Exhibit 99.1
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
DECEMBER 31, 2020 AND 2019
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
DECEMBER 31, 2020 AND 2019
CONTENTS
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Pages
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INDEPENDENT AUDITOR’S REPORT
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1-2 |
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CONSOLIDATED FINANCIAL STATEMENTS
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BALANCE SHEETS
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3 - 4
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STATEMENTS OF OPERATIONS
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5
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STATEMENTS OF STOCKHOLDERS’ EQUITY
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6
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STATEMENTS OF CASH FLOWS
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7 - 8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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9 - 33
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To the Board of Directors of
SolarCommunities, Inc. and Subsidiaries D/B/A SunCommon
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of SolarCommunities, Inc. and Subsidiaries D/B/A SunCommon, which comprise the consolidated balance
sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SolarCommunities, Inc. and
Subsidiaries D/B/A SunCommon as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
South Burlington, Vermont
June 30, 2021
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
|
2020
|
2019
|
|||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$
|
306,190
|
$
|
76,771
|
||||
|
Accounts receivable, less allowance for doubtful accounts of $9,399 in 2020 and $49,000 in 2019
|
2,297,947
|
2,074,131
|
||||||
|
Unbilled receivables
|
80,989
|
609,201
|
||||||
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
450,608
|
128,821
|
||||||
|
Inventories
|
1,951,554
|
2,462,344
|
||||||
|
Prepaid expenses and other current assets
|
377,008
|
183,870
|
||||||
|
Total current assets
|
5,464,296
|
5,535,138
|
||||||
|
PROPERTY AND EQUIPMENT, at cost, net
|
||||||||
|
Community solar arrays
|
977,418
|
1,048,319
|
||||||
|
Other property and equipment
|
2,118,628
|
1,907,035
|
||||||
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3,096,046
|
2,955,354
|
|||||||
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OTHER ASSETS
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||||||||
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Restricted cash
|
74,232
|
575,953
|
||||||
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Goodwill, net of accumulated amortization of $1,109,828 in 2020 and $685,951 in 2019
|
3,128,940
|
3,552,817
|
||||||
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Other assets
|
47,790
|
47,790
|
||||||
|
Deferred income taxes
|
882,800
|
787,400
|
||||||
|
4,133,762
|
4,963,960
|
|||||||
|
$
|
12,694,104
|
$
|
13,454,452
|
|||||
The accompanying notes are an integral part of these statements.
- 3 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
2020
|
2019
|
|||||||
|
CURRENT LIABILITIES
|
||||||||
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Note payable - bank line of credit
|
$
|
-
|
$
|
1,779,555
|
||||
|
Current maturities of long-term debt
|
290,054
|
476,757
|
||||||
|
Accounts payable
|
3,255,144
|
3,247,799
|
||||||
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Accrued expenses and other current liabilities
|
1,137,535
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810,026
|
||||||
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Billings in excess of costs and estimated earnings on
|
||||||||
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uncompleted contracts
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536,824
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195,918
|
||||||
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Customer deposits
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-
|
428,311
|
||||||
|
Total current liabilities
|
5,219,557
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6,938,366
|
||||||
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LONG-TERM DEBT - CSA LLCs, less current maturities
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745,989
|
809,649
|
||||||
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LONG-TERM DEBT - other, less current maturities
|
3,089,386
|
1,009,458
|
||||||
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OTHER LONG-TERM LIABILITIES
|
35,884
|
41,401
|
||||||
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STOCKHOLDERS' EQUITY
|
||||||||
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Series A Preferred stock - $0.001 par value, 2,000,000 shares authorized; 825,000 issued and outstanding
|
802,018
|
802,018
|
||||||
|
Series B Preferred stock - $0.001 par value, 682,045 shares authorized; 660,900 issued and outstanding
|
1,456,745
|
1,456,745
|
||||||
|
Series C Preferred stock - $0.001 par value, 500,000 shares authorized; 250,678 issued and outstanding
|
986,003
|
986,003
|
||||||
|
Common stock - $0.001 par value, 8,000,000 shares authorized; 5,295,297 issued and outstanding
|
5,295
|
5,295
|
||||||
|
Additional paid-in capital
|
3,334,835
|
3,259,706
|
||||||
|
Accumulated deficit
|
(2,981,608
|
)
|
(1,854,189
|
)
|
||||
|
3,603,288
|
4,655,578
|
|||||||
|
$
|
12,694,104
|
$
|
13,454,452
|
|||||
The accompanying notes are an integral part of these statements.
- 4 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
|
2020
|
2019
|
|||||||
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GROSS REVENUE
|
$
|
33,093,717
|
$
|
41,714,841
|
||||
|
Less: financing fees and discounts
|
(993,273
|
)
|
(1,627,568
|
)
|
||||
|
NET REVENUE
|
32,100,444
|
40,087,273
|
||||||
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COST OF REVENUE
|
22,395,463
|
27,354,842
|
||||||
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GROSS MARGIN
|
9,704,981
|
12,732,431
|
||||||
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
11,114,984
|
13,284,967
|
||||||
|
LOSS FROM OPERATIONS
|
(1,410,003
|
)
|
(552,536
|
)
|
||||
|
OTHER EXPENSE (INCOME)
|
||||||||
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Interest expense
|
160,472
|
275,328
|
||||||
|
Other, net
|
(362,985
|
)
|
(1,768
|
)
|
||||
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(202,513
|
)
|
273,560
|
||||||
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LOSS BEFORE INCOME TAXES
|
(1,207,490
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)
|
(826,096
|
)
|
||||
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BENEFIT FROM INCOME TAXES
|
(80,071
|
)
|
(72,981
|
)
|
||||
|
NET LOSS
|
$
|
(1,127,419
|
)
|
$
|
(753,115
|
)
|
||
The accompanying notes are an integral part of these statements.
- 5 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020 AND 2019
|
Series A
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Series B
|
Series C
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Additional | |||||||||||||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||||||||||||||
|
BALANCE, January 1, 2019
|
825,000
|
$
|
802,018
|
660,900
|
$
|
1,456,745
|
250,678
|
$
|
986,003
|
5,295,297
|
$
|
5,295
|
$
|
3,134,940
|
$
|
(1,101,074
|
)
|
$
|
5,283,927
|
|||||||||||||||||||||||||
|
Stock option compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
124,766
|
-
|
124,766
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(753,115
|
)
|
(753,115
|
)
|
|||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2019
|
825,000
|
802,018
|
660,900
|
1,456,745
|
250,678
|
986,003
|
5,295,297
|
5,295
|
3,259,706
|
(1,854,189
|
)
|
4,655,578
|
||||||||||||||||||||||||||||||||
|
Stock option compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
75,129
|
-
|
75,129
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,127,419
|
)
|
(1,127,419
|
)
|
|||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2020
|
825,000
|
$
|
802,018
|
660,900
|
$
|
1,456,745
|
250,678
|
$
|
986,003
|
5,295,297
|
$
|
5,295
|
$
|
3,334,835
|
$
|
(2,981,608
|
)
|
$
|
3,603,288
|
|||||||||||||||||||||||||
The accompanying notes are an integral part of these statements.
- 6 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
|
2020
|
2019
|
|||||||
|
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICED CASH
|
||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$
|
(1,127,419
|
)
|
$
|
(753,115
|
)
|
||
|
Noncash items included in net loss:
|
||||||||
|
Depreciation and amortization
|
1,057,551
|
948,286
|
||||||
|
Stock option compensation expense
|
75,129
|
124,766
|
||||||
|
Loss on sale of property and equipment
|
4,929
|
-
|
||||||
|
Deferred income taxes
|
(95,400
|
)
|
(69,800
|
)
|
||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable and unbilled receivables
|
304,396
|
(613,787
|
)
|
|||||
|
Costs and estimated earnings in excess of billings on
|
||||||||
|
uncompleted contracts
|
(321,787
|
)
|
(128,821
|
)
|
||||
|
Inventories
|
510,790
|
645,608
|
||||||
|
Prepaid expenses and other current assets
|
(193,138
|
)
|
74,605
|
|||||
|
Other assets
|
-
|
35,913
|
||||||
|
Accounts payable
|
7,345
|
413,160
|
||||||
|
Accrued expenses and other current liabilities
|
327,509
|
82,781
|
||||||
|
Billings in excess of costs and estimated earnings on
|
||||||||
|
uncompleted contracts
|
340,906
|
132,537
|
||||||
|
Customer deposits
|
(428,311
|
)
|
136,809
|
|||||
|
Other long-term liabilities
|
(5,517
|
)
|
(6,870
|
)
|
||||
|
1,584,402
|
1,775,187
|
|||||||
|
Net cash provided by operating activities
|
456,983
|
1,022,072
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase of property and equipment
|
(613,171
|
)
|
(326,097
|
)
|
||||
|
Proceeds from sale of property and equipment
|
13,446
|
--
|
||||||
|
Net cash used in investing activities
|
(599,725
|
)
|
(326,097
|
)
|
||||
|
Subtotal (forward)
|
$
|
(142,742
|
)
|
$
|
695,975
|
|||
(CONTINUED)
- 7 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
|
2020
|
2019
|
|||||||
|
Subtotal (forwarded)
|
$
|
(142,742
|
)
|
$
|
695,975
|
|||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Net payments on note payable - bank
|
(1,779,555
|
)
|
(390,129
|
)
|
||||
|
Proceeds from issuance of long-term debt
|
2,621,210
|
-
|
||||||
|
Principal payments on long-term debt
|
(971,215
|
)
|
(438,662
|
)
|
||||
|
Net cash used in financing activities
|
(129,560
|
)
|
(828,791
|
)
|
||||
|
Net decrease in cash, cash equivalents and restricted cash
|
(272,302
|
)
|
(132,816
|
)
|
||||
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year
|
652,724
|
785,540
|
||||||
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
|
$
|
380,422
|
$
|
652,724
|
||||
|
Supplemental Disclosures of Cash Flows Information
|
||||||||
|
Cash paid during the year for:
|
||||||||
|
Interest expense
|
$
|
160,472
|
$
|
275,328
|
||||
|
Income taxes
|
$
|
13,517
|
$
|
1,483
|
||||
Noncash investing and financing activities:
During 2020 and 2019, the Company purchased vehicles totaling $179,570 and $460,832 under long-term debt
agreements, respectively (see Note F).
The accompanying notes are an integral part of these statements.
- 8 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES
|
Operations:
SolarCommunities, Inc. (SunCommon) was formed as a Vermont benefit corporation in 2011. SunCommon sells solar power systems to
Vermont homeowners and business owners with minimal or no up-front cost through innovative marketing techniques. SunCommon’s goal is to dramatically increase solar energy production in Vermont by making it more affordable and accessible.
During 2018, the Company acquired Hudson Valley Clean Energy, Inc. and its wholly owned subsidiary, Hudson Solar Services, LLC
(collectively referred to as “Hudson Solar”). Hudson Solar now operates under the SunCommon brand name and provides similar services, as described below, to residential and commercial customers in New York’s Hudson Valley and Albany Capital District.
The aforementioned companies generate revenue and profit from three primary sources: (i) direct sale of solar arrays, heat pumps
and battery storage systems to residential and commercial customers, (ii) direct sale of community solar arrays to third parties, and (iii) sale of power generated by community solar arrays owned by the Company to residential and commercial
customers. For direct sales, the Company buys solar panels, heat pumps, batteries and related equipment, procures permits and other regulatory approvals, designs and engineers the systems, and completes the installation and related site work with its
own staff or sub-contractors. For sale of power generated by community solar arrays, in addition to the above services, the Company also sells and administers the participation agreements with individual off-takers.
Community solar arrays (CSAs) operate under Vermont’s and New York’s group net metering regulations. The Company has developed a
portfolio of CSAs in Vermont and New York, which are owned by single-member limited liability companies (LLCs) (“project entities”). The Company has sold a number of these project entities to third parties upon commissioning, at which time all
membership units of the project entity, which owns the CSA, are transferred to the third parties. The Company’s CSA-related activities include the acquisition of land easements, permitting and related site work, engineering, procurement, contracting
for construction of the arrays, as well as securing participation agreements with individual consumers of the solar power to be generated by the array. Once operational, the Company may also provide administrative, operating and maintenance services
for the CSA owners under separate arrangements.
The Company wholly owns three single-member Vermont LLCs (Sun CSA 5, LLC, Sun CSA 17, LLC, and Sun CSA 36, LLC), which were formed
in 2014 and 2015 with the primary business purpose of operating CSAs (collectively, the CSA LLCs). As described in Note A1, the CSA LLCs are consolidated in the accompanying financial statements.
- 9 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| A) |
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
Operations (continued):
The Company funded approximately 20% of the cost of construction of the CSA LLCs’ community solar array assets with cash; the
remaining balance was funded by long-term debt of the CSA LLCs. The related debt is secured by the CSA assets of each CSA LLC and is guaranteed by the Company. The Vermont CSA LLCs generate revenue through the sale of energy generated by the CSA
assets, the proceeds from which are used to fund the CSA LLCs’ debt service payments. The CSA LLCs have no direct employees, and contract with the Company for administrative and maintenance services.
During 2020 and 2019, the Company formed additional single-member LLCs, with the primary purpose of operating CSA’s in Vermont and
New York. The Company constructed the arrays for these CSAs and sold solar panels and partial ownership of racking, inverters, and other equipment related to these CSAs to third parties during 2019 and 2020. Upon final completion and commissioning of
the CSAs, all membership units of the project entities are transferred to the third parties in proportion to their share of the related solar equipment. Related projects are described as “other community solar array projects” in Note A2.
At December 31, 2020, the Company has formed an additional 4 inactive single-member LLCs for the purpose of potential future CSA
development in Vermont.
The Company maintained positive cash flows from operations but incurred operating losses in 2020 and 2019. Based on projections for
the remainder of 2021, the preliminary financial plan for 2022, the renewal of the Company’s line of credit in June 2021, proceeds from a second Paycheck Protection Program (PPP) loan (see Note N) and the expected forgiveness of the PPP loans,
management expects to generate sufficient cash to maintain operations at least through June 30, 2022.
Accounting policies:
A summary of the Company’s significant accounting policies applied in the preparation of the accompanying consolidated financial
statements follows:
| 1. |
Principles of consolidation
|
The accompanying consolidated financial statements include the accounts of SolarCommunities, Inc. D/B/A SunCommon and its wholly owned subsidiaries
(collectively, the Company). All material intercompany accounts and transactions have been eliminated in consolidation.
- 10 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| A) |
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 2. |
Revenue recognition
|
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers
(Topic 606), along with several related ASUs, which provides a robust framework for addressing revenue recognition issues and replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S.
generally accepted accounting principles. Effective January 1, 2020, the Company adopted the new revenue recognition guidance which provides a single framework in which revenue is required to be recognized to depict the transfer of goods or services
to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The adoption of this guidance did not result in any significant impact to the consolidated financial statements.
Revenues recognized over time
Revenue recognized over time primarily consists of the commercial solar installations and community solar arrays built for predetermined buyers of the
related project entities, residential solar, heat pump and battery storage system installations, which collectively accounted for 95% and 85% of total net revenue in 2020 and 2019, respectively. Substantially all related contract revenue is
recognized over time, because control is transferred continuously to customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the
performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include all direct labor, material, subcontract and equipment costs.
The amount of consideration expected to be received and revenue recognized varies based on cash discounts offered to customers and financing fees
incurred on behalf of the customer. Revenue is recorded net of these cash discounts and financing fees which were approximately $993,000 and $1,628,000 in 2020 and 2019, respectively.
Contracts are often modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification
either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for the goods or services that are not distinct from the existing performance obligations. The effect of contract
modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catch-up basis.
- 11 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
|
2.
|
Revenue recognition (continued)
|
Accounting for these contracts involves the use of various techniques to estimate total contract revenue and costs. The Company estimates the profit
on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of
future events over the course of the contract. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company reviews and updates
contract-related estimates regularly. The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in
the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the
total loss is recognized in the period it is identified.
Billing practices for the Company's contracts noted above are governed by the contract terms of each project based on either achievement of milestones
or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized under the cost-to-cost method (formerly known as the percentage-of-completion method). The Company records contract assets and contract liabilities to account for
these differences in timing.
The contract asset, “Costs and estimated earnings in excess of billings on uncompleted contracts”, arises when the Company recognizes revenues for
services performed under its contracts, but the Company is not yet entitled to bill the customer under the terms of the contract. Amounts billed to customers are excluded from this asset and are reflected on the consolidated balance sheets as
“Accounts receivable." Included in costs and estimated earnings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for (i) errors, (ii) changes in contract specifications or design, (iii) contract
change orders in dispute, unapproved as to scope and price, or (iv) other customer-related causes of unanticipated additional contracts costs (such as claims). Such amounts are recorded to the extent that the amount can be reasonably estimated, and
recovery is probable.
- 12 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
|
2.
|
Revenue recognition (continued)
|
The contract liability, “Billings in excess of costs and estimated earnings on uncompleted contracts”, represents the Company’s obligation to transfer
goods or services to a customer for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract. Revenue for future services reflected in this account are recognized, and the
liability is reduced, as the Company subsequently satisfies the performance obligation under the contract.
Other community solar array projects
Consists of CSA projects whereby the Company forms an LLC, constructs an array, and sells the related solar equipment to various CSA customers who
commit to becoming members of the related LLC project entity. The customers are not identified prior to commencement of the project. Revenues under these arrangements are recognized when control of the solar equipment is transferred to customers.
Total community solar array revenue accounted for approximately 4% and 13% of total net revenue in 2020 and 2019, respectively. The Company assigns membership interests in the LLC to the buyers of the related solar equipment when the array is placed
in service. Related contract costs include all direct labor, material, subcontract and equipment costs. Contract costs incurred for unsold portions of the array are reported as inventory.
Other revenues
Each of the wholly owned CSAs has entered into group net metering arrangements with individual subscribers (“participation agreements”) for a fixed
monthly fee. These participation agreements allow subscribers to receive a credit on the monthly electric bill received from their utility for the value of their contracted portion of the array’s output. The Company records the revenue on a
straight-line basis. The Company guarantees the performance of these CSA’s at specified aggregate levels over the term of the customer participation agreements, with monetary remedies payable to customers if performance levels are not attained. These
performance guarantees are considered to be separate performance obligations, but performance under these guarantees is not expected to be material and therefore no consideration was allocated to these performance obligations.
- 13 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 2. |
Revenue recognition (continued)
|
Other revenues (continued)
The Company also contracts with certain CSA project entities and commercial customers to provide ongoing operating and maintenance services, and
certain administrative functions including billing and customer service on behalf of the entity. The Company also secures participation agreements and provides other services in connection with various agreements (see Note G).
Maintenance and administrative revenue is recognized using the input method to recognize revenue. In most cases, maintenance and administrative fees
are fixed annual fees. Because the Company is on-site to perform maintenance services, the services are typically a distinct series of promises, and those services have the same pattern of transfer to the customer (i.e., evenly over time), the
Company records the revenue on a straight- line basis. Administrative billing services are provided on a monthly basis and revenue is recorded on a straight-line basis. Total other revenues accounted for approximately 1% and 2% of total net revenue
in 2020 and 2019, respectively.
| 3. |
Cash and cash equivalents and restricted cash
|
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with maturities of three
months or less to be cash equivalents.
Restricted cash represents amounts required to be reserved by agreements between the Company and its lenders, in connection with long-term debt
arrangements (see Note F).
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the
amounts shown in the consolidated statements of cash flows as of December 31:
|
2020
|
2019
|
|||||||
|
Cash and cash equivalents
|
$
|
306,190
|
$
|
76,771
|
||||
|
Restricted cash
|
74,232
|
575,953
|
||||||
|
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
|
$
|
380,422
|
$
|
652,724
|
||||
- 14 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 4. |
Accounts receivable and unbilled receivables
|
Accounts receivable consist of amounts billed to customers but not yet collected, unbilled receivables consist of revenue recognized in excess of
amounts billed to customers related to projects completed but not yet invoiced in full. Accounts receivable and unbilled receivables are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction
history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances
would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable
collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
| 5. |
Inventories
|
Inventories are stated at the lower of first in, first out (FIFO) cost or net realizable value.
| 6. |
Property and equipment
|
The Company records property and equipment at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. The straight-line method of depreciation is followed for
substantially all assets for financial reporting purposes, but accelerated methods are used for tax purposes.
- 15 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 7. |
Goodwill
|
Goodwill represents the excess of the purchase price over the fair value of net assets of the business acquired. The Company follows accounting
guidance which allows for accounting alternatives related to the identified intangible assets recognized in the accounting for a business combination and for the subsequent measurement of goodwill for non-public entities. Companies that elect these
alternatives would not separately recognize intangible assets that would otherwise arise from non-compete agreements or customer-related intangible assets that cannot be separately sold or licensed and amortize goodwill on a straight-line basis over
its remaining useful life, which was determined to be ten years. Under these alternatives, the value of customer-related and non-compete agreements is included in goodwill. In 2020, the Company adopted ASU 2021-03, Accounting Alternatives for Evaluating Triggering Events, which allows goodwill to be reviewed for impairment at the entity level at year-end when circumstances indicate that the carrying value may not be
recoverable. The Company recorded goodwill amortization expense of approximately $424,000 in 2020 and 2019. Estimated amortization expense for each of the ensuing five years is approximately $424,000. No impairment charges were required in 2020 or
2019.
| 8. |
Impairment of long-lived assets
|
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows. An impairment charge, if required, would be recognized
in the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment charges were required in 2020 or 2019.
| 9. |
Product warranties
|
Product and installation warranties are provided by the equipment manufacturer and the Company’s subcontractors, respectively. In certain cases, the
Company may be liable for re-installation costs resulting from faulty hardware. Related costs have not historically been significant. The Company does not consider these warranties to be performance obligations.
- 16 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 10. |
Asset retirement obligations
|
The Company has perpetual easements on the land on which its CSA assets are situated. In connection with the easements, if a site goes unused for a
period of two years, the Company has an obligation to decommission the CSA asset, and return the site to its original state. As of December 31, 2020 and 2019, the estimated cost of decommissioning is not material and has not been recorded.
| 11. |
Share-based compensation plan
|
The Company has two stock-based compensation plans which are described more fully in Note I. Compensation cost is measured based on the grant-date
fair value of the award. The cost is recognized as compensation expense over the requisite service (vesting) period using the straight-line method. Forfeitures of awards are recorded as they occur, rather than using an estimated forfeiture rate.
| 12. |
Advertising costs
|
Advertising costs are charged to operations when incurred. Advertising expenses charged to operations were approximately $492,000 in 2020 and $554,000
in 2019.
| 13. |
Income taxes
|
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. 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. Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the consolidated financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more- likely-than-not that the tax position will be
sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement.
Interest and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the consolidated statements of
operations.
- 17 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
A)
|
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 14. |
Use of estimates
|
The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
| 15. |
Recently issued accounting pronouncements
|
The Company is currently evaluating the impact on its consolidated financial statements of adopting the following recently issued accounting
pronouncements.
Leases
In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). This ASU
was issued in three parts: (a) Section A, Leases: Amendments to the FASB Accounting Standards Codification, (b) Section B, Conforming Amendments Related to Leases: Amendments
to the FASB Accounting Standards Codification, and (c) Section C, Background Information and Basis for Conclusions. While both lessees and lessors are affected by the new
guidance which includes many changes, the effects on lessees are much more significant. The most significant change for lessees is the requirement to recognize right-of-use assets and lease liabilities for all leases not considered short- term
leases, affecting leases which previously were accounted for as operating leases. This ASU is effective for fiscal years beginning after December 15, 2021, and must be implemented using a modified retrospective approach.
Income taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes, which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The ASU is effective for
years beginning after December 15, 2021.
Reference rate reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform
on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022.
- 18 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| A) |
SUMMARY OF OPERATIONS AND ACCOUNTING POLICIES (continued)
|
| 16. |
Evaluation of subsequent events
|
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure
through June 30, 2021, the date the consolidated financial statements were available to be issued.
| B) |
BUSINESS AND CONCENTRATION RISKS
|
Coronavirus pandemic
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International
Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of
public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the
Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the Company, the Company was negatively impacted in 2020.
In response to state mandates, the Company shut down all new construction in both Vermont and New York in late March 2020, and
temporarily furloughed approximately 90% of its staff in early April. The Company resumed operations and recalled most of its staff in late May when the state construction bans were lifted. The Company suffered a decline in year over year revenue and
significant operating losses in the second quarter as a result of the shutdown. The unexpected operating losses stemming from the pandemic strained the Company’s balance sheet in April and May. Accounts receivable declined significantly with no new
installations, and accounts payable increased as the Company deferred payment on vendor invoices. The Company relied heavily on its line of credit from Citizens Bank during this period. In April and May, the Company defaulted on a financial covenant
on this line of credit but received a waiver from Citizens Bank based in part on pending funding of a loan under the PPP (see Note F). Prior to December 31, 2020, the Company paid off the line of credit balance in full.
Order volume rebounded faster than expected in the later part of the second quarter, and as a result, the Company sustained monthly
operating profits from June through year end. The sum of these monthly profits, however, was not sufficient to overcome the pandemic related losses from the second quarter, and the Company therefore realized an operating loss on a 20% decline in net
revenue for the full year.
- 19 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| B) |
BUSINESS AND CONCENTRATION RISKS (continued)
|
Concentration of credit risk
The Company maintains cash and cash equivalents in financial institution accounts that, at times during the year, may exceed
federally insured limits. The Company has not experienced any losses with these accounts. Management believes the Company is not exposed to any significant credit risk on domestic cash balances.
Major vendors
The Company procured substantially all solar panels for customer installations from three vendors in 2020 and one vendor in 2019.
Major customers
During 2019, the Company derived approximately 10% of its net revenue from one customer, approximating $4,033,000. At December 31,
2019, the amount due from this customer, included in accounts receivable, was approximately $605,000, in addition to approximately $403,000 of unbilled receivables. During 2020, no customer concentrations were noted.
| C) |
COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS
|
Long-term contracts in process, recognized under the percentage-of-completion method, consist of the following at December 31:
|
2020
|
2019
|
|||||||
|
Costs incurred on uncompleted contracts
|
$
|
1,257,554
|
$
|
406,269
|
||||
|
Estimated earnings to date
|
419,571
|
245,785
|
||||||
|
1,677,125
|
652,054
|
|||||||
|
Less billings to date
|
1,763,341
|
719,151
|
||||||
|
$
|
(86,216
|
)
|
$
|
(67,097
|
)
|
|||
These are included in the accompanying consolidated balance sheets under the following captions at December 31:
|
2020
|
2019
|
|||||||
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
$
|
450,608
|
$
|
128,821
|
||||
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
(536,824 | ) |
(195,918 | ) |
||||
| $ |
(86,216 | ) |
$ |
(67,097 | ) |
|||
- 20 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| D) |
PROPERTY AND EQUIPMENT
|
Property and equipment consists of the following at December 31:
|
2020
|
2019
|
|||||||
|
Community solar arrays
|
$
|
1,380,493
|
$
|
1,380,493
|
||||
|
Vehicles and equipment trailers
|
1,777,824
|
1,516,195
|
||||||
|
Computer equipment
|
325,060
|
306,581
|
||||||
|
Computer software
|
433,640
|
409,790
|
||||||
|
Leasehold improvements
|
219,196
|
219,196
|
||||||
|
Equipment
|
1,004,630
|
531,385
|
||||||
|
Furniture and fixtures
|
154,261
|
154,261
|
||||||
|
5,295,104
|
4,517,901
|
|||||||
|
Less accumulated depreciation and amortization
|
(2,199,058
|
)
|
(1,562,547
|
)
|
||||
|
$
|
3,096,046
|
$
|
2,955,354
|
|||||
| E) |
NOTE PAYABLE – BANK LINE OF CREDIT
|
The Company has a $3,750,000 revolving line of credit agreement with Citizens Bank, N.A. Advances on the line of credit are subject
to lender approval. The line of credit bears interest at LIBOR (0.15% at December 31, 2020), plus 3.25%, and expires June 2022 (see Note N). The agreement and accompanying long-term debt agreement (see Note F) are secured by a first priority security
interest in substantially all business assets of the Company. The agreements provide for, among other things, the maintenance of certain financial ratios. There was $0 and $1,779,555 outstanding at December 31, 2020 and 2019, respectively.
- 21 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| F) |
LONG-TERM DEBT
|
Long-term debt consists of the following at December 31:
|
2020
|
2019
|
|||||||
|
Citizen’s Bank, N.A. -
|
||||||||
|
Payable in monthly installments of $16,667, plus interest at LIBOR plus 2.75%, paid in full in 2020. Secured by substantially all business assets (see Note E).
|
$ |
- |
$ |
683,333 |
||||
|
Unsecured note payable in connection with the PPP, established by the federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which bears
interest at 1%. The Loan is forgivable if the Company meets certain criteria established under the PPP loan program. The Company intends to seek loan forgiveness of the entire balance in 2021. On June 5, 2020, Congress enacted the Paycheck
Protection Program Flexibility Act of 2020, which amends forgiveness criteria of the PPP, provides for deferral of loan repayment up to 16 months and permits lenders to amend loan agreements to provide borrowers a five-year period to pay any
amounts not forgiven under PPP. However, there may be further guidance issued by the Small Business Administration (SBA), the U.S. Department of Treasury, the bank, and other regulators related to the PPP which could impact the loan and loan
forgiveness. The Company has not yet applied for forgiveness but expects to receive forgiveness in full in 2021.
|
2,591,500 |
- |
||||||
|
Subtotal (forward)
|
$ |
2,591,500 |
$ |
683,333 |
||||
- 22 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
F)
|
LONG-TERM DEBT (continued)
|
| 2020 |
2019 |
|||||||
|
Subtotal (forwarded)
|
|
$ |
2,591,500 | $ |
683,333 | |||
|
Vermont Economic Development Authority (VEDA) (project
loans to wholly owned CSA LLCs, as defined in Note A) -
|
||||||||
|
CSA 5: Payable in monthly installments of $2,414, including interest at 5.5%, due August 2026.
|
142,959
|
163,519
|
||||||
|
CSA 17: Payable in monthly installments of $2,414, including interest at 5.5%. The interest rate will become variable at the VEDA Prime Rate from
April 2025 through maturity in April 2027.
|
153,929
|
173,898
|
||||||
|
CSA 36: Payable in monthly installments of $2,414, including interest at 5.5%. The interest rate will become variable at the VEDA Prime Rate from June
2025 through maturity in June 2027.
|
159,549
|
179,258
|
||||||
|
The VEDA notes are secured by first priority interests in substantially all the assets of the corresponding CSAs, the loan reserve
accounts described in Note A3, and are guaranteed by SunCommon. The agreements contain covenants which provide for, among other things, the maintenance of certain financial ratios.
|
||||||||
|
Subtotal (forward)
|
$ | 3,047,937 | $ | 1,200,008 | ||||
- 23 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
F)
|
LONG-TERM DEBT (continued)
|
| 2020 |
2019 |
|||||||
|
Subtotal (forwarded)
|
$ |
3,047,937 | $ |
1,200,008 | ||||
|
Vermont Community Loan Fund (VCLF) (project loans to wholly owned CSA
LLCs, as defined in Note A) -
|
||||||||
|
CSA 5: Payable in monthly interest only installments of $1,104 through August 2019; then payments of $552, representing half of
monthly interest only payments, through August 2026 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due August 2034; interest at
11.25% throughout the loan term.
|
117,712
|
117,712
|
||||||
|
CSA 17: Payable in monthly interest only installments of $1,104 through April 2020; then payments of $552, representing half of
monthly interest only payments, through April 2027 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due April 2035; interest at
11.25% throughout the loan term.
|
117,712
|
117,712
|
||||||
|
CSA 36: Payable in monthly interest only installments of $1,104 through June 2020; then payments of $552, representing half of
monthly interest only payments, through June 2027 with other half of interest only payments capitalized into principal; then $2,485 monthly payments of principal and interest, with a balloon payment of $20,142 due June 2035; interest at
11.25% throughout the loan term.
|
117,712
|
117,712
|
||||||
|
The VCLF notes are secured by second priority interests in substantially all the assets of the corresponding CSAs, the loan reserve accounts described
in Note A3, and are guaranteed by SunCommon. The agreements contain covenants which provide for, among other things, the maintenance of certain financial ratios. During 2020 and 2019 the Company continued to make full monthly interest
payments resulting in no further interest being capitalized into principal.
|
||||||||
|
Subtotal (forward)
|
$
|
3,401,073
|
$
|
1,553,144
|
||||
- 24 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| F) |
LONG-TERM DEBT (continued)
|
| 2020 |
2019 |
|||||||
|
Subtotal (forwarded)
|
$ |
3,401,073 | $ |
1,553,144 | ||||
|
Vehicle loans (various) -
|
||||||||
|
Payable in aggregate monthly installments of approximately $22,000, including interest at rates ranging from 0% to 8.84%, through June 2025. Secured by vehicles.
|
724,356 | 742,720 | ||||||
|
4,125,429
|
2,295,864
|
|||||||
|
Principal payments due within one year
|
290,054
|
476,757 | ||||||
|
$
|
3,835,375
|
$
|
1,819,107
|
|||||
As of December 31, 2020, long-term debt matures as follows:
|
Years ending
December 31,
|
Amount |
|||
|
2021
|
$
|
290,054
|
||
|
2022
|
251,985
|
|||
|
2023
|
210,304
|
|||
|
2024
|
179,532
|
|||
|
2025
|
119,046
|
|||
|
Thereafter
|
483,008
|
|||
|
PPP Loan expected to be forgiven
|
2,591,500
|
|||
|
$
|
4,125,429
|
- 25 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| G) |
OPERATING LEASES AND OTHER COMMITMENTS
|
Operating leases
The Company leases its primary 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 $27,500, subject to annual 3% increases.
The Company leases its secondary office and warehouse facility in Rhinebeck, New York from a stockholder (see Note M). Monthly
base rent currently approximates $7,100 and is on a month-to- month basis.
During 2020 and 2019, the Company also entered into land and rooftop lease agreements for purposes of developing CSAs (see Note
A). Upon completion of the CSAs, the Company transfers title of a specified portion of the arrays to the respective landowners as consideration for the leases and has the option to assign the leases to the respective LLCs that manage the CSAs.
Payments required under these leases are not significant.
The Company leases vehicles and office equipment under various agreements expiring through June 2025. As of December 31, 2020,
aggregate monthly payments required under these leases approximates $20,000.
Total rent expense charged to operations approximated $706,000 in 2020 and $643,100 in 2019.
Future minimum lease payments for all noncancellable operating leases having a term in excess of one year at December 31, 2020,
approximate the following:
|
Years ending
December 31,
|
Amount
|
|||
|
2021
|
$
|
483,600
|
||
|
2022
|
407,900
|
|||
|
2023
|
364,900
|
|||
|
2024
|
371,500
|
|||
|
2025
|
377,700
|
|||
|
Thereafter
|
762,800
|
|||
|
Total minimum lease payments
|
$
|
2,768,400
|
||
- 26 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| G) |
OPERATING LEASES AND OTHER COMMITMENTS (continued)
|
Employment agreement
In connection with the business acquisition in 2018, the Company entered into an employment agreement with the seller. The
agreement provides for ongoing base salary and other benefits, as defined. The agreement also contains without cause termination provisions for continuation of base salary through May 18, 2020 and a put option for a portion of the employee’s
common stock in the event of termination subsequent to May 18, 2020 but prior to May 18, 2022 (see Note J).
| H) |
INCOME TAXES
|
The benefit from income taxes consists of the following for the years ended December 31:
|
2020
|
2019
|
|||||||
|
Current
|
$
|
15,329
|
$
|
(3,181
|
)
|
|||
|
Deferred
|
(95,400
|
)
|
(69,800
|
)
|
||||
|
$
|
(80,071
|
)
|
$
|
(72,981
|
)
|
|||
Deferred tax assets and liabilities consist of the following at December 31:
| 2020 |
2019 |
|||||||
|
Deferred tax assets:
|
||||||||
|
Inventories
|
$
|
16,600
|
$
|
17,000
|
||||
|
Accrued expenses
|
43,200
|
31,700
|
||||||
|
Stock option compensation
|
116,000
|
116,000
|
||||||
|
Tax credit carryforward
|
514,200
|
511,300
|
||||||
|
Net operating loss carryforwards
|
686,500
|
509,600
|
||||||
|
Interest expense limitation carryforward
|
213,300
|
250,300
|
||||||
|
Other
|
19,200
|
26,700
|
||||||
|
1,609,000
|
1,462,600
|
|||||||
| Deferred tax liabilities: |
|
Long-term contracts in process
|
99,800
|
66,300
|
||||||
|
Depreciation of property and equipment
|
626,400
|
608,900
|
||||||
|
726,200
|
675,200
|
|||||||
| Net deferred tax assets | $ |
882,800 |
$ |
787,400 |
- 27 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| H) |
INCOME TAXES (continued)
|
The Company’s effective income tax rate for 2020 and 2019 differs from what would be expected if the federal statutory rate was
applied to the loss before income taxes, primarily due to goodwill amortization expense and stock option compensation expense that are not deductible for tax purposes.
At December 31, 2020, the Company has approximately $3,000,000 of federal net operating losses available to be carried forward to
reduce future taxable income. Approximately $1,113,000 of these carryforwards are available to reduce taxable income through 2037; the remainder are available to reduce up to 80% of federal taxable income annually, with no expiration date. The
Company also has approximately $943,000 of state net operating losses available to be carried forward to reduce future taxable income, expiring through 2029. Additionally, the usage of all carryforwards can be further limited in the event a change
in control has occurred, as defined in income tax regulations.
At December 31, 2020, the Company also has approximately $514,000 of solar tax credits available to offset future federal income
taxes through 2035.
The Company files income tax returns in the U.S. federal jurisdiction and two state jurisdictions. With few exceptions, the
Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2017. During 2020 and 2019, the Company recognized no interest or penalties related to unrecognized tax benefits.
| I) |
SHARE-BASED COMPENSATION PLAN
|
The Company has established the 2014 and 2018 Equity Incentive Plans (collectively the Plans), which provide for a maximum of
620,500 and 617,284 shares, respectively, of the Company’s stock to be purchased under incentive or nonqualified stock options or be awarded as stock grants or other common stock-based awards. Both equity incentive plans have substantially the same
terms and conditions. Options and stock may be issued to officers, employees, directors, consultants and advisors to the Company. Directors meet the definition of “employees” for the purpose of accounting for share- based compensation granted in
exchange for related services. The exercise price for stock options shall generally not be less than 100% of the fair market value of the Company’s common stock at the date of grant. All options have a contractual life that does not exceed 10
years.
- 28 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
I)
|
SHARE-BASED COMPENSATION PLAN (continued)
|
Options granted to employees vest over periods ranging from approximately 3 to 4 years. The value of each option award issued to
an employee or board member is estimated at the date of grant using the Black-Scholes option valuation model, which utilizes the assumptions included in the table below. The expected term assumption reflects the period for which the Company
believes the options will remain outstanding. This assumption is based upon the expected behavior of the employees. The expected volatility assumption is based on the average volatilities of public entities in a similar industry. The risk-free rate
reflects the U.S. Treasury yield curve for a similar expected life instrument in effect at the time of the grant. There were no options granted in 2020. The assumptions utilized for the options granted during 2019 are as follows:
|
Expected volatility
|
62
|
%
|
||
|
Expected dividends
|
0
|
%
|
||
|
Expected term (in years)
|
10
|
|||
|
Risk-free rate
|
2.66
|
%
|
The Company recognized share-based compensation expense of approximately $75,100 in 2020 and $124,800 in 2019.
A summary of stock option activity under the Plans as of December 31, 2020 and changes during the year then ended is presented below:
|
Options
|
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average Remaining
Contractual
Term
|
||||||
|
Outstanding at January 1, 2020
|
657,278
|
$
|
2.37
|
6.5 years
|
|||||
| Granted | - |
- |
|||||||
| Exercised | - |
- |
|||||||
|
Forfeited or expired
|
(101,694 |
) |
(1.96 |
) |
|||||
|
Outstanding at December 31, 2020
|
555,584
|
$
|
2.33
|
5.6 years
|
|||||
|
Exercisable at December 31, 2020
|
465,524
|
$
|
2.19
|
5.2 years
|
|||||
- 29 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| I) |
SHARE-BASED COMPENSATION PLAN (continued)
|
A summary of the status of the Company’s nonvested stock options for the purchase of shares as of December 31, 2020, and changes
during the year then ended, is presented below:
|
Nonvested Options
|
Shares
|
Weighted-Average
Grant Date
Fair Value
|
||||||
|
Outstanding at January 1, 2020
|
172,648
|
$
|
1.14
|
|||||
|
Granted
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Forfeited or expired
|
(20,750
|
)
|
1.78
|
|||||
|
Vested
|
(61,838
|
)
|
1.14
|
|||||
|
Nonvested at December 31, 2020
|
90,060
|
$
|
1.14
|
|||||
As of December 31, 2020, there was approximately $102,900 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the Plans. This cost is expected to be recognized over a weighted average period of approximately 1.7 years. The total fair value of shares vested was approximately $70,500 in 2020 and $160,800 in
2019.
|
J)
|
CAPITAL STOCK
|
Common stock
Upon incorporation of the Company, 2,000,000 shares each were issued to two individuals involved in the operations of the Company
as founder’s shares, for no consideration. The sale or transfer of the common stock of the Company is subject to the terms of the stockholder agreement amongst the Company and its stockholders.
During 2018, the Company issued an additional 1,295,297 shares as consideration in a business acquisition. In connection with the
issuance of these shares and the related employment agreement described in Note G, the Company entered into a stock redemption agreement with the holder of these shares. In accordance with the agreement, the employee or his personal representative
may, in the event of termination of employment without cause or due to death or disability after May 18, 2020, cause the holder of these shares to purchase the number of common shares equivalent in value to the remaining pro-rata portion of the
employee’s base salary through May 18, 2022.
At December 31, 2020, the Company has 2,974,362 shares of its common stock reserved for issuance in connection with the potential
conversion of outstanding preferred stock or the grant or exercise of stock options.
- 30 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
|
J)
|
CAPITAL STOCK (continued)
|
Preferred stock
The significant rights and privileges of the preferred stock are as follows:
Voting rights
The holders of the preferred stock have limited voting rights. The Series A, Series B and Series C shall each vote together and shall be entitled to
elect two directors of the Company, one of whom will serve as benefit director. Preferred stockholders are entitled to one vote for each share of preferred stock.
Conversion rights
The holders of the preferred stock may convert their shares of preferred stock to shares of common stock at any time. The number of common stock
shares issued upon conversion would be based upon the original issue price of the respective preferred stock, divided by the conversion price, as defined.
Dividends
The holders of preferred stock shall be entitled to receive cumulative dividends, compounded annually, at the rate of 5% per annum, to be paid in
cash upon the redemption of preferred stock or in the event of liquidation, dissolution or winding up of the Company. In the event the Company declares and pays dividends or distributions on the common stock, then the holders of preferred stock
shall be entitled to share in such dividends or distributions on a pro rata basis, as if their shares had been converted into shares of common stock pursuant to the articles of incorporation.
Total cumulative accrued dividends are approximately as follows at December 31:
|
2020
|
2019
|
|||||||
|
Series A
|
$
|
438,000
|
$
|
377,900
|
||||
|
Series B
|
$
|
544,600
|
$
|
448,200
|
||||
|
Series C
|
$
|
117,800
|
$
|
63,800
|
||||
Liquidation
In the event of any liquidation, dissolution or winding up of the Company, the holders of the preferred stock are entitled to receive, prior to and
in preference to the holders of the common stock, an amount equal to their pro-rata share of the original issuance price plus any accrued but unpaid dividends.
- 31 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| J) |
CAPITAL STOCK (continued)
|
Preferred stock (continued)
Redemption
The majority of the preferred stockholders shall have the right to cause the Company to redeem the then outstanding shares at a price equal to the
greater of (a) original issue price plus any accrued but unpaid dividends (minimum redemption value) or (b) the Estimated Equity Value, as defined.
Redemption terms are approximately as follows at December 31:
| Minimum Redemption Value | |||||||||
|
2020
|
2019
|
Earliest Redemption Date
|
|||||||
|
Series A
|
$
|
1,263,000
|
$
|
1,202,900
|
January 1, 2015
|
||||
|
Series B
|
$
|
2,025,000
|
$
|
1,928,600
|
January 1, 2016
|
||||
|
Series C
|
$
|
1,133,000
|
$
|
1,079,100
|
January 1, 2021
|
||||
After the initial redemption dates, the preferred stock can be redeemed between January 1 and June 30 of each year upon proper notice, as defined.
Upon receiving proper notice of redemption, the Company can elect to redeem preferred stock in cash or by issuing subordinated promissory notes, bearing interest of 5%. Redemption payments are subject to the Company having sufficient funds
available, as defined.
There were no redemptions of preferred stock in 2020 and 2019.
| K) |
RETIREMENT PLAN
|
The Company sponsored two safe-harbor profit-sharing 401(k) plans, which were merged in 2019 and cover substantially all
employees. Contributions to the plans are based on safe harbor requirements and were funded each pay period in 2019. In 2020, the Company changed their plan to contributing matching funds semi-annually. Contributions to the plans charged to
operations were approximately $229,700 in 2020 and $251,200 in 2019.
- 32 -
SOLARCOMMUNITIES, INC. AND SUBSIDIARIES
D/B/A SUNCOMMON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
| L) |
GOVERNMENT RELIEF FUNDING
|
Vermont Emergency Economic Recovery Grant
The State of Vermont allocated CARES Act funds to the Vermont Emergency Economic Recovery Grant Program (VEERG) in order to
continue providing economic support to Vermont small businesses suffering business interruptions as a result of COVID-19. The Company applied for and received a grant under VEERG from the state of Vermont in the amount of $300,000 in December 2020.
Awards from VEERG are considered revenue replacement for the awardee to help cover documented losses which occurred in 2020. The Company has recorded the grant proceeds as “Other income (expenses)” in the consolidated statement of operations.
| M) |
RELATED PARTY TRANSACTIONS
|
During 2020 and 2019, the Company installed solar systems for related parties, primarily employees, for total revenue of
approximately $127,200 and $474,400, respectively. Related cost of revenue approximated $92,100 in 2020 and $295,300 in 2019.
Commencing May 2018, the Company began renting a New York office facility from a stockholder (see Note G). Total related party
rent expense under this lease approximated $85,000 in 2020 and 2019.
| N) |
SUBSEQUENT EVENTS
|
In February 2021, the Company applied for and received a second loan under the PPP in the amount of $2,000,000. Terms of the loan
and loan forgiveness are similar to the first PPP loan (see Note F). The loan is forgivable if the Company meets certain criteria as established under the PPP, which the Company expects to meet. Any of the loan amount not forgiven becomes payable
in monthly installments, including interest at 1%, beginning in June 2022 and maturing in February 2026. The loan is guaranteed by the SBA and does not require personal guarantees.
In June 2021, the Company renewed its line of credit with Citizens Bank, N.A. through June 2022 (see Note E).
- 33 -