| SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES | 1.
SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
a)
Organization iSun, Inc. is a solar engineering, construction and procurement contractor for commercial and industrial customers across the Northeastern
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. Effective
January 19, 2021, the Company changed its corporate name from The Peck Company Holdings, Inc. to iSun, Inc. (the “Name Change”). The Name Change was affected through a parent/subsidiary short-form merger of iSun, Inc., our wholly-owned Delaware
subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity. To effectuate the short-form merger, we filed a Certificate of Merger with the Secretary of State of the State of Delaware on
January 19, 2021. The merger became effective on January 19, 2021 with the State of Delaware and, for purposes of the quotation of our Common Stock on the Nasdaq Capital Market (“Nasdaq”), effective at the open of the market on January 20,
2021. On April 6, 2021, iSun Utility, LLC (“iSun Utility”), a Delaware limited liability company and wholly-owned subsidiary of iSun,
Inc., a Delaware corporation (the “Company”), Adani Solar USA, Inc., a Delaware corporation (Adani”), and Oakwood Construction Services, Inc., a Delaware corporation (“Oakwood”) entered into an Assignment Agreement (the “Assignment”),
pursuant to which iSun Utility acquired all rights to the intellectual property of Oakwood and its affiliates (the “Project IP”). Oakwood is a utility-scale solar EPC company and a wholly-owned subsidiary of Adani. The Project IP includes all
of the intellectual property, project references, templates, client lists, agreements, forms and processes of Adani’s U.S. solar business.
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 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, 2021 and 2020, 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 based on the timing of satisfaction of performance obligations for the years ended
December 31:
2021
2020
Solar Operations
Performance obligations satisfied at a point in time
$
-
$
-
Performance obligations satisfied over time
$
40,511,603
$
17,354,852
Total
$
40,511,603
$
17,354,852
Electric Operations
Performance obligations satisfied at a point in time
$
-
$
-
Performance obligations satisfied over time
$
3,631,105
$
2,459,373
Total
$
3,631,105
$
2,459,373
Data and Network Operations
Performance obligations satisfied at a point in time
$
-
$
-
Performance obligations satisfied over time
$
1,168,952
$
1,237,986
Total
$
1,168,952
$
1,237,986
Total
Performance obligations satisfied at a point in time
$
-
$
-
Performance obligations satisfied over time
$
45,311,660
$
21,052,211
Total
$
45,311,660
$
21,052,211 The following table disaggregates the Company’s Solar Operations revenue based operational segment for the years ended December 31:
2021
2020
Solar Operations
Residential
$
12,524,520
$
86,774
Commercial and Industrial
26,613,352
17,268,078
Utility
1,373,731
-
Total
$
40,511,603
$
17,354,852 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 $84,000 at December 31, 2021 and $84,000 at December 31, 2020, 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)
Project Assets Project assets primarily consist of costs related to solar power projects that are in various stages of development that are capitalized prior
to the completion of the sale of the project, and are actively marketed and intended to be sold. In contrast to contract assets, the Company holds a controlling interest in the project itself. These project related costs include costs for land,
development, and construction of a PV solar power system. Development costs may include legal, consulting, permitting, transmission upgrade, interconnection, and other similar costs. The Company typically classifies project assets as noncurrent
due to the nature of solar power projects (long-lived assets) and the time required to complete all activities to develop, construct, and sell projects, which is typically longer than 12 months. Once the Company enters into a definitive sales
agreement, such project assets are classified as current until the sale is completed and the Company has met all of the criteria to recognize the sale as revenue. Any income generated by a project while it remains within project assets is
accounted for as a reduction to the basis in the project. If a project is completed and begins commercial operation prior to the closing of a sales arrangement, the completed project will remain in project assets until placed in service. All
expenditures related to the development and construction of project assets, whether fully or partially owned, are presented as a component of cash flows from operating activities. Project assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. A project is considered commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. A
partially developed or partially constructed project is considered to be commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets. The Company examines a number of factors
to determine if the project is expected to be recoverable, including whether there are any changes in environmental, permitting, market pricing, regulatory, or other conditions that may impact the project. Such changes could cause the costs of
the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assets and adjust the carrying value to the estimated fair value, with the resulting impairment
recorded within “Selling, general and administrative” expense. Project Asset were $0 for the years ended December
31, 2021 and 2020, respectively.
g)
Property and Equipment Property and equipment greater than $1,000
are recorded at cost. Cost includes the price paid to acquire or construct the assets, required installation costs, and any expenditures that substantially add to the value or substantially extend the useful life of the assets. The solar arrays represent project assets that the Company may temporarily own and operate after being placed into service. The Company reports
solar arrays at cost, less accumulated depreciation. The Company begins depreciation on the solar arrays when they are placed in service. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The
estimated useful lives are as follows:
Buildings and improvements
39 years
Vehicles
3-5
years
Tools and equipment
3-7
years
Solar arrays
20 years
Software 3-7 years Total depreciation expense for the years ended December 31, 2021 and 2020 was $681,272 and $585,690, respectively. The cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation are eliminated from the accounts and any
resulting gain or loss is included in operations. The cost of maintenance and repairs are charged to expense as incurred, while significant renewals or betterments are capitalized.
h)
Long-Lived Assets The Company assesses long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances arise,
including consideration of technological obsolescence, that may indicate that the carrying amount of such assets may not be recoverable. These events and changes in circumstances may include a significant decrease in the market price of a
long-lived asset; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; a significant adverse change in the business climate that could affect the value of a long-lived asset;
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; a current period operating or cash flow loss combined with a history of such losses or a projection of
future losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. For
purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities. When impairment indicators are present, the Company compares undiscounted future cash flows, including the eventual disposition of the asset group
at market value, to the asset group’s carrying value to determine if the asset group is recoverable. If the carrying value of the asset group exceeds the undiscounted future cash flows, the Company measures any impairment by comparing the fair
value of the asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted cash flows for the asset group, (ii) third-party valuations, and/or (iii) information available regarding the
current market value for such assets. If the fair value of an asset group is determined to be less than its carrying value, an impairment in the amount of the difference is recorded in
the period that the impairment indicator occurs. Estimating future cash flows requires significant judgment, and such projections may vary from the cash flows eventually realized. The Company considers a long-lived asset to be abandoned after the Company has ceased use of such asset and they have no intent to use or
repurpose the asset in the future. Abandoned long-lived assets are recorded at their salvage value, if any.
i)
Asset Retirement Obligations The Company develops, constructs, and operates certain solar arrays with land lease agreements that include a requirement for the removal of the
assets at the end of the term of the agreement. The Company recognizes such asset retirement obligations (“ARO”) in the period in which they are incurred based on the present value of estimated third-party recommissioning costs, and they capitalize
the associated asset retirement costs as part of the carrying amount of the related assets. Once an asset is placed into service, the asset retirement cost is subsequently depreciated on a straight-line basis over the estimated useful life of the
asset. Changes in AROs resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense. The AROs were not deemed significant to the financial statements and were therefore, not
recorded as a liability at December 31, 2021 and 2020.
j)
Concentration and Credit Risks The Company occasionally has cash balances in a single financial institution during the year in excess of the Federal Deposit Insurance
Corporation (FDIC) limit of up to
$250,000 per financial institution. The differences between book and bank balances are outstanding checks and deposits in transit. At December 31, 2021 and 2020, the uninsured balances were approximately $914,000 and $422,000, respectively.
k)
Income Taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to
be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The financial statements of the Company account for deferred tax assets and liabilities in accordance with Accounting Standards Codification (“ASC”)
740, Income taxes. The Company also uses a more-likely-than-not measurement for all tax positions taken or expected to be taken on a tax return in order for those
tax positions to be recognized in the financial statements. If the Company were to incur interest and penalties related to income taxes, these would be included in the provision for income taxes. Generally, the three tax years previously filed
remain subject to examination by federal and state tax authorities.
l)
Sales Tax The Company’s accounting policy is to exclude state sales tax collected and remitted from revenues and costs of sales, respectively.
m)
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, investments, impairment on investments and valuation of deferred tax
assets. Actual results could differ from those estimates.
n)
Recently Issued Accounting Pronouncements The Company is an emerging growth company until at minimum December 31, 2023. The Company will maintain the election available to an
emerging growth company to use any extended transition period applicable to non-public companies when complying with a new or revised accounting standard. The Company retains its emerging growth status and therefore elects to adopt new or revised
accounting standards on the adoption date required for a private company. In October 2021, the
FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. 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 In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In September 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470). In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)
o)
Deferred Finance Costs Deferred financing costs relate to the Company’s debt and equity instruments. Deferred financing costs relating to debt instruments are amortized
over the terms of the related instrument using the effective interest method. The Company incurred $400,000 and $0 of deferred financing costs during the year ended December 31, 2021 and 2020, respectively. Amortization expense associated with deferred financing
costs, which is included in interest expense, totaled $103,078 and $3,073 for the years ended December 31, 2021 and 2020, respectively.
p)
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.
q)
Goodwill The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,”
where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may
be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the
tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. At December 31, 2021 and 2020, no
goodwill impairment was noted.
r)
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.
s)
Inventory Inventory is valued at lower of cost or net realizable value
determined by the first-in, first-out method. Inventory primarily consists of solar panels and other materials. The Company reviews the cost of inventories against their estimated net realizable value and records write-downs if any inventories
have costs in excess of their net realizable values. No inventory allowance exists at December 31, 2021 and December 31, 2020,
respectively.
t)
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.
u)
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.
v)
Legal Contingencies The Company accounts for liabilities resulting from legal proceedings when it is possible to evaluate the likelihood of an unfavorable
outcome in order to provide an estimate for the contingent liability. At December 31, 2021 and 2020, there are no material contingent liabilities arising from pending litigation. |
