCOME (BENEFIT) TAX EXPENSE

The U.S. GAAP effective tax rate for the years ended December 31, 2022 was 4.36% and December 31, 2021 was 23.48%. The proforma effective tax rate for the years ended December 31, 2022 was 21.0% and December 31, 2021 was 21.0%. At December 31, 2022 and 2021, the change in the effective tax rate (“ETR”) is driven by the non-taxable income generated from the forgiveness of a loan under the CARES Act Payroll Protection Program (“PPP”) of $2.6 million and $2.0 million, respectively.

NET LOSS

The net loss for the year ended December 31, 2022 was $53.8 million compared to a net loss of $6.2 million for the year ended December 31, 2021.

Certain Non-GAAP Measures

We periodically review the following key non-GAAP measures to evaluate our business and trends, measure our performance, prepare financial projections, and make strategic decisions.

EBITDA and Adjusted EBITDA

Included in this presentation are discussions and reconciliations of earnings before interest, income tax and depreciation and amortization (“EBITDA”) and EBITDA adjusted for certain non-cash, non-recurring or non-core expenses (“Adjusted EBITDA”) to net loss in accordance with GAAP. Adjusted EBITDA excludes certain non-cash and other expenses, certain legal services costs, professional and consulting fees and expenses. We believe that these non-GAAP measures illustrate the underlying financial and business trends relating to our results of operations and comparability between current and prior periods. We also use these non-GAAP measures to establish and monitor operational goals.

These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP. Using only the non-GAAP financial measures, particularly Adjusted EBITDA, to analyze our performance would have material limitations because such calculations are based on a subjective determination regarding the nature and classification of events and circumstances that investors may find significant. We compensate for these limitations by presenting both the GAAP and non-GAAP measures of our operating results. Although other companies may report measures entitled “Adjusted EBITDA” or similar in nature, numerous methods may exist for calculating a company’s Adjusted EBITDA or similar measures. As a result, the methods that we use to calculate Adjusted EBITDA may differ from the methods used by other companies to calculate their non-GAAP measures.

The reconciliations of EBITDA and Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, are shown in the table below:

LIQUIDITY AND CAPITAL RESOURCES

We had $5.5 million in unrestricted cash at December 31, 2022, as compared to $2.2 million at December 31, 2021.

As of December 31, 2022, our working capital deficit was $4.5 million compared to a working capital deficit of $10.3 million at December 31, 2021. 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 Company restructured its indebtedness in November 2022. The new debt facility allows for repayment of the obligation to pay principal and interest in shares of Common Stock which to the extent the Company elects to pay in shares of Common Stock preserves cash. If the Company elects to repay the convertible note in shares of Common Stock, the Company’s working capital would increase by $4.8 million to $0.3 million at December 31, 2022.

We believe that the aggregate of our existing cash and cash equivalents, debt facility and sales of Common Stock pursuant to our shelf registration will be sufficient to meet our operating cash requirements for at least 12 months from the date these financial statements are made available. The demand for solar and electric vehicle infrastructure continues to increase across all customer groups. Our residential division has customer orders of approximately $20,500 expected to be completed within four to six months, our commercial division has a contracted backlog of approximately $11,200 expected to be completed within six to eight months, our industrial division has a contracted backlog of approximately $132,500 expected to be completed within twelve to eighteen months and our utility division has 1.6 GW of projects currently under development that will transition to the respective divisions backlog when approaching notice to proceed. The customer demand across our segments will provide short-term operational cash flow.

Sales of Common Stock pursuant to the Form S-3 Registration Statement filed on December 4, 2020, provided funds to support our operations and growth strategy. The access to capital accelerates our growth process and allows us to continue our expansion plans into new territories, aggressively pursue accretive merger and acquisition transactions and continue investing in our company-owned solar assets which now consist of the product offerings of iSun Energy LLC. As of March 16, 2023, there is currently approximately $16.0 million potentially available for sales pursuant to the Registration Statement as we received aggregate proceeds of approximately $10.5 million through a Registered Direct Offering and approximately $23.5 million through the sale of Common Stock in ATM offerings.

Cash flow used by operating activities was $6.3 million and $5.2 million for the years ended December 31, 2022 and 2021, respectively. The increase in cash used by operating activities was primarily the result of the decrease in accrued liabilities of $1.7 million which was due to payout of employee retention bonuses related to the SunCommon acquisition and payments of the earnout provision.

Net cash provided by investing activities was $1.2 million for the year ended December 31, 2022, compared to $36.7 million used in the year ended December 31, 2021. The change was attributable to the sale of solar assets in 2022 and the acquisition of SunCommon for $25.2 million and minority investments of $8.0 million, both taking place in 2021.

Net cash provided by financing activities was $8.4 million for the year ended December 31, 2022 compared to $43.4 million of cash provided by financing activities for the year ended December 31, 2021. Cash flow provided by financing activities was primarily driven by proceeds from the sale of common stock of $14.4 million.

Interest Rate Risk

As of December 31, 2022, our fixed interest rate debt of $13.6 million aggregate principal amount of which accrued interest at a weighted average interest rate of approximately 5.0%. None of this debt subjects us to interest rate risk, but we may be subject to changes in interest rates if and when we refinance this debt at maturity or otherwise.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, revenues, results of operations, liquidity, or capital expenditures.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

iSun, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of iSun, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for leases on January 1, 2022 due to the adoption of Accounting Standards Codification, Leases (ASC 842).

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2019.

New York, NY

April 17, 2023

iSun, Inc.

Consolidated Balance Sheets

December 31, 2022 and 2021

(In thousands, except number of shares)

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

iSun, Inc.

Consolidated Statements of Operations

For the Years Ended December 31, 2022 and 2021

(In thousands, except number of shares)

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

iSun, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

December 31, 2022 and 2021

(In thousands, except number of shares)

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

iSun, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2022 and 2021

(In thousands, except number of shares)

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

iSUN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

(in thousands, except share and per share data)

1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

a) Organization

iSun, Inc. is a solar energy company providing design, development, engineering, procurement, installation, storage and electric vehicle infrastructure services for residential, commercial, industrial and utility customers across the United States. The Company also provides electrical contracting services and data and communication services. The work is performed under fixed-price and modified fixed-price contracts and time and materials contracts. The Company is incorporated in the State of Delaware and has its corporate headquarters in Williston, Vermont.

On September 8, 2021, iSun, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, iSun Residential Merger Sub, Inc., a Vermont corporation (the “Merger Sub”) and wholly-owned subsidiary of iSun Residential, Inc., a Delaware corporation (“iSun Residential”) and wholly-owned subsidiary of the Company, SolarCommunities, Inc., a Vermont benefit corporation (“SunCommon”), and Jeffrey Irish, James Moore, and Duane Peterson as a “Shareholder Representative Group” of the holders of SunCommon’s capital stock (the “SunCommon Shareholders”), pursuant to which the Merger Sub merged with and into SunCommon (the “Merger”) with SunCommon as the surviving company in the Merger and SunCommon became a wholly-owned subsidiary of iSun Residential. The Merger was effective on October 1, 2021.

On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of iSun, Inc., a Delaware corporation (the “Company”), Adani Solar USA, Inc., a Delaware corporation (Adani”), and Oakwood Construction Services, Inc., a Delaware corporation (“Oakwood”) entered into an Assignment Agreement (the “Assignment”), pursuant to which iSun Utility acquired all rights to the intellectual property of Oakwood and its affiliates (the “Project IP”). Oakwood is a utility-scale solar EPC company and a wholly-owned subsidiary of Adani. The Project IP includes all of the intellectual property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.

Effective January 19, 2021, the Company changed its corporate name from The Peck Company Holdings, Inc. to iSun, Inc. (the “Name Change”). The Name Change was effected through a parent/subsidiary short-form merger of iSun, Inc., our wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the short-form merger, we filed a Certificate of Merger with the Secretary of State of the State of Delaware on January 19, 2021. The merger became effective on January 19, 2021 with the State of Delaware and, for purposes of the quotation of our Common Stock on the Nasdaq Capital Market (“Nasdaq”), effective at the open of the market on January 20, 2021.

b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of iSun, Inc. and its direct and indirect wholly owned operating subsidiaries, iSun Residential, Inc., SolarCommunities, Inc., iSun Industrial, LLC, Peck Electric Co., Liberty Electric, Inc., iSun Utility, LLC, iSun Corporate, LLC and iSun Energy, LLC. All material intercompany transactions have been eliminated upon consolidation of these entities.

c) Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”). Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

The Company would cease to be an “emerging growth company” upon the earliest to occur of: the last day of the fiscal year in which it has more than $1.07 billion in annual revenue; the date it qualifies as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by it of more than $1.0 billion in non-convertible debt or December 31, 2021.

d) Revenue Recognition

The majority of the Company’s revenue arrangements generally consist of a single performance obligation to transfer promised goods or services.

1) Revenue Recognition Policy

Solar Power Systems Sales and Engineering, Procurement, and Construction Services

The Company recognizes revenue from the sale of solar power systems, Engineering, Procurement and Construction (“EPC”) services, and other construction type contracts over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Construction contracts, such as the sale of a solar power system combined with EPC services, are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. Our contracts often require significant services to integrate complex activities and equipment into a single deliverable, and are therefore generally accounted for as a single performance obligation, even when delivering multiple distinct services. For such services, the Company recognizes revenue using the cost to cost method, based primarily on contract cost incurred to date compared to total estimated contract cost. The cost to cost method (an input method) is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Cost of revenue includes an allocation of indirect costs including depreciation and amortization. Subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the Company is acting as a principal rather than as an agent (i.e., the Company integrates the materials, labor and equipment into the deliverables promised to the customer). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the customer. As of December 31, 2022 and 2021, the Company had $0 in pre-contract costs classified as a current asset under contract assets on the Consolidated Balance Sheet. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on construction contracts are typically due within 30 to 45 days of billing, depending on the contract. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

For sales of solar power systems in which the Company sells a controlling interest in the project to a customer, revenue is recognized for the consideration received when control of the underlying project is transferred to the customer. Revenue may also be recognized for the sale of a solar power system after it has been completed due to the timing of when a sales contract has been entered into with the customer.

Energy Generation

Revenue from net metering credits is recorded as electricity is generated from the solar arrays and billed to customers (PPA off-taker) at the price rate stated in the applicable power purchase agreement (PPA).

Operation and Maintenance and Other Miscellaneous Services

Revenue for time and materials contracts is recognized as the service is provided.

2) Disaggregation of Revenue from Contracts with Customers

The following table disaggregates the Company’s revenue, all recognized over time, based on the timing of satisfaction of performance obligations for the years ended December 31:

(In thousands)

 SCHEDULE OF DISAGGREGATION OF REVENUE

The following table disaggregates the Company’s revenue based operational division for the years ended December 31:

(In thousands)

 SCHEDULE OF REVENUE BASED OPERATIONAL SEGMENT

3) Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; award and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

4) Remaining Performance Obligation

Remaining performance obligations, or backlog, represents the aggregate amount of the transaction price allocated to the remaining obligations that the Company has not performed under its customer contracts. The Company has elected to use the optional exemption in ASC 606-10-50-14, which exempts an entity from such disclosures if a performance obligation is part of a contract with an original expected duration of one year or less.

5) Warranties

The Company generally provides limited workmanship warranties up to five years for work performed under its construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred, and any estimated costs for warranties are included in the individual contract cost estimates for purposes of accounting for long-term contracts.

e) Accounts Receivable

Accounts receivable are recorded when invoices are issued and presented on the balance sheet net of the allowance for doubtful accounts. The allowance, which was $302 at December 31, 2022 and $84 at December 31, 2021, is estimated based on historical losses, the existing economic condition, and the financial stability of the Company’s customers. Accounts are written off against the reserve when they are determined to be uncollectible.

f) Contract Assets and Liabilities

Contract assets consist of (i) the earned, but unbilled, portion of a project for which payment is deferred by the customer until certain met; (ii) direct costs, including commissions, labor related costs and permitting fees paid prior to recording revenue, and (iii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for larger construction contracts. Contract liabilities consist of deferred revenue, customer deposits and customer advances, which represent consideration received from a customer prior to transferring control of goods or services to the customer under the terms of a contract. Total contract assets and contract liabilities balances as of the respective dates are as follows:

 SCHEDULE OF CONTRACT ASSETS AND LIABILITIES