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
iSun, Inc., the principal office of which is located in Williston, Vermont, is
one of the largest commercial solar engineering, procurement and construction
("EPC") companies in the country and is expanding across the Northeastern United
States ("U.S."). The Company is a second-generation business founded under the
name Peck Electric Co. ("Peck Electric") in 1972 as a traditional electrical
contractor. The Company's core values are to align people, purpose, and
profitability, and since taking leadership in 1994, Jeffrey Peck, the Company's
Chief Executive Officer, has applied such core values to expand into the solar
industry. Today, the Company is 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.
The world recognizes the need to transition to a reliable, renewable energy grid
in the next 50 years. Vermont and 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 Company intends
to use near-term incentives to take advantage of long-term, sustainable energy
transformation with a commitment to the environment and to its shareholders. 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.
After installing more than 200 megawatts of solar energy, we believe that we are
well-positioned for what we believe to be the coming transformation to an all
renewable energy economy. As a result of the completion of our business
combination transaction with Jensyn Acquisition Corp. ("Jensyn") on June 20,
2019, pursuant to which we acquired Peck Electric Co. (the "Reverse Merger and
Recapitalization"), we have now opened our company to the public market as part
of our strategic growth plan. We are expanding across the Northeastern U.S. 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.
We have a three-pronged growth strategy that includes (1) organic expansion
across the Northeastern United States, (2) conducting accretive merger and
acquisition transactions to expand geographically, and (3) investing into
company-owned solar assets.
On January 19, 2021, we entered in an agreement to acquire iSun Energy LLC based
in Burlington, Vermont. iSun Energy, LLC offers a portfolio of products that
supports the growing electric vehicle market, specifically carports, charging
stations and user-facing technology. The flagship iSun Energy & Mobility Hub is
the result of 30 years of passion, dedication, and innovation through
sustainability. The iSun solar EV carport charging systems incorporate solar
panels to charge electric vehicles while providing unparalleled software
insights into data surrounding the energy produced, consumed, air quality
effects and other key metrics. The iSun Oasis Smart Solar Bench is expected to
be an integral part in developing smart cities and campuses and has the ability
to charge any mobile device through integrated solar panels that collect and
store energy throughout the day. iSun's accompanying data platform allows for
monitoring and analysis of key metrics through built in IoT (Internet of Things)
sensors. The platform also affords both physical and digital advertising and
branding, for additional recurring revenue opportunities. iSun's Augmented
Reality 3D software platform helps clients visualize their projects before they
are built, making it easy for our clients to adopt sustainable solutions and to
understand their impact on sustainability. As we continue to execute on our
three-pronged growth strategy, the iSun Energy, LLC acquisition allows to
further enable the transition to renewable and clean energy. As our portfolio of
offerings continues to expand, we are able to further provide energy as a
service to the marketplace.
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With the filing of our Form S-3 Registration Statement on December 4, 2020, we
have the ability to access the capital markets up to $50,000,000 in aggregate to
support our statement 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. There is currently approximately $39.5
million available under the Registration Statement as we drew down approximately
$10.5 million through our Registered Direct Offering.
On April 24, 2020, we were fortunate to obtain a loan under the CARES Act
Payroll Protection Program ("PPP") of $1,487,624. The loan allowed us to
maintain our workforce during the shutdown caused by the COVID-19 pandemic. On
December 1, 2020, the Company received notification from NBT Bank that the Small
Business Administration has approved the forgiveness of the PPP loan in its
entirety and as such, the full $1,496,468 has been recognized in the income
statement as a gain upon debt extinguishment for the year ended December 31,
2020.
Equity and Ownership Structure
On June 20, 2019, Jensyn consummated the Reverse Merger and Recapitalization,
which resulted in the acquisition of 100% of the issued and outstanding equity
securities of Peck Electric by Jensyn, and in Peck Electric becoming a
wholly-owned subsidiary of Jensyn. Jensyn was originally incorporated as a
special purpose acquisition company, formed for the purpose of entering into a
merger, share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar Recapitalization. Simultaneously with the
Reverse Merger and Recapitalization, we changed our name to "The Peck Company
Holdings, Inc." We conducted all of our business operations exclusively through
our wholly-owned subsidiary, Peck Electric.
Unless the context otherwise requires, "we," "us," "our" and the "Company"
refers to iSun, Inc. (formerly The Peck Company Holdings, Inc.) and its
subsidiary after June 20, 2019, and "Peck Electric" refers to the business of
Peck Electric before June 20, 2019. Upon closing of the Reverse Merger and
Recapitalization, Peck Electric was deemed the accounting acquirer and takes
over the historical information for the Company.
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. We conduct all of our business operations
exclusively through our wholly-owned subsidiaries, Peck Electric and iSun Energy
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,
impairment on investment, revenue recognition utilizing a cost to cost method,
allowances for uncollectible accounts, 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.
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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 year ended December 31, 2020 and 2019, 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, 2020 and 2019.
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, 2022.
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.
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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, 2020 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2019
REVENUE AND COST OF EARNED REVENUE
For the year ended December 31, 2020, our revenue decreased 25.4% to $21,052,211
compared to $28,221,569 for the year ended December 31, 2019. Cost of earned
revenue for the year ended December 31, 2020, was 26.2% lower at $17,742,118
compared to $24,050,197 for the year ended December 31, 2019. Our revenue was
limited due to the shutdown as a result of the COVID-19 pandemic. The Company
had several projects that were scheduled to begin in the second quarter of the
year that were rescheduled until the end of the third quarter. The delay in
project start dates impacted our ability to grow revenue during 2020 but will
positively impact future periods as project start dates were rescheduled to the
first quarter of 2021.
Gross profit was $2,343,137 for the year ended December 31, 2020. This compares
to $4,171,372 of gross profit for the year ended December 31, 2019. The gross
margin was 11.1% in the year ended December 31, 2020 compared to 14.8% in the
year ended December 31, 2019. Approximately 80% of revenue in the year ended
December 31, 2020 was from solar installations compared to 77% of revenues in
the year ended December 31, 2019. The solar installation represents higher
margin installation in comparison to our traditional electrical and data
installations which lead to an increase in gross margin. However, the impact of
our worksite shutdowns as a result of the COVID-19 pandemic eroded our margins
as we were required to remove all material and equipment from our projects. Once
our projects were able to resume operations, we incurred additional costs
related to remobilizing and training our workforce as well as delivering
material and equipment to the respective job sites.
For 2021, we anticipate an increase in revenue over 2020 due to several factors.
The sum of our backlog projects is already near $61 million and are anticipated
to be completed within twelve to eighteen months. We are not typically bidding
competitively for projects, but instead engage with our customers over a
long-term basis to develop project designs and to help customers reduce project
costs. Therefore, the $61 million in project-based revenue anticipated for the
next twelve to eighteen months represents projects that have a high probability
for conversion. Historically, we have been awarded over 90% of the projects we
have reviewed for construction. The upfront assistance and coordination with our
clients can be considered our marketing effort, which is a significant advantage
for converting a high percentage of its pipeline projects.
In addition, we are engaging existing customers and new partners outside of
Vermont as part of our planned 2021 expansion across the Northeast. The Company
has already identified over $26 million of opportunities in other states that
are included in its 2021 and 2022 projections.
SELLING AND MARKETING EXPENSES
We rely on referrals from customers and on its industry reputation, and
therefore have not historically incurred significant selling and marketing
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative (G&A) expenses were $3,343,895 for the year
ended December 31, 2020, compared to $2,385,900 for the year ended December 31,
2019. As a percentage of revenue, G&A expenses increased to 15.9% in the year
ended December 31, 2020 compared to 8.5% in the year ended December 31, 2019. In
total dollars, G&A expense increased primarily due to the added personal costs
required to support the Company's growth initiatives compared to the year ended
December 31, 2019. With the acquisition of iSun Energy LLC, we do anticipate an
increase in G&A to support the new opportunities provided by our expanded
product and service offerings. We continue to search for talented individuals
that can support our growth strategies.
WAREHOUSE AND OTHER OPERATING EXPENSES
Warehousing and other operating expenses for 2020 are expected to be stable or
decrease compared to prior years as we continue to look for opportunities to
streamline our operations and decrease our cost structure. To date, we have
reduced certain administrative and insurance costs and restructured our
utilization of skilled labor in order to reduce the overhead burden, without
compromising the ability to operate effectively.
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OTHER INCOME (EXPENSES) (RESTATED)
Interest expense for the twelve months ended December 31, 2020, was $302,542
compared to $244,068 for the same period of the prior year as a result of
increased utilization of our line of credit. We recognized a gain on the
forgiveness of the PPP loan of $1,496,468 for the twelve months ended December
31, 2020. The change in fair value of the warrant liability decreased by
$975,728 and increased by $2,956,097 for the years ended December 31, 2020 and
2019, respectively.
INCOME (BENEFIT)TAX EXPENSE
The US GAAP effective tax rate for the years ended December 31, 2020 was 99.12%
and December 31, 2019 was 163.19%. The proforma effective tax rate for the years
ended December 31, 2020 was 27.72% and December 31, 2019 was 27.72%. At December
31, 2020, 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 $1,487,624. At December 31, 2019, the
change in the effective tax rate ("ETR") is driven by the conversion from an
S-corporation to C-corporation, which occurred on the date of the Reverse Merger
and Recapitalization. This conversion resulted in non-recurring deferred tax
expense of $1,098,481 for the year ended December 31, 2019 related to the
recognition of deferred tax liabilities for temporary differences that existed
on the date of the change. Excluding the impact of the conversion, the Company's
ETR was 27.72% based on the statutory tax rates in the jurisdictions where the
Company is subject to income taxes.
NET LOSS (RESTATED)
The net loss for the year ended December 31, 2020 was $980,056 compared to a net
income of $2,528,302 for the year ended December 31, 2019.
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, and one-time Reverse Merger and
Recapitalization expenses and certain adjustments. 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.
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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:
Year ended
December 31,
2020 2019
(restated) (restated)
Net loss $ (980,056 ) $ 2,528,302
Depreciation and amortization 585,690 621,233
Interest expense 302,542 244,068
Change in fair value of warrant liability 975,728 (2,956,097 )
Income tax (benefit)
(487,173 ) 1,104,840
EBITDA 396,731 1,542,346
Other costs(1) - 273,819
Adjusted EBITDA 396,731 1,816,165
Weighted Average shares outstanding 5,301,471 4,447,681
Adjusted EPS 0.07 0.41
(1) Other costs consist of one-time expenses of multiple year financial audits
and other legal and professional fees associated with the Reverse Merger and
Recapitalization. Prior to the Reverse Merger and Recapitalization, the
Company did not require annual financial statement audits. As part of the
preparation for being a publicly traded entity, the Company was required to
undergo financial statement audit for the years ended December 31, 2017. The
cost of this expense is included in other costs.
(2) As the forgiveness of the PPP loan is considered a one-time expense, the
Company considered including the forgiveness of $1,496,468 as a reconciling
item. The Company excluded the forgiveness on the basis that had it not been
awarded a PPP loan, the Company would have terminated, furlough or reduced
its workforce during the COVID-19 pandemic shutdown.
LIQUIDITY AND CAPITAL RESOURCES
We had $699,154 in unrestricted cash at December 31, 2020, as compared to
$95,930 at December 31, 2019.
As of December 31, 2020, our working capital surplus was $242,865 compared to a
working capital surplus of $362,586 at December 31, 2019. On January 8, 2021, we
entered into a Securities Purchase Agreement with two institutional investors
providing for the issuance and sale by the Company of an aggregate 840,000
shares of our Common Stock in a registered direct offering at a purchase price
of $12.50 per Share for gross proceeds of approximately $10.5 million before
deducting fees and offering expenses.
We believe that the aggregate of our existing cash and cash equivalents,
including our working capital line of credit, shelf registration and equity line
of capital, will be sufficient to meet our operating cash requirements until at
least March 30, 2022.
As of March 12, 2021, we have approximately $20.5 million in cash availability.
During the first quarter of 2021, we received cash proceeds of approximately $15
million from the exercise of our Public Warrants and an additional approximately
$2.5 million from the exercise of 292,500 Unit Purchase Options. The available
funds will support the execution of our approximate $61 million in backlog. We
believe the backlog is executable within the next twelve to eighteen months
which would support our transition back to profitability in 2021.
With the filing of our Form S-3 Registration Statement on December 4, 2020, we
have the ability to access the capital markets up to $50,000,000 in aggregate to
support our statement 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. There is currently approximately $39.5
million available under the Registration Statement as we drew down approximately
$10.5 million through our Registered Direct Offering.
Under the terms of the equity line of credit entered into on September 26, 2019,
Lincoln Park Capital is required to purchase shares up to a total value of
$15,000,000 pursuant to certain terms and conditions. As of December 31, 2020,
$15,000,000 of the equity line of credit is available for use. We can require
the purchase of 50,000 shares of Common Stock under a regular purchase. On the
next day following a regular purchase, we can require the purchase of an
accelerated purchase equal to 200% of the shares sold in the regular purchase as
well as an additional accelerated purchase equal to 300% of the shares sold in
the regular purchase. The total number of shares authorized under the Purchase
Agreement total 3,024,194 which would allow us to maximize the equity line of
credit within 10 business days. At that moment, we have no plans to utilize our
equity line of credit, but we do have the capability to raise capital utilizing
this at-the-market offering and receive the cash proceeds from the transaction
to fund our operating activities.
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Cash flow provided by operating activities was $435,814 for the year ended
December 31, 2020, compared to $2,130,694 of cash used by operating activities
in the year ended December 31, 2019. The increase in cash provided by operating
activities was primarily the result of the decrease in accounts receivable of
$914,356 and an increase in billings in excess of costs of $1,014,099.
Net cash used in investing activities was $65,351 for the year ended December
31, 2020, compared to $4,276 used in the year ended December 31, 2019. This
increase was related to the continued investment in our captive insurance.
Net cash provided by financing activities was $232,761 for the year ended
December 31, 2020 compared to $1,917,683 of cash provided by financing
activities for the year ended December 31, 2019. The cash flow used by financing
activities was utilized to make payments against the line of credit as well as
payments against long-term debt. The Company also received proceeds from the PPP
loan of $1,496,468.
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