ISUN, INC. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 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)

N/A

(Former name or former address, if changed since last report)

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 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 every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ☐ NO ☒

The number of shares of the Registrant’s Common Stock outstanding at November 10, 2022 was 15,227,582.

ISUN, INC.

Form 10-Q

Table of Contents

iSun, Inc.

Consolidated Balance Sheets

September 30, 2022 (Unaudited) and December 31, 2021

(In thousands, except number of shares)

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

iSun, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(In thousands, except number of shares)

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

iSun, Inc.

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

For the Three and Nine Months Ended September 30, 2022

(In thousands, except number of shares)

iSun, Inc.

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

For the Three and Nine Months Ended September 30, 2021

(In thousands, except number of shares)

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

iSun, Inc.

Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months ended September 30, 2022 and 2021

(In thousands)

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

iSun, Inc

Notes to Consolidated Financial Statements

September 30, 2022 and 2021

1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

a) Organization

iSun, Inc. is a solar engineering, construction and procurement contractor for commercial, industrial, residential and utility customers. The Company also provides electrical contracting services and data and communication services. The work is performed under fixed-price and modified fixed-price contracts and time and materials contracts. The Company is incorporated in the State of Delaware and has its corporate headquarters in Williston, Vermont.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other period. The accompanying financial statements should be read in conjunction with the Company’s audited financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

b) Principles of Consolidation

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

c) Revenue Recognition

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

1) Revenue Recognition Policy

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

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

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

Energy Generation

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

Operation and Maintenance and Other Miscellaneous Services

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

2) Disaggregation of Revenue from Contracts with Customers

The following table disaggregates the Company’s revenue based on the timing of satisfaction of performance obligations for the three and nine months ended September 30, 2022 and September 30, 2021:

(In thousands)

SCHEDULE OF DISAGGREGATION OF REVENUE

The following table disaggregates the Company’s revenue based operational division for the three and nine months ended September 30, 2022 and September 30, 2021:

(In thousands)

SCHEDULE OF REVENUE BASED OPERATIONAL SEGMENT

3) Variable Consideration

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

4) Remaining Performance Obligation

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

5) Warranties

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

d) Accounts Receivable

Accounts receivable are recorded when invoices are issued and presented on the balance sheet net of the allowance for doubtful accounts. The allowance, which was $171,000 at September 30, 2022 and $84,000 at December 31, 2021, is estimated based on historical losses, the existing economic condition, and the financial stability of the Company’s customers. Accounts are written off against the reserve when they are determined to be uncollectible.

e) Concentration and Credit Risks

The Company occasionally has cash balances in a single financial institution during the year in excess of the Federal Deposit Insurance Corporation (FDIC) limits. The differences between book and bank balances are outstanding checks and deposits in transit. At September 30, 2022, the uninsured balances were approximately $2,261,000.

f) Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates their estimates, including those related to inputs used to recognize revenue over time, estimates in recording the business combinations, goodwill, intangibles, investments, impairment on investments, warrant liability and valuation of deferred tax assets. Actual results could differ from those estimates.

g) Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. The guidance improves comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for our fiscal year beginning after December 15, 2022, January 1, 2023 with early adoption permitted. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements and related disclosures.

On May 03, 2021, the FASB issued Accounting Standards Update (ASU) 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued ASU 2021-04 provides guidance that an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. The standard also provides guidance on how an entity should measure and recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified. The amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2021. The Company anticipates adopting the provisions of ASU 2021-04 for the annual reporting period and subsequent interim periods after December 31, 2022 and does not anticipate their being a material impact to its financial statements.

Standard to be Adopted in Future Reporting Periods

In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will require lessees to recognize a right-to-use asset and lease liability for most of its leases with a term of more than twelve months, including those classified as operating leases. The new guidance also requires additional quantitative and qualitative disclosures. This guidance will be effective for annual periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11 to provide an optional transition method allowing entities to apply the new lease standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (modified retrospective approach) as opposed to restating prior period financial statements. The Company anticipates adopting the ASU and related amendments for the annual reporting period and subsequent interim periods after December 31, 2022 and elected certain practical expedients permitted under the transition guidance. The Company plans to elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods, retained historical lease classification, nor apply hindsight in determining the lease term. The Company will elect the short-term lease exception for all classes of assets, and therefore will not apply the recognition requirements for leases of 12 months or less.

The Company is in the process of reviewing its lease contracts, updating its accounting policies, and implementing a new system as well as processes and internal controls to support the Company’s financial reporting and disclosure under the new standard. The Company estimates that the impact to its balance sheet would be an increase to a right-to-use asset of $7,429,000 and lease liability of $7,732,000 as of January 1, 2022 and a right-to-use asset of $6,945,000 and lease liability as of $7,289,000 as of September 30, 2022. The Company does not expect a material impact to its statement of operations.

h) Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, cash collateral deposited with insurance carriers, deferred compensation plan liabilities, accounts payable and other current liabilities, and debt obligations.

Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs that may be used are: (i) Level 1 - quoted market prices in active markets for identical assets or liabilities; (ii) Level 2 - observable market-based inputs or other observable inputs; and (iii) Level 3 - significant unobservable inputs that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management estimates of market participant assumptions. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Fair values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information. Due to their short-term maturity, the carrying amounts of cash, accounts receivable, accounts payable and other current liabilities approximate their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers, and outstanding balances on its line of credit and long-term debt approximate their fair values as these amounts are estimated using public market prices, quotes from financial institutions and other available information.

i) Debt Extinguishment

Under ASC 470, debt should be derecognized when the debt is extinguished, in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Under this guidance, debt is extinguished when the debt is paid, or the debtor is legally released from being the primary obligor by the creditor. On January 21, 2022, SunCommon received notification from Citizens Bank N.A. that the Small Business Administration has approved the forgiveness of the PPP loan in its entirety and as such, the full $2,591,500 has been recognized in the income statement as a gain upon debt extinguishment for the nine months ended September 30, 2022.

j) Inventory

Inventory is valued at lower of cost or net realizable value determined by the first-in, first-out method. Inventory primarily consists of solar panels and other materials. The Company reviews the cost of inventories against their estimated net realizable value and records write-downs if any inventories have costs in excess of their net realizable values. Inventory is presented at net realizable value with reserves for obsolete inventory of $0 at September 30, 2022 and December 31, 2021.

k) Warrant liability

The Company accounts for warrants to acquire shares of Common Stock as liabilities held at fair value on the consolidated balance sheets. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a change in fair value of warrant liabilities in the Company’s consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants. At that time, the warrant liability will be reclassified to additional paid-in capital.

l) Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company currently has one reportable segment with different product offerings for financial reporting purposes, which represents the Company’s core business. The Company will begin reporting in segments for the interim and annual reporting periods subsequent to December 31, 2022.

m) Legal contingencies

The Company accounts for liabilities resulting from legal proceedings when it is possible to evaluate the likelihood of an unfavorable outcome in order to provide an estimate for the contingent liability. At September 30, 2022 and 2021, there are no material contingent liabilities arising from pending litigation.

n) Reclassification

Certain reclassifications have been made to prior year’s financial statement to conform to classifications used in the current year.

2. BUSINESS ACQUISITIONS

Pro Forma Information (Unaudited)

The results of operations of SolarCommunities, Inc. and Liberty Electric, Inc. which the Company acquired on the October 1, 2021 and November 1, 2021 closing dates, respectively, have been included in our December 31, 2021 consolidated financial statements and include approximately $12.5 million and $0.7 million of total revenue. The following unaudited pro forma financial information represents a summary of the consolidated results of operations for the three and nine months ended September 30, 2021, assuming the acquisitions had been completed as of January 1, 2021. The pro forma financial information includes certain non-recurring pro forma adjustments that were directly attributable to the business combination. The proforma adjustments include the elimination of acquisition transaction expenses totaling $1.235 million incurred in 2021. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been effective as of these dates, or of future results.

(in thousands)

 SCHEDULE OF BUSINESS PRO FORMA INFORMATION

3. LIQUIDITY AND FINANCIAL CONDITION

In the nine months ended September 30, 2022, the Company experienced a net operating loss of $16.2 million and negative cash flow from operations of $7.6 million. At September 30, 2022, the Company had cash on hand of approximately $3.8 million and a working capital deficit of approximately $5.3 million. The Company utilized approximately $7.6 million in cash to support operations during the nine months ending September 30, 2022. To date, the Company has relied predominantly on operating cash flow, borrowings from its credit facilities, and sales of Common Stock. The above raises substantial doubt about the ability for the Company to continue as a going concern. However, the Company believes the matters outlined below alleviate that substantial doubt.

The demand for solar and electric vehicle infrastructure continues to increase across all customer groups. Our residential division has customer orders of approximately $25.8 million expected to be completed within three to five months, our commercial division has a contracted backlog of approximately $12.6 million expected to be completed within six to eight months, our industrial division has a contracted backlog of approximately $140.7 million expected to be completed within twelve to eighteen months and our utility division has 1,300 MW of projects currently under development. The Company estimates approximately 100 MW of utility scale projects to achieve notice to proceed in the second half 2023. The customer demand across our segments will provide short-term operational cash flow.

As of September 30, 2022, the Company had approximately $18.0 million in gross proceeds potentially available from sales of Common Stock pursuant to the S-3 Registration Statement which could be utilized to support any short-term deficiencies in operating cash flow.

The Company believes its current cash on hand, potential additional sales of Common Stock, the collectability of its accounts receivable and project backlog are sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of:

(In thousands)

SCHEDULE OF ACCOUNTS RECEIVABLE

Bad debt expense was $69,000 and $87,000 for the three and nine months ended September 30, 2022, respectively. Bad debt expense was immaterial for the three and nine months ended September 30, 2021, respectively.

Contract assets represent revenue recognized in excess of amounts billed, unbilled receivables, and retainage. Unbilled receivables represent an unconditional right to payment subject only to the passage of time, which are reclassified to accounts receivable when they are billed under the terms of the contract. Contract assets were as follows at September 30, 2022 and 2021:

 SCHEDULE OF CONTRACT ASSETS AND LIABILITIES

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date, billings in excess of costs, and retainage. The Company anticipates that substantially all incurred cost associated with contract assets as of September 30, 2022 will be billed and collected within one year. Contract liabilities were as follows at September 30, 2022 and December 31, 2021:

5. CONTRACTS IN PROGRESS

Information with respect to contracts in progress are as follows:

 SCHEDULE OF CONTRACTS IN PROGRESS

Included in accompany balance sheets under the following captions:

6. LONG-TERM DEBT

A summary of long-term debt is as follows:

 SUMMARY OF LONG-TERM DEBT

Maturities of long-term debt are as follows:

(In thousands)

SCHEDULE OF MATURITIES OF LONG-TERM DEBT

7. LINE OF CREDIT

The Company’s wholly owned subsidiary, Peck Electric Co., has a working capital line of credit with NBT Bank with a limit of $6 million and a variable interest rate based on the Wall Street Journal Prime rate, currently 6.25%. The line of credit is payable upon demand and is subject to an annual review in December 2022. The balance outstanding was $5.6 million and $4.5 million, at September 30, 2022 and December 31, 2021, respectively. Borrowing is based on 80% of eligible accounts receivable. The line is secured by all business assets and is subject to certain financial covenants. These financial covenants consist of a minimum debt service coverage ratio of 1.20 to 1.00 measured on a quarterly basis. As of September 30, 2022, the Company was not in compliance with the financial covenants but received a waiver of covenant default from NBT Bank.

8. COMMITMENTS AND CONTINGENCIES

Leases:

(All dollar amounts in thousands)

In 2020, the Company entered into a ten-year lease agreement for a new headquarters in Williston, Vermont consisting of approximately 6,250 square feet of office space and 6,500 square feet of warehouse. The lease has annual rent of $108 with an annual increase of 2%.

The Company leases an office and warehouse facilities in Waterbury, Vermont under agreements expiring in May 2028 and August 2026, respectively. Monthly base rent for the office and warehouse facilities currently approximates $28, subject to annual 3% increases.

The Company leases an office and warehouse facility in Rhinebeck, New York from a stockholder. Monthly base rent currently approximates $7 and is on a month-to-month basis.

The Company leases a vehicle under a non-cancelable operating lease. In addition, the Company occasionally pays rent for storage on a month-to-month basis.

Total rent expense for all of the non-cancelable leases above were $191 and $49 for the three months ended September 30, 2022 and 2021, respectively. Total rent expense for all of the non-cancelable leases above were $567 and $111 for the nine months ended September 30, 2022 and 2021, respectively.

The Company leases vehicles and office equipment under various agreements expiring through September 2026. As of September 30, 2022, aggregate monthly payments required under these leases approximates $12.

The Company also rents equipment to be used on jobs under varying terms not exceeding one year. Total rent expense under short term rental agreements was $387 and $99 for the three months ended September 30, 2022 and 2021, respectively. Total rent expense under short term rental agreements was $706 and $196 for the nine months ended September 30, 2022 and 2021, respectively.

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

 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

Litigation:

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 1^st Set of Discovery on September 16, 2022, and the Company served its 1^st Set of Discovery on July 18, 2022. The Company served its responses and objections to Plaintiffs’ 1^st Set of Discovery on August 4, 2022, and Plaintiffs’ responses and objections to the Company’s 1^st 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. The Company anticipates reaching settlement in the pending litigation. It is not possible to evaluate the likelihood of an unfavorable outcome or provide an estimate or range of potential loss.

9. FAIR VALUE MEASUREMENTS

During the nine months ended September 30, 2022 no warrants to acquire shares of Common Stock were granted, exercised or redeemed. At September 30, 2022, 69,144 of private warrants to acquire shares of Common Stock that were outstanding at the time of the Company became a public company remain outstanding.

The private warrants were valued using a Black-Scholes model, pursuant to the inputs provided in the table below:

 SCHEDULE OF FAIR VALUE MEASUREMENT INPUTS

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

 SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

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

 SCHEDULE OF ROLL FORWARD OF LEVEL 3 INSTRUMENTS

10. UNION ASSESSMENTS

The Company employs members of the International Brotherhood of Electrical Workers Local 300 (IBEW). The union fee assessments payable are both withholdings from employees and employer assessments. Union fees are for monthly dues, defined contribution pension, health and welfare funds as part of multi-employer plans. All union assessments are based on the number of hours worked or a percentage of gross wages as stipulated in the agreement with the Union.

The Company has an agreement with the IBEW in respect to rates of pay, hours, benefits, and other employment conditions that expires May 31, 2025. During the three and nine months ended September 30, 2022 and 2021, the Company incurred the following union assessments.

(All dollar amounts in thousands)

 SCHEDULE OF UNION ASSESSMENTS

11. PROVISION FOR INCOME TAXES -

The provision for income taxes for September 30, 2022 and 2021 consists of the following:

(All dollar amounts in thousands)

SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

The Company’s total deferred tax assets and liabilities at September 30, 2022 and December 31, 2021 are as follows:

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

The Company uses a more-likely-than-not measurement for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. There were no uncertain tax positions as of September 30, 2022 and December 31, 2021. If the Company were to incur interest and penalties related to income taxes, these would be included in the provision for income taxes, there were none as of September 30, 2022 and December 31, 2021, respectively. Generally, the three tax years previously filed remain subject to examination by federal and state tax authorities. The Company does not expect a material change in uncertain tax positions to occur within the next 12 months.

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

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

The Company received a loan under the CARES Act Payroll Protection Program (“PPP”) of $1,487,624. The Company’s acquisition of SolarCommunities, Inc. & Subsidiaries included the acquisition of outstanding “PPP” loans of $2,591,500 and $2,000,000. Proceeds from the loans were used to cover documented expenses related to payroll, rent and utilities, during the 24-week period, subsequent to the cash being received by the Company, are eligible to be forgiven. The “PPP” loan was forgiven in its entirety in 2020 and the income is deemed to be non-taxable which results in the Company’s effective tax rate differing from the statutory rate. The SolarCommunities, Inc & Subsidiaries PPP loans of $2,000,000 were forgiven in its entirety in the fourth quarter of 2021 and $2,591,500 in its entirety in the first quarter of 2022.

The Company has federal net operating losses of approximately $31,000,000 of which $2,200,000 will expire beginning in 2035, $28,800,000 of the net operating losses do not expire. Net operating losses incurred beginning in 2018 are not subject to expiration under the Tax Cuts and Jobs Act, but the annual usage is limited to 80% of pre net operating loss taxable income for years beginning after December 31, 2020. The Company has tax credit carryforwards of approximately $592,000 which will expire beginning in 2034. We believe that it is more likely than not that the tax benefit of these net operating losses will be fully realized, as such no valuation allowance has been recorded. The deferred tax assets for the net operating losses are presented net with deferred tax liabilities, which primarily consist of book and tax depreciation differences.

12. RELATED PARTY TRANSACTIONS

(All dollar amounts in thousands)

In 2014, the minority stockholders of Peck Electric Co., who sold the building that the Company formerly occupied, lent the proceeds to the majority stockholders of Peck Electric Co. who contributed $400 of the net proceeds as paid in capital. At September 30, 2022 and December 31, 2021, the amount owed of $0 and $21, respectively, is included in the “due to stockholders” as there is a right to offset.

In May 2018, stockholders of the Company bought out a minority stockholder of Peck Electric Co. The Company advanced $250,000 for the stock purchase which is included in the “due from stockholders”. At September 30, 2022 and December 31, 2021, the amounts due of $0 and $39, respectively, are included in the “due to stockholders” as there is a right to offset.

In 2019, the Company’s majority stockholders lent proceeds to the Company to help with cash flow needs. At September 30, 2022 and December 31, 2021, the amounts owed of $0 and $60, respectively, are included in the “due to stockholders” as there is a right to offset.

13. DEFERRED COMPENSATION PLAN

(All dollar amounts in thousands)

In 2018, the Company entered into a deferred compensation agreement with a former minority stockholder. The agreement provides for deferred income benefits and is payable over the post-retirement period. The Company accrues the present value of the estimated future benefit payments over the period from the date of the agreement to the retirement date. The minimum commitment for future compensation under the agreement is $155, the net present value of which is $45. The Company will also pay the former stockholder a solar management fee of 24.5% of the available cash flow from the solar arrays put into service on or before December 31, 2017 over the life of the arrays. The amount is de minimis and therefore not recorded on the balance sheet as of September 30, 2022 and December 31, 2021 and recorded in the statement of operations when incurred.

14. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock.

SCHEDULE OF POTENTIAL SHARE ISSUANCES EXCLUDED FROM COMPUTATION OF EARNINGS (LOSS) PER SHARE