UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
Commission File Number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. EIN) |
(Address of principal executive offices, Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Title of each class | Trading Symbol | Name of each exchange on which registered |
Not applicable. |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 18, 2022, the registrant had
SOLAR INTEGRATED ROOFING CORP.
TABLE OF CONTENTS
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Item 1. | Financial Statements |
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| Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
Table of Contents |
PART I. FINANCIAL INFORMATION
SOLAR INTEGRATED ROOFING CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| September 30, |
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| December 31, |
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| 2021 |
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ASSETS |
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Cash |
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Accounts receivable, net |
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Work in progress receivable, net |
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Note receivable |
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Prepaid and other current assets |
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Inventory |
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TOTAL CURRENT ASSETS |
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OTHER ASSETS |
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Operating lease right-of-use assets |
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Property and equipment, net |
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Goodwill |
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Other assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Due to related parties |
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Operating lease liabilities, current portion |
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Notes payable |
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Debenture payable |
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Convertible note payable, net of unamortized discounts |
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Derivative liabilities |
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Total Current Liabilities |
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OTHER LIABILITIES |
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Note payable, long-term |
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Operating lease liabilities, non-current portion |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (Note 13) |
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STOCKHOLDER’S EQUITY |
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Preferred stock, $ |
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Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Series C Preferred stock, $ |
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Series D Preferred stock, $ |
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Common stock, $ |
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Stock payable |
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Stock receivable |
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Additional paid-in capital |
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Non-controlling interest |
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Retained earnings (accumulated deficit) |
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TOTAL STOCKHOLDER’S EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY |
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The accompanying notes are an integral part of these consolidated unaudited financial statements |
3 |
Table of Contents |
SOLAR INTEGRATED ROOFING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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Revenue |
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Cost of Sales |
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Gross Profit |
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Operating expenses |
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Salaries and wages |
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Professional fees |
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Depreciation expense |
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Marketing |
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General and administrative |
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Total operating expenses |
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Income (loss) from operations |
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Other income (expense) |
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Interest expense |
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Other income (expense) |
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PPP loans forgiveness |
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Loss on debt modification |
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Gain (loss) on change in fair value of derivative liabilities |
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Total other income (expense) |
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Income (loss) before taxes |
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Provision for income taxes |
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Net income (loss) |
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Net income (loss) attributable to non-controlling interest |
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Net income (loss) attributable to the Company |
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Basic income (loss) per Common Share |
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Diluted income (loss) per Common Share |
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Basic weighted average number of common shares outstanding |
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Diluted weighted average number of common shares outstanding |
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The accompanying notes are an integral part of these consolidated unaudited financial statements.
4 |
Table of Contents |
SOLAR INTEGRATED ROOFING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Series C Preferred Stock |
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| Series D Preferred Stock |
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| Common Stock |
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| Additional |
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| Shares Outstanding |
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| Amount |
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| Shares Outstanding |
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| Amount |
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| Shares Outstanding |
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| Shares Outstanding |
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| Paid in Capital |
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| Stock Receivable |
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| Stock Payable |
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| Accumulated Deficit |
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Balance, December 31, 2020 |
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Common stock issued for services |
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Common stock issued for conversion of debt and interest |
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Common stock issued for cash |
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Common stock issued for compensation |
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Common stock issued for warrant exercise |
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Common stock issued for acquisition |
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Series B stock to be issued for acquisition |
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Non controlling interest |
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Net loss |
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Balance, March 31, 2021 |
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Common stock issued for services |
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Common stock issued for conversion of debt and interest |
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Common stock issued for warrant exercise |
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Common stock issued for acquisition |
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Non controlling interest |
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Net loss |
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|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common stock issued for conversion of debt and interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common stock repurchased and cancelled |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||
Common stock issued for acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Preferred stock Class B issued for acquisition |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stock Class B cancelled and retired |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
Preferred stock Class C issued for acquisition |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Preferred stock Class D issued for acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| |
Non controlling interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) | ||
Net profit |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| (1,661,422 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||||||
Common stock issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for conversion of debt and interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Common stock issued for compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
| 74,024 |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 74,025 |
| ||||
Common stock payable for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Non controlling interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) | ||
Net profit |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for conversion of debt and interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Common stock issued for compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ||||
Non controlling interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net profit |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for conversion of debt and interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Common issued for cash |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| 80,500 |
| |||||||||
Common stock issued for compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| |||||||
Common stock issued for acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock returned and cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Conversion of preferred stock Class B into common shares |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Preferred stock cancelled and retired |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Warrant expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Stock option expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non controlling interest |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) | ||
Net profit |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,571,964 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these consolidated unaudited financial statements.
5 |
Table of Contents |
SOLAR INTEGRATED ROOFING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| For the Nine Months Ended |
| |||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net income (loss) |
| $ |
|
| $ | ( | ) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
| ||
Loss on debt modification |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
(Gain) Loss on change in fair value of derivative liabilities |
|
|
|
|
| ( | ) | |
Depreciation |
|
|
|
|
|
| ||
Warrant expense |
|
|
|
|
|
| ||
Stock option expense |
|
|
|
|
|
| ||
PPP loans forgiveness |
|
|
|
|
| ( | ) | |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts and work in progress receivable |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses and other assets |
|
|
|
|
| ( | ) | |
Inventory |
|
| ( | ) |
|
|
| |
Accounts payables and accrued liabilities |
|
|
|
|
|
| ||
Due to related parties |
|
| ( | ) |
|
|
| |
Net Cash Used in Operating Activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net cash paid in acquisition of subsidiaries |
|
| ( | ) |
|
| ( | ) |
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
Net Cash Used in Investing Activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
|
|
|
|
| ||
Repayments of notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible notes payable |
|
|
|
|
|
| ||
Proceeds from warrant exercise |
|
|
|
|
|
| ||
Repurchase of preferred stock class B |
|
|
|
|
|
| ( | ) |
Repurchase of common stock |
|
|
|
|
|
| ( | ) |
Proceeds from sale of common stock |
|
|
|
|
|
| ||
Net Cash Provided by Financing Activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| ( | ) |
|
|
| |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
| ||
Cash and cash equivalents, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of debt and accrued interest |
| $ |
|
| $ |
| ||
Common stock issued for acquisition of subsidiaries |
| $ |
|
| $ |
| ||
Modification of convertible notes in exchange for promissory note |
| $ |
|
| $ |
| ||
Acquisition of subsidiary via issuance of preferred stock class B |
| $ |
|
| $ |
| ||
Net assets acquired in acquisition |
| $ |
|
| $ |
| ||
Assets acquired from financing |
| $ |
|
| $ |
| ||
Net assets acquired in acquisitions |
| $ |
|
| $ |
| ||
Return and cancellation of common stock |
| $ |
|
| $ |
| ||
Right-of-use assets and corresponding liabilities on new building leases |
| $ | |
|
| $ | |
|
The accompanying notes are an integral part of these consolidated unaudited financial statements.
6 |
Table of Contents |
SOLAR INTEGRATED ROOFING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 1 – BACKGROUND AND ORGANIZATION
Business Operations
Solar Integrated Roofing Corporation (“SIRC” or the “Company”) is a fully integrated roofing, residential solar, commercial solar/microgrid, electric vehicle (EV) charging and financing business focused on selling and installing systems, specializing in commercial and residential properties, targeting the North American solar market with specific strength in the Southern California market. Under the SIRC brand, the company has acquired 14 companies that provide specific services to solar customers. The acquired businesses have a high degree of complimentary services and as such, SIRC is setting up divisions to specifically address the strengths of each product offering and provide significant cross selling opportunities across roofing, residential solar, commercial solar/microgrids, EV charging/battery back-up and project financing. To date, the major areas of operations include delivery of installation services, battery storage solutions, electric vehicle charging solutions, and roofing services.
The Company was incorporated under the laws of the state of Nevada on May 1, 2007 as Sterling Oil & Gas Company. The name was changed on February 14, 2014 to Landstar Development Group. On November 9, 2015 the Board of Directors of SIRC approved a name changed to Solar Integrated Roofing Corporation.
On February 11, 2016, the Company acquired the issued and outstanding shares of Secure Roofing and Solar Inc. (“SRS”) whereby the shareholders of SIRC became the controlling shareholders of the combined entity. David Massey held
Impacts of COVID-19 on Our Business
The COVID-19 pandemic and the resulting impact on the U.S. economy have accelerated many of our operational initiatives to deliver best-in-class customer value and to reduce costs. The COVID-19 pandemic has had an unprecedented impact on the U.S. economy, resulting in governments and organizations implementing public health measures in an effort to contain the virus, including physical distancing, work from home, supply chain logistical changes and closure of non-essential businesses. With vaccine administration and adoption rising, governments and organizations have responded by adjusting such restrictions and guidelines accordingly. We are monitoring this fluid situation and will continue to follow official regulations to protect our employees and customers.
The ultimate impact of the COVID-19 pandemic (and virus variants, such as Delta and Omicron) is still highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. We will continue to monitor developments affecting our workforce, our customers, and our business operations generally and will take actions that we determine are necessary in order to mitigate these impacts.
Global supply chain disruptions are prevalent in the renewable energy industry and are most acute in the residential and commercial PV markets. While domestic and international manufacturers in this space are starting to make strides in rectifying some of the major issues, several factors are having overall detrimental impacts to US renewable installers and developers. The three main factors contributing to adverse market conditions are equipment pricing, manufacturing delays and shortages, labor disruptions and logistics. At times these factors overlap, but each factor has a unique impact on business operations and metrics.
Pricing for renewable energy equipment, after trending downward for the last decade, have seen substantial price increases in the past 12-months. Raw material such as copper, aluminum, steel, plastic resin, and tempered glass, all of which are integral to renewable energy equipment, remain at stubbornly high price points. Manufacturers have consistently passed these raw material increases downstream in 2022, equating to an estimated
Manufacturing delays and product shortages have been particularly painful in 2022. The initial COVID-19 wave and the precipitous drop off in consumer demand led to a massive ramp down in global production for key components such as solar modules, inverter technology and PV racking equipment. While consumer demand has roared back to life, manufacturing capacity and production have not kept pace. Fulfillment lead times for key construction equipment have increased
7 |
Table of Contents |
Renewable energy equipment is heavily tied to the global logistics industry. Most major components, including solar modules and inverter technology, are made outside of the US and rely on an interplay of shipping, railway, and roadway transportation to arrive at its destination. When coupled with manufacturing delays and increased consumer demand, these logistics pathways have proven slow to rebound. Logistics costs had started to flatten out in the 2nd half of 2022, but with new uncertainty in the oil markets we expect that flattening curve to be short lived. There is a fine correlation between logistics costs and equipment pricing and a portion of the overall negative impact on gross profits can be attributed to logistics costs. Delays in transits from manufacturers as well as decreased availability with transportation providers are also adding to the issue of increased customer cancelation and the decrease in revenue stream.
With regards to mitigation strategies, we have substantially increased our equipment and demand forecasting with our vendor partners as well as established lines of communication with manufacturers to better identify trends in the market. By increasing our presence and communication frequency with our vendors and manufacturers, we are better able to identify forward-looking issues and adjust our strategy accordingly to mitigate future monetary impacts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2021. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Solar Integrated Roofing Corporation and its wholly-owned subsidiaries: Secure Roofing and Solar Inc., Narrate LLC, McKay Roofing Company, Inc., Milholland Electric, Inc., Montross Companies, Inc., Approved Home Pros, LLC, Enerev LLC, Cornerstone Construction Team, LLC, Balance Authority, LLC, Kinetic Investments Inc. dba Future Home power, USA Solar Network LLC, SunUp Solar LLC and Renovation Roofing, Inc., which are included in the financial statements of the Company as of their respective acquisition dates. Pacific Lighting Management, Inc. was the only subsidiary acquired at 60% so the Company includes non-controlling interest in its consolidated financial statements. During the nine months ended September 30, 2021, the Company acquired Enerev LLC, Cornerstone Construction Team LLC, 60% of Pacific Lighting Management, Inc., Balance Authority, LLC, Kinetic Investments, Inc. dba Future Home Power, USA Solar Network LLC and SunUp Solar LLC. All intercompany accounts have been eliminated upon consolidation.
During the nine months ended September 30, 2022, the Company did not acquire any entities. During the nine months ending September 30, 2022, the Company eliminated and rescinded the agreement regarding Cornerstone Construction Team, LLC as of May 31, 2022. The Company has consolidated the operations for the entity up until the recission date of May 31, 2022. The Company received the previously issued
During the nine months ended September 30, 2021, the Company acquired Enerev LLC, Cornerstone Construction Team LLC,
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 the estimated useful lives of property and equipment, allowance for doubtful accounts, impairment of long-lived assets, and the valuation of debt and equity transactions. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in its accounts. As of September 30, 2022 and December 31, 2021, management believes the Company is not exposed to any significant credit risk on cash.
8 |
Table of Contents |
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents were $
Accounts Receivable
Management reviews accounts receivable periodically to determine if any receivables will potentially be uncollectible. Management’s evaluation includes several factors including the aging of the account balances, a review of significant past due accounts, economic conditions, and our historical write- off experience, net of recoveries. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company’s allowance for doubtful accounts was $
Inventory
The Company’s inventory is valued at the lower of cost (the purchase price) or market. Inventory costs are determined based on the average cost basis. A reserve for slow-moving and potentially obsolete inventories is recorded as of each balance sheet date and total inventories are presented net of that reserve. Inventory consists primarily of solar panels. As of September 30, 2022, management evaluated all held inventory for obsolete or slow-moving parts and did not identify any.
Property and Equipment
Property and equipment are carried at cost less amortization and depreciation. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations. Property and equipment consist of Vehicles, Computer Equipment, Machinery and Equipment, Furniture and Equipment which are depreciated on a straight-line basis over their expected useful lives as follows.
Vehicles |
|
| |
Computer Equipment |
|
| |
Machinery and Equipment |
|
| |
Furniture & Equipment |
|
|
Leases
The Company follows the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively, the “new leases standard”), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The new lease standard requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease term. See Note 12 for further information regarding the Company’s leases.
Advertising
The Company conducts advertising for the promotion of its services. In accordance with ASC 720-35, advertising costs are charged to operations when incurred. The Company incurred $
Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are described below:
9 |
Table of Contents |
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The carrying value of the Company’s current assets and liabilities are deemed to be fair market value due to the short-term nature of these instruments. The Company did not have any Level 2 financial instruments as of September 30, 2022 or December 31, 2021, while the Company’s Level 3 derivative liabilities are detailed in Note 10.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, when satisfying the performance obligation of the associated contract that reflects the consideration expected to be received based on the terms of the contract.
Solar Integrated Roofing Corporation has chosen to utilize the “Output Method” of ASC 606 as a means of recognizing revenue in accordance with performance obligation milestones within their executed contracts. The Output Method as defined in ASC 606 are incremental goods or services that are instrumental and necessary to fulfill the complete project that have been verified to be completed. These outputs are the result of processes applied to inputs in a business. In other words, the Output Method measures results achieved and value that is passed on to the customer in relation to the contract as a whole. In implementation, the Company has determined the incremental milestones of a project ranging from contract inception to project completion, with each progressing milestone providing additional services to the end client. Per the guidelines of ASC 606, the Company then tracks the progress toward completion of the contract by measuring outputs to date relative to total estimated outputs needed to satisfy the performance obligation.
As the different subsidiaries of the Company encompass many different business models, there exists different metrics for each of the subsidiaries in regard to intervals/milestones qualifying a specific level of revenue recognition. The business types are as follows:
| ☐ | Roofing Companies |
| ☐ | Sales Organizations |
| ☐ | Claims Management Companies |
| ☐ | Solar Installation Companies |
| ☐ | Alternative Energy Companies |
| ☐ | Service Organizations |
ASC 606 has five general components which formulate the basis of the revenue process. In observation of the Output Method, the five components and brief explanations as to how each applies to the revenue recognition model the Company has adopted are as follows:
(i) Identify the contract, or contracts, with a customer.
A contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration.
(ii) Identify the performance obligations in the contract.
At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations. The main performance obligations are the provisions of the following:
| ☐ | Project Specifics | |
|
| o | Site Visit |
|
| o | Engineering Design |
|
| o | Permitting |
|
| o | Utility Interconnection, if applicable |
|
| o | Project Installation |
|
| o | Project Completion |
10 |
Table of Contents |
(iii) | Determine the transaction price | ||
|
| ||
| The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists. As of September 30, 2022, the Company has not provided payment terms of more than a year. | ||
|
| ||
(iv) | Allocate the transaction price to the performance obligations in the contract. | ||
|
| ||
| The Company performs an allocation of the transaction price to each separate performance obligation, known as milestones. The allocated milestone payments are based upon multiple factors: | ||
|
| ||
| ☐ | Hard costs for materials needed to fulfill the current milestone. | |
| ☐ | Soft costs upon the milestone being achieved (sales commissions, labor costs) | |
| ☐ | Overhead and incidentals to be allocated at the specific milestones of a project. | |
|
|
| |
(v) | Recognize revenue when, or as, the Company satisfies a performance obligation. | ||
|
| ||
| The Company recognizes revenue incrementally upon its fulfillment of each specific performance obligation milestone as outlined in the underlying contract utilizing the Output Method. |
During the nine months ended September 30, 2022 and 2021, the Company derived its revenues from the following:
- | residential solar panels sales and installation: approximately $ commercial solar: approximately $ | |
- | roofing constructions: approximately $ | |
| - | EV charging stations: approximately $ |
The Company analyses whether gross sales as the principal, or net sales as the agent, should be recorded. Since the Company assumes all risk of loss, has control over establishing price, and has control over the related costs associated with earning revenues, the Company is the principal, and as such has recorded all revenues at the gross price.
Concentration of Revenue by Customer
During the nine months ended September 30, 2022 and 2021, no individual customers comprised above 10% of total revenue recognized.
Concentration of Revenue by Segment during the nine months ended September 30, 2022 and 2021:
| - | residential solar sales and installation: approximately commercial solar: approximately |
| - | roofing construction: approximately |
| - | EV charging stations: approximately |
Segments and Disaggregated Revenue
The Company is a single source solar power and roofing system installation company operating and specializing in commercial and residential properties across the United States. The Company’s operations are conducted in specific reportable segments: roofing construction, residential solar, commercial solar & microgrids, battery back-up & EV charging and project financing. The Company defines its segments because the operations are distinctly different from other areas within the Company as the Company has roofing contracts, solar installations (residential / commercial / microgrids), battery back-up and EV charging installations as well as finance and maintenance. All of these areas are supported by our sales, marketing and general and administrative teams. The Company’s Chief Operating Officer regularly reviews these segments to align resources and analyze performance.
11 |
Table of Contents |
|
All of the Company’s segments operate within the United States as the Company does not have any foreign sales or operations at this time. The Company’s roofing segment is dedicated to services and products serving roofing construction, design and maintenance. Construction of roofing projects and the design of roofing installations as well as the construction of the roofing projects all fall under this segment. The Company’s residential solar segment serves the installation of solar systems within residential properties selling directly to consumers. The Company’s commercial solar segments sells to larger renewal energy companies and to corporations seeking solar installations to offset utility expenses (i.e. urban housing, commercial properties, apartment buildings, etc.). The Company’s EV charging services are centered around providing solutions for EV charging platforms through the planning, sourcing and installation of these platforms for businesses and other agencies. Our financing efforts are done in support of these operating activities. |
The Company measures the results of the segments by the following among other attributes: gross margin, operating income (which includes overhead corporate expense allocations), costs of sales and revenue. The Company revises the measurement of the reporting segments operating income, gross margin and corporate overhead allocations from time to time as these metrics are regularly reviewed by the Chief Operating Officer. Information on the Company’s operating segments, including the reconciliation to income is provided in the following table.
|
| Solar Residential |
|
| Solar Commercial |
|
| Roofing Construction |
|
| EV Charging |
|
| Consolidated |
| |||||
Nine Months Ended |
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| |||||
September 30, 2021 |
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|
|
| |||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
|
|
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|
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| |||||
Gross margin |
|
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| |||||
Operating (loss) |
|
| ( | ) |
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|
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|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
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Nine Months Ended |
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September 30, 2022 |
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Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
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| |||||
Gross margin |
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| |||||
Operating Income (loss) |
|
|
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|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| Solar Residential |
|
| Solar Commercial |
|
| Roofing Construction |
|
| EV Charging |
|
| Consolidated |
| |||||
Three Months Ended |
|
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| |||||
September 30, 2021 |
|
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|
|
|
|
|
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| |||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
|
|
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|
|
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|
| |||||
Gross margin |
|
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|
| |||||
Operating (loss) |
|
| ( | ) |
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| ( | ) |
|
| ( | ) |
|
| ( | ) | |
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Three Months Ended |
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September 30, 2022 |
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Revenue |
| $ |
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| $ |
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| $ |
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| $ |
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Cost of sales |
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Gross margin |
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Operating Income (loss) |
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As of September 30, 2022, approximately $
Cost of Revenue
Cost of revenue consists primarily of costs related to raw materials, freight and delivery, product warranty, and personnel costs (salaries, bonuses, benefits, and stock-based compensation). Personnel costs in cost of revenue includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the procurement, installment and delivery of the finished product and services. Deferred cost of revenue results from the timing differences between the costs incurred in advance of the satisfaction of all revenue recognition criteria consistent with our revenue recognition policy.
During the nine months ended September 30, 2022 and 2021, the Company incurred cost of revenue of $
12 |
Table of Contents |
Work in progress receivable is recorded when the Company has transferred services to the customers prior to receiving consideration and when the payment of consideration is contingent upon milestones performance obligation. The Company recognizes also the cost associated with reaching specific milestone in form of work in progress payable. As of September 30, 2022, the work in progress receivable was $
Income Taxes
The Company follows ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
The Company follows section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty in income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, 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 the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
Stock-based Compensation
The Company accounts for employee and non-employee stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which requires all share-based payments to employees and non-employees, including grants of stock options, to be recognized in the financial statements based on the grant date fair values of the equity instruments issued, which is charged directly to compensation expense over the requisite service or vesting period.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed pursuant to ASC 260, Earnings Per Share. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period.
During the three and nine months ended September 30, 2022, the Company’s basic income per share was $
During the three and nine months ended September 30, 2021, the Company’s basic loss per share was $
The Company’s diluted loss per share is the same as the basic loss per share for the same periods, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
For the nine months ended September 30, 2022 and 2021, the Company’s potentially-dilutive instruments include convertible notes and associated accrued interest. The total amount of “if-converted” shares of
| ☐ | convertible notes with interest– |
| ☐ | common shares to be issued – |
| ☐ | warrants and options – |
| ☐ | convertible preferred shares Class B – |
13 |
Table of Contents |
Diluted income (loss) per share is computed as follows:
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| Nine Months Ended September 30, 2022 |
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| Nine Months Ended September 30, 2021 |
| ||
Numerator: |
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Net income (loss) |
| $ |
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| $ | ( | ) | |
(Gain) loss on change in fair value of derivatives |
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| ( | ) | ||
Interest on convertible debt |
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Net income (loss) - diluted |
| $ |
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| $ | ( | ) | |
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Denominator: |
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Weighted average common shares outstanding - basic |
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Effect of dilutive shares |
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Diluted |
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Net income (loss) per common share: |
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Basic |
| $ |
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| $ | ( | ) | |
Diluted |
| $ |
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| $ | ( | ) | |
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| Three Months Ended September 30, 2022 |
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| Three Months Ended September 30, 2021 |
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Numerator: |
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Net income (loss) |
| $ |
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| $ | ( | ) | |
(Gain) loss on change in fair value of derivatives |
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Interest on convertible debt |
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Net income (loss) - diluted |
| $ |
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Denominator: |
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Weighted average common shares outstanding - basic |
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Effect of dilutive shares |
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Diluted |
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Net income (loss) per common share: |
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Basic |
| $ |
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| $ | ( | ) | |
Diluted |
| $ |
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| $ | ( | ) |
Business Combinations
In accordance with ASC 805, Business Combinations, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Goodwill
The Company allocates goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.
The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.
During the nine months ended September 30, 2022 and 2021, there was no goodwill impairment recorded.
Impairment of Long-Lived Assets
Tangible and intangible assets (excluding goodwill) are assessed at each reporting date for indications that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. The asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or a group of assets exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the group of assets.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2021, but there was no resulting material impact on the financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Warrants and options
The Company has issued Common Stock warrants in connection with the execution of certain equity and debt financings. The fair value of warrants is determined by its fixed exercise price. During the three months ended September 30, 2022, the Company issued a warrant for
14 |
Table of Contents |
On September 22, 2022, the Company issued Nonqualified Stock Option Award Agreement
NOTE 3 – GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which contemplates the continuation of the Company as a going concern and realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2022, the Company had cash of $
The Company is aware that its current cash on hand will not be sufficient to fund its projected operating requirements through the month of December 2022 and is pursuing alternative opportunities to funding.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
The Company’s management does not know the full extent or foresee the impact COVID-19 has had on our business or our operations or its ability to carry out our plans. We will continue to monitor and follow this situation closely.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment stated at cost, less accumulated depreciation consisted of the following:
|
| September 30, 2022 |
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| December 31, 2021 |
| ||
Vehicles |
| $ |
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| $ |
| ||
Land |
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Computer Equipment |
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Machinery and Equipment |
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Leasehold Improvements |
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Office Equipment |
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Furniture and Equipment |
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Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
|
Depreciation expense for fixed assets was $
15 |
Table of Contents |
NOTE 5 – OTHER ASSETS
Prepaids and Other Current Assets
The balances as of September 30, 2022 and December 31, 2021 were $
Other Assets
The balances as of September 30, 2022 and December 31, 2021 were $
NOTE 6 – NOTE RECEIVABLE
On October 5, 2021, the Company invested $
NOTE 7 – RELATED PARTY TRANSACTIONS
As of September 30, 2022 and December 31, 2021, amounts owed to related parties totaled $
During the nine months ended September 30, 2022 and 2021, the Company recognized new obligations to related parties of $
During the nine months ended September 30, 2022 and 2021, the Company issued
During the nine months ended September 30, 2021, the Company repurchased
NOTE 8 – DEBENTURE PAYABLE
In January 2020, the Company received $
16 |
Table of Contents |
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Convertible notes as of September 30, 2022:
Noteholder |
| Issuance Date |
| Maturity Date |
| Conversion Price |
|
| Interest Rate |
|
| Outstanding Principal Balance |
| |||
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RB Capital Partners, Inc. |
|
|
| $ |
|
|
| % |
| $ |
| |||||
RB Capital Partners, Inc. |
|
|
| $ |
|
|
| % |
| $ |
| |||||
Jefferson Street Capital |
|
|
| $ |
|
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| % |
| $ |
| |||||
Jefferson Street Capital |
|
|
| $ |
|
|
| % |
| $ |
| |||||
Mammoth Corporation |
|
|
| $ |
|
|
| % |
| $ |
| |||||
Jefferson Street Capital |
|
|
| $ |
|
|
| % |
| $ |
| |||||
RB Capital Partners, Inc. |
|
|
| $ |
|
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| % |
| $ | 800,000 |
| ||||
AJB Capital Investments LLC |
|
|
| * |
|
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| % |
| $ |
| |||||
TOTAL |
|
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|
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|
|
| $ |
| |
UNAMORTIZED DEBT DISCOUNT |
|
|
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|
|
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|
| ( | ) | ||||
NET CONVERTIBLE NOTES |
|
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|
|
|
|
|
| $ |
|
*conversion price will be equal to the lowest trading price during the previous 20 trading day period either ending on the date of the conversion or the issue price.
During the nine months ended September 30, 2022, $
Currently most of above convertible notes are in default but there are no penalties initiated or associated with the notes in default.
Convertible notes as of December 31, 2021:
Noteholder |
| Issuance Date |
| Maturity Date |
| Conversion Price |
|
| Interest Rate |
|
| Outstanding Principal Balance |
| |||
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Granite Global Value |
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| * |
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| % |
| $ |
| |||||
Granite Global Value |
|
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| $ |
|
|
| % |
| $ |
| |||||
RB Capital Partners, Inc. |
|
|
| $ |
|
|
| % |
| $ |
| |||||
RB Capital Partners, Inc. |
|
|
| $ |
|
|
| % |
| $ |
| |||||
Granite Global Value |
|
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| $ |
|
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| % |
| $ |
| |||||
RB Capital Partners, Inc. |
|
|
| $ |
|
|
| % |
| $ |
| |||||
Granite Global Value |
|
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| $ |
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| % |
| $ |
| |||||
Granite Global Value |
|
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| $ |
|
|
| % |
| $ |
| |||||
Granite Global Value |
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|
| $ |
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| % |
| $ |
| |||||
Jefferson Street Capital |
|
|
| $ |
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| % |
| $ |
| |||||
Jefferson Street Capital |
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| $ |
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| % |
| $ |
| |||||
TOTAL |
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| $ |
| ||||
UNAMORTIZED DEBT DISCOUNT |
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NET CONVERTIBLE NOTES |
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| $ |
|
*Conversion price based on volume weighted average price during previous trading day.
The Company recognized amortization expense related to the debt discount of $
During the nine months ended September 30, 2022 and 2021, the Company received proceeds of $
17 |
Table of Contents |
NOTE 10 – DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the variable conversion option within one of the Company’s convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. On June 23, 2022, the underlying convertible note was extinguished, thereby eliminating the derivative liability. On September 9, 2022, the Company entered into a new convertible note agreement for $
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each derivative is estimated using the Black-Scholes valuation model.
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2022 and December 31, 2021 and their activity for the nine months ended September 30, 2022 and 2021:
Fair Value Measurements Using Significant Observable Inputs (Level 3) |
| |||
Balance – December 31, 2020 |
| $ |
| |
|
|
|
|
|
Reduction of new derivative liabilities from payoff of convertible notes and conversion of convertible notes to common shares |
|
| ( | ) |
Addition of new derivative liabilities |
|
|
| |
Amortization of debt discount on convertible debt |
|
|
| |
Gain on change in fair value of derivative liabilities |
|
| ( | ) |
Balance – September 30, 2021 |
| $ |
| |
|
|
|
|
|
Balance - December 31, 2021 |
| $ |
| |
Elimination of derivative liabilities due to extinguishment of underlying convertible debt |
|
| ( | ) |
Addition of new derivative liabilities |
|
|
| |
Balance – September 30, 2022 |
| $ |
|
The table below shows the Black-Scholes option-pricing model inputs used by the Company to value the derivative liability at each measurement date:
|
| Nine months ended |
|
| Year ended |
| ||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Expected term |
|
|
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| ||||
Expected average volatility |
|
| % |
|
| |||
Expected dividend yield |
|
| - |
|
|
| - |
|
Risk-free interest rate |
|
|
|
|
18 |
Table of Contents |
NOTE 11 – NOTES PAYABLE
As of September 30, 2022, the Company owed notes payable totaling $
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $14,000,000 note with Granite Global Value Investments LTD payable upon the Company receiving funding (see Note 12). |
| · | $ |
Current portion of the notes at September 30, 2022 was $
During the nine months ended September 30, 2022, the Company received proceeds pursuant to a $
The Company made repayments to TVT 2.0 LLC of $
During the nine months ended September 30, 2021, the Company entered into several loan in participation of the PPP loan program in the amount of $
As of December 31, 2021, the Company owed notes payable totaling $
| · | $ |
| · | $ |
| · | $ |
| · | $ |
Current portion of the notes at December 31, 2021 was $
19 |
Table of Contents |
NOTE 12 – LEASES
As of September 30, 2022 and December 31, 2021, the Company reported Right-of-Use (“ROU”) assets under operating leases for six office premises, and corresponding lease liabilities. Related party operating lease ROU assets and corresponding liability at September 30, 2022 was $
|
| As of September 30, 2022 |
|
| As of December 31, 2021 |
| ||
Operating lease ROU assets |
| $ |
|
| $ |
| ||
Current portion of operating lease liabilities |
|
|
|
|
|
| ||
Noncurrent portion of operating lease liabilities |
|
|
|
|
|
| ||
Total operating lease liabilities |
| $ |
|
| $ |
|
Information associated with the measurement of our remaining operating lease obligations as of September 30, 2022 is as follows:
Weighted-average remaining lease term |
|
| ||
Weighted-average discount rate |
|
| % |
The Company has the following lease obligations for the years ended December 31:
2022 (remaining three months) |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total lease payments |
|
|
| |
Less: imputed interest |
|
| ( | ) |
Present value of lease liabilities |
| $ |
|
NOTE 13 – COMMON STOCK
The Company is authorized to issue
Nine months ended September 30, 2022
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Received and cancelled |
Nine months ended September 30, 2021
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Issued |
|
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|
| · | Issued |
|
|
|
| · | Issued |
|
|
|
| · | Issued |
|
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| · | Repurchased and cancelled |
20 |
Table of Contents |
Warrants and options
During the nine months ended September 30, 2022, the Company issued a warrant for
During the nine months ended September 30, 2022, the Company issued a stock option award for
The following summarizes the Company’s warrant and option activity:
Date |
| Number of shares |
|
| Weighted average exercise price |
| ||
|
|
|
|
|
|
| ||
Outstanding - 12/31/2020 |
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
| $ |
| |
Outstanding – 9/30/2021 |
|
| - |
|
|
|
| |
Outstanding - 12/31/2021 |
|
| - |
|
|
|
| |
Issued |
|
|
|
|
|
| ||
Outstanding – 9/30/2022 |
|
|
|
|
|
|
The Company used the Black-Scholes pricing model to calculate the fair value of warrants on the grant date. The Black-Scholes model requires basic data inputs: the exercise or strike price, time to expiration, the current stock price and the estimated volatility of the stock price in the future. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair values of the warrants and options are estimated using the Black Scholes valuation model as follows:
Warrant
|
| Nine months ended |
| |
|
| September 30, 2022 |
| |
Expected term |
|
| ||
Expected average volatility |
|
| % | |
Expected dividend yield |
|
| - |
|
Risk-free interest rate |
|
|
Stock option
|
| Nine months ended |
| |
|
| September 30, 2022 |
| |
Expected term |
|
| ||
Expected average volatility |
|
| % | |
Expected dividend yield |
|
| - |
|
Risk-free interest rate |
|
|
|
NOTE 14 – PREFERRED STOCK
The Company is authorized to issue up to
Class A preferred shares:
| ☐ | |
| ☐ | No conversion is permitted. |
| ☐ | Holders are entitled, in the event of any voluntary liquidation or dissolution, to receive payment or distribution of preferential amount before any payments or distributions are received by any class of common stock. |
| ☐ | Holders are not entitled to receive dividends. |
Class B preferred shares:
| ☐ | If the Board of Directors declares a dividend payable, these shares are entitled to receive cumulative dividends. |
☐ | In the event of liquidation, holders are entitled to receive a distributive share of the Company’s assets and funds. | |
☐ |
Class C preferred share:
☐ | ||
☐ | In case of liquidation of Enerev, LLC, the holders of Series C shares are entitled to receive their share of 49% of the net proceeds. | |
☐ |
21 |
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Class D preferred shares:
☐ | ||
☐ | In case of liquidation of Kinetic Investments, Inc. dba Future Home Power, the holders of shares Series D are entitled to receive their share of 40% of the net proceeds. | |
☐ |
The Class B, C, and D preferred stocks issued during the year ended December 31, 2021 were valued by an independent valuation specialist using a market approach.
Following is a detail of Preferred Stock transactions during the nine months ended September 30, 2022 and 2021:
Nine months ended September 30, 2022
Nine months ended September 30, 2021
NOTE 15 – NON-CONTROLLING INTEREST
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Net loss Subsidiary |
| $ | ( | ) |
|
| ( | ) |
Net loss attributable to the non-controlling interest |
|
|
|
|
|
| ||
Net loss affecting the Company |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Accumulated losses |
|
| ( | ) |
|
| ( | ) |
Accumulated losses attributable to the non-controlling interest |
|
|
|
|
|
| ||
Accumulated losses affecting the Company |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net equity non-controlling interest |
| $ | ( | ) |
|
| ( | ) |
NOTE 16 – ACQUISITIONS
During the nine months ended September 30, 2022, the Company did not acquire any companies.
During the nine months ended September 30, 2021, the Company acquired
Enerev LLC
On April 28, 2021, the Company completed the acquisition, effective January 21, 2021, of
22 |
Table of Contents |
The following table summarizes the consideration transferred to acquire Enerev and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common shares: |
| $ |
| |
Series B preferred shares |
| $ |
| |
Total |
| $ |
|
The
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Total assets: |
|
|
| |
Accounts receivable |
| $ |
| |
Liabilities: |
| None |
| |
Goodwill: |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise from the acquisition of the installation and sales force of Enerev. The goodwill is not deductible for tax purposes. All Enerev’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company. No impairment of Enerev goodwill was noted during the nine months ended September 30, 2022 or 2021.
Cornerstone Construction Team LLC
On March 1, 2021 the Company completed the acquisition of
The following table summarizes the consideration transferred to acquire Cornerstone and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common Shares: |
| $ |
| |
Total |
| $ |
|
The Company issued
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
|
|
| |
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Other current assets |
|
|
| |
Fixed assets |
|
|
| |
Total Assets: |
| $ |
| |
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
| $ |
| |
Notes payable |
|
|
| |
Customer deposits |
|
|
| |
Total Liabilities: |
| $ |
| |
|
|
|
|
|
Goodwill: |
| $ |
|
23 |
Table of Contents |
|
The goodwill was attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Cornerstone. The goodwill is not deductible for tax purposes. All of Cornerstone’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company and was impaired at 100% at December 31, 2021 due to pending lawsuit that effected termination of the agreement between both parties effective May 31, 2022. On August 29, 2022, the Company received and cancelled the previously issued |
Pacific Lighting Management, Inc.
On March 16, 2021, the Company acquired Pacific Lighting Management, Inc. (“PlemCo”), which is a provider of energy and water conservation and renewable energy design, consulting and installation services to businesses of all sizes throughout the US. The overall purchase price of 60% of PlemCo was $
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Total |
| $ |
|
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
|
|
| |
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Fixed assets |
|
|
| |
Total Assets: |
| $ |
| |
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
| $ |
| |
Notes payable |
|
|
| |
Total Liabilities: |
| $ |
| |
|
|
|
|
|
Goodwill: |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise from the acquisition of the installation and sales force of PlemCo. The goodwill is not deductible for tax purposes. All PlemCo’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company. No impairment of PlemCo goodwill was noted during the nine months ended September 30, 2022 or 2021.
Balance Authority LLC
On April 28, 2021, the Company completed the acquisition of
The following table summarizes the consideration transferred to acquire Balance and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common Shares: |
| $ |
| |
Total |
| $ |
|
24 |
Table of Contents |
|
The Company issued |
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
|
|
| |
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Fixed assets |
|
|
| |
Investment |
|
|
| |
Total Assets: |
| $ |
| |
|
|
|
|
|
Liabilities: |
|
|
|
|
Accrued expenses |
| $ |
| |
Notes payable |
|
|
| |
Total Liabilities: |
| $ |
| |
|
|
|
|
|
Goodwill: |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Balance. The goodwill is not deductible for tax purposes. All of Balance’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company. No impairment of Balance was noted during the nine months ended September 30, 2022 or 2021.
Kinetic Investments, Inc. dba Future Home Power
On June 1, 2021, the Company completed the acquisition of
The following table summarizes the consideration transferred to acquire FHP and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common Shares: |
| $ |
| |
Total |
| $ |
|
The Company also issued
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
| None |
| |
|
|
|
| |
Liabilities: |
|
|
| |
Accounts payable and accrued liabilities |
| $ |
| |
|
|
|
|
|
Goodwill: |
| $ |
|
25 |
Table of Contents |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of FHP. The goodwill is not deductible for tax purposes. All of FHP’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company. No impairment of the FHP goodwill was noted during the nine months ended September 30, 2022 or 2021. |
USA Solar Networks LLC
On June 30, 2021, the Company completed the acquisition of
The following table summarizes the consideration transferred to acquire USA Solar and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common Shares: |
| $ |
| |
Total |
| $ |
|
The Company issued
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
| None |
| |
Liabilities: |
|
|
| |
Note payable |
| $ |
| |
Goodwill: |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of USA Solar. The goodwill is not deductible for tax purposes. All of USA Solar’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company. No impairment of the USA Solar goodwill was noted during the nine months ended September 30, 2022 or 2021.
SunUp Solar LLC
On June 30, 2021, the Company completed the acquisition of
The following table summarizes the consideration transferred to acquire SunUp and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash: |
| $ |
| |
Common Shares: |
| $ |
| |
Total |
| $ |
|
The Company issued
26 |
Table of Contents |
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
| None |
| |
Liabilities: |
| None |
| |
Goodwill: |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of SunUp. The goodwill is not deductible for tax purposes. All of SunUp’s goodwill was recorded in the Company’s intangible assets as a non-current asset and recorded on the balance sheet of the Company. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company.No impairment of the SunUp goodwill was noted during the nine months ended September 30, 2022 or 2021.
Renovation Roofing, Inc.
On July 3, 2021, the Company completed the acquisition of
The acquired business contributed revenue of $
The following table summarizes the consideration transferred to acquire Renovation Roofing, Inc. and the amounts of identified assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred: |
|
|
| |
Cash |
| $ |
| |
Common Shares |
| $ |
| |
Total |
| $ |
|
The Company issued
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Assets: |
|
|
| |
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Total assets: |
| $ |
| |
|
|
|
|
|
Liabilities |
| None |
| |
Goodwill |
| $ |
|
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Renovate. The goodwill is not deductible for tax purposes and was recorded as an intangible asset on the Company’s balance sheet. The carrying value of the Company’s goodwill is reviewed annually for impairment by management of the Company, and no impairment of the Renovation Roofing Inc. goodwill was noted during the nine months ended September 30, 2022 or 2021.
NOTE 17 – COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and we accrue for adverse outcomes as they become probable and estimable.
27 |
Table of Contents |
Below is the summary of current legal proceedings:
| 1. | United Stated District Court, District of Arizona Case No. 2:21-cv-01076-JAT styled as SinglePoint Direct Solar, LLC v. Pablo Diaz Curiel, et al. -- This is a pending lawsuit in the United States District of Arizona initiated in June 2021. The principal parties are SinglePoint Inc. (“SING”), SinglePoint Direct (“SDS”), Greg Lambrecht, Corey Lambrecht, William Ralston, SIRC, Pablo Diaz (“Diaz”), and USA Solar Networks, LLC (“USN”). This case concerns the business relationship between SING and Diaz regarding SDS, which was formed after Diaz entered into an Asset Purchase Agreement with SING in February 2019. The litigation first started with Diaz’s lawsuit against SING and SDS (Case No. 2:21-cv-00989-MSB), which was eventually consolidated with this case (Case No. 2:21-cv-01076-JAT). While the majority of claims brought against SIRC and USA Solar are pleaded generally against all defendants, SING’s specific claims against SIRC and USA Solar arise out of SDS’s alleged confidential and proprietary information, trade secrets, and other assets for use in their business operations. SING has alleged two claims against SIRC: false designation of origin, and misappropriation of trade secrets. In or around August 2021, SING sought to enjoin SIRC, Diaz, USN and others, however, the court denied SING’s request finding that, inter alia, SING’s claims were unlikely to succeed on the merits. SIRC is contesting the claims. |
|
|
|
| 2. | Superior Court of California, County of San Diego Case Nos. 30-z0a I-0 Iz34T0s-cU-BC-ClC and 37 -2022-000 1 7 1 7 7 -C U -BC-CTL styled as Heather Griffin, et al. vs. SIRC, et al. This lawsuit was initiated in the Superior Court of California, County of Orange in December 2021. The principal parties are SIRC, David Massey, Narrate, LLC (“Narrate”), Heather Griffin (“Griffin”), and Josiah Carroll (“Carroll”). The claims factually arise out of Heather Griffin and Josiah Carroll’s sale of Narrate LLC to SIRC, their subsequent executive employment agreement, and their requested relief for damages for an alleged breach by SIRC. All claims were dismissed for improper venue and transferred to Superior Court of California, County of San Diego. SIRC is contesting the claims. The matter is in very early pleading stages. |
|
|
|
| 3. | Eighth Judicial District Court of Nevada Case No: A-22-852172-C styled as Milholland Family Trust LP v. Solar Integrated Roofing Corp. -- This lawsuit was initiated in the Eighth Judicial District Court of Nevada on May 5, 2022. The principal parties are SIRC and Milholland Family Trust, LP (“MFT”). This lawsuit pertains to an alleged breach of contract between SIRC and MFT for approximately $ |
|
|
|
| 4. | SIRC v. Pablo Diaz Curiel – This is a pending lawsuit in the Superior Court of California, County of San Diego (Case No. 37-2022-00036984-CU-FR-CTL). SIRC initiated suit on September 15, 2022, alleging, among other things, that |
NOTE 18 – SUBSEQUENT EVENTS
In accordance with ASC 855-10 management has performed an evaluation of subsequent events through November 14, 2022, the date that the financial statements were available to be issued, and did not, other than what is disclosed in the below, identify any further subsequent events requiring disclosure:
October 5, 2022 –
October 18,2022 –
October 18, 2022 –
October 26, 2022 –
On October 26, 2022 –
October 26, 2022 –
October 26, 2022 –
October 31, 2022 - authorized shares of common stock increased from
November 2, 2022 -
November 15, 2022 –
November 17, 2022 –
28 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this periodic report, unless the context otherwise requires, the terms the “Company,” “Registrant,” “registrant,” “we,” “us,” “our,” or “SIRC” refer to Solar Integrated Roofing Corp., a Nevada corporation.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Investors should carefully consider all of such risks, as well as the risks included in our Registration Statement on Form 10, as amended, before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data. Such discussion represents only the best present assessment from our management.
Business Overview
Solar Integrated Roofing Corp. is an alternative energy solution provider in North America. The Company’s business model consists of the following revenue producing divisions:
| · | Roofing | ||
|
| o | Residential | |
|
| o | Commercial | |
|
| o | Government | |
|
| o | Roofing Claims Management | |
| · | Solar | ||
|
| o | Residential | |
|
| o | Commercial | |
|
|
| ■ | Microgrids |
| · | Electric Vehicle Charging | ||
| · | Commercial Solar Finance |
Management of these divisions is conducted by a Senior Management Team with a cumulative 60 years’ experience in the alternative energy space. Further, each division is managed by an industry expert in that specific market with extensive division-based experience.
The Company’s previous operations took place primarily in the State of California, but in 2021, generated revenue in 34 states. Further, over the last couple of years from 2020-2022, SIRC sourced, onboarded, and trained approximately 250 sales representatives that sell SIRC products that will allow it to expand its footprint on a national and even international scale.
SIRC is also heavily involved in finding cutting-edge technologies in the alternative energy space that creates the best economic solution for the client, as well as marketing and development of microgrid projects, which will provide businesses throughout North America an energy solution that is self-sustainable, reliant and that will not fall victim to grid instability creating compelling economics for the SIRC client.
29 |
Table of Contents |
In addition to growth resulting from increased sales efforts, the Company is expanding its reach and increasing its growth potential by acquiring other established alternative energy companies. We believe our continued execution of the Company’s business plan will result in our Company being recognized as a national leader in the alternative energy and roofing industries.
Our principal executive office is located at 2831 St. Rose Pkwy # 200, Henderson, NV 89052. The telephone number at our principal executive office is (702) 589-4651. Our website is www.solarintegratedroofing.com. Our fiscal year end is December 31.
Management’s Plan of Operation
Management is focused on several avenues of business development, including, but not limited to, joint ventures, mergers and acquisitions, and licensing agreements, for the purpose of diversifying corporate assets. While no assurances are expressed or implied that any agreement will be consummated in the future, the Company is committed toward executing on opportunities at hand.
We currently are planning to expand our solar installation business. We plan to continue to execute our marketing and sales strategy in California and, with additional capital, we plan to continue to expand our business in each region that we operate. The planned expansion is expected to occur through acquiring smaller installation companies in targeted regions and/or through the establishment of subsidiaries in these regions, which we believe will boost our installation profits. We have also started on new commercial power projects inside and outside California, which we expect to expand our installation business revenues significantly.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our accompanying financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, and which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, to the financial statements, describes the significant accounting policies and methods used in the preparation of the Company’s financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. Our actual results could differ significantly from these estimates under different assumptions or conditions.
Recently Issued Accounting Pronouncements
Please see Note 2 to the consolidated financial statements, Significant Accounting Policies and Recent Accounting Pronouncements, for a discussion of recent accounting pronouncements and their effect, if any, on our condensed consolidated unaudited financial statements.
Results of Operations
We currently anticipate that continuing operations for the next 12 months from the date of this filing is very much dependent upon our ability to raise equity from existing or new financing sources. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
The Company’s ability to continue as a going concern is dependent upon its ability to repay or settle its current indebtedness, generate positive cash flow from an operating company, and/or raise capital through equity and debt financing or other means on desirable terms. If the Company is unable to obtain additional funds when they are required or if the funds cannot be obtained on favorable terms, management may be required to restructure the Company or cease operations.
The Company is aware that its current cash on hand will not be sufficient to fund its projected operating requirements through the month of December 2022 and is pursuing alternative opportunities to funding.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
For the three months ended September 30, 2022 and 2021
Revenue
|
| For the three months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 57,267,460 |
|
| $ | 13,224,759 |
|
| $ | 44,042,701 |
|
|
| 333.0 | % |
Cost of sales |
|
| (43,071,432 | ) |
|
| (8,418,340 | ) |
|
| (34,653,092 | ) |
|
| 411.6 | % |
Gross profit |
|
| 14,196,028 |
|
|
| 4,806,419 |
|
|
| 9,389,609 |
|
|
| 195.4 | % |
During the three months ended September 30, 2022, compared to the three months ended September 30, 2021, revenue increased by $44,042,701, or approximately 333%, due to the Company completing acquisitions, entering into new markets, and securing new commercial projects. Revenue increased significantly from that of the prior year in part because the Company was able to secure and recognize revenue from newly acquired commercial projects, which have significantly increased the Company’s revenue over that of the prior year as the Company was able to focus on additional revenue that was not solely from roofing and residential solar projects, which were previously the Company’s primary focus and source of revenue. Gross profit increased by $9,389,609, or approximately 195.4% accordingly.
30 |
Table of Contents |
Operating Expenses
Operating expenses consist mainly of compensation expenses and associated fringe benefits, as well as management, business development, accounting, information technology and administration costs, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
Below is a summary of our operating expenses:
|
| For the three months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Salaries and wages |
| $ | 3,989,043 |
|
| $ | 2,863,858 |
|
| $ | 1,125,185 |
|
| 39.3 | % | |
Professional fees |
|
| 1,400,473 |
|
|
| 1,585,673 |
|
|
| (185,200 | ) |
|
| (11.7 | )% |
Depreciation expense |
|
| 69,807 |
|
|
| 222,613 |
|
|
| (152,806 | ) |
|
| (68.6 | )% |
Marketing |
|
| 186,093 |
|
|
| 229,259 |
|
|
| (43,166 | ) |
|
| (18.8 | )% |
General and administrative |
|
| 1,179,561 |
|
|
| 1,275,383 |
|
|
| (95,822 | ) |
|
| (7.5 | )% |
Total |
| $ | 6,824,977 |
|
| $ | 6,176,786 |
|
| $ | (648,191 | ) |
|
| (10.5 | )% |
The Company experienced a decrease in expenses during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to implementing shared services and consolidating and reducing operating expenses across acquired entities. Salaries and wages increased by $1,125,185, or approximately 39.3% due primarily to the issuance of approximately $1.3 million in stock options as compensation to executives; marketing and advertising decreased by $43,166, or approximately 18.8%; depreciation expense decreased by $152,806, or approximately 68.6%; general and administrative expenses decreased by $95,822, or approximately 7.5%; and professional fees decreased by $185,200, or approximately 11.7%.
Other Income (Expense)
Below is a summary of our other income (expense):
|
| For the Three months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| $ | (1,077,710 | ) |
|
| (586,638 | ) |
| $ | (491,072 | ) |
|
| 83.7 | % |
Other income (expense) |
|
| - |
|
| (108,489 | ) |
|
| 108,489 |
|
| (100.0 | )% | ||
PPP loans forgiveness |
|
| - |
|
|
| 20,830 |
|
|
| (20,830 | ) |
|
| (100.0 | )% |
Gain (loss) on change in fair value of derivative liability |
|
| (53,295 | ) |
|
| 359,009 |
|
|
| (412,304 | ) |
|
| (114.8 | )% |
Other Income (expense), net |
| $ | (1,131,005 | ) |
| $ | (315,288 | ) |
| $ | (815,717 | ) |
|
| 58.7 | % |
Interest expense increased by $491,072, or approximately 83.7%, during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to issuances of convertible debt accruing interest and due to warrant expense. Change in fair value of derivative liability decreased by $412,304, or approximately 114.8%, during the three months ended September 30, 2022. There was also a decrease in other income of $20,830 during the three months ended September 30, 2022, due to forgiveness of Paycheck Protection Program (PPP) loans during the three months ended September 30, 2021. Miscellaneous other income (expense) increased by $108,489 during the three months ended September 30, 2022, as other expense of $108,489 consisting of asset impairment was incurred during the three months ended September 30, 2021 (with no other expense during the three months ended September 30, 2022).
Net Income (Loss)
We generated net income of $6,240,046 and net loss of $1,685,655 for the three months ended September 30, 2022 and 2021, respectively, primarily as a result of the above-mentioned factors.
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For the nine months ended September 30, 2022 and 2021
Revenue
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 150,541,535 |
|
| $ | 24,674,807 |
|
| $ | 125,866,728 |
|
|
| 510.1 | % |
Cost of sales |
|
| (94,558,164 | ) |
|
| (19,484,806 | ) |
|
| (75,073,358 | ) |
|
| 385.3 | % |
Gross profit |
| $ | 55,983,371 |
|
| $ | 5,190,001 |
|
| $ | 50,793,370 |
|
|
| 978.7 | % |
During the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, revenue increased by $125,866,728, or approximately 510.1%, due to the Company completing acquisitions, entering into new markets, and securing new commercial projects. Revenue increased significantly from that of the prior year in part because the Company was able to secure and recognize revenue from newly acquired commercial projects, which have significantly increased the Company’s revenue over that of the prior year as the Company was able to focus on additional revenue that was not solely from roofing and residential solar projects, which were previously the Company’s primary focus and source of revenue. Gross profit increased by $50,793,370, or approximately 978.7%, accordingly. The significant increase in gross profit in 2022 as compared to 2021 was primarily the result of the Company’s acquisitions of several entities that increased the Company’s operational footprint and the Company’s focus on transforming from a traditional roofing company into an alternative energy company, with operations in the residential and commercial solar industry, including providing services in connection with microgrids and electric vehicle (“EV”) charging station installation.
Operating Expenses
Operating expenses consist mainly of compensation expenses and associated fringe benefits, as well as management, business development, accounting, information technology and administration costs, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
Below is a summary of our operating expenses:
|
| For the Nine months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Salaries and wages |
| $ | 12,437,116 |
|
| $ | 5,488,167 |
|
| $ | 6,948,949 |
|
|
| 126.6 | % |
Professional fees |
|
| 4,499,397 |
|
|
| 4,474,413 |
|
|
| 24,984 |
|
|
| 0.6 | % |
Depreciation expense |
|
| 277,601 |
|
|
| 303,982 |
|
|
| (26,381 | ) |
|
| (8.7 | )% |
Marketing |
|
| 445,828 |
|
|
| 575,038 |
|
|
| (129,210 | ) |
|
| (22.5 | )% |
General and administrative |
|
| 3,768,121 |
|
|
| 3,136,619 |
|
|
| 631,502 |
|
|
| 20.1 | % |
Total |
| $ | 21,428,063 |
|
| $ | 13,978,219 |
|
|
| 7,449,844 |
|
|
| 53.3 | % |
The Company experienced an increase in expenses during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to entering new markets and the addition of additional business units resulting in an increase in personnel, additional general and administrative expenses, and increased professional fees. Salaries and wages increased by $6,948,949, or approximately 126.6% due primarily to stock-based compensation of approximately $4.5 million; marketing and advertising decreased by $129,210, or approximately 22.5%; depreciation expense decreased by $26,381, or approximately 8.7%; general and administrative expenses increased by $631,502, or approximately 20.1%; and professional fees increased by $24,984 or 0.6%.
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Other Income (Expense)
Below is a summary of our other income (expense):
|
| For the Nine months ended |
|
| Change |
| ||||||||||
|
| September 30, |
|
| 2022 vs. 2021 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| $ | (2,190,637 | ) |
|
| (949,454 | ) |
| $ | (1,241,183 | ) |
|
| (130.7 | )% |
Other income (expense) |
|
| (253,707 | ) |
|
| 90,793 |
|
|
| (344,500 | ) |
|
| (379.4 | )% |
PPP loans forgiveness |
|
| - |
|
|
| 1,018,130 |
|
| $ | (1,018,130 | ) |
|
| 100.0 | % |
Loss on debt modification |
|
| (1,268,933 | ) |
|
| - |
|
| $ | (1,268,933 | ) |
|
| 100.0 | % |
Gain (loss) on change in fair value of derivative liability |
|
| (43,246 | ) |
|
| 1,285,675 |
|
| $ | (1,301,921 | ) |
|
| 103.4 | % |
Other Income (Expense), net |
| $ | (3,756,523 | ) |
| $ | 1,445,144 |
|
| $ | (5,201,667 | ) |
|
| (359.9 | )% |
Interest expense increased by $1,241,183, or approximately 130.7%, during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to issuances of convertible debt accruing interest and warrant and option expense. Loss on debt modification increased by $1,268,933 during the nine months ended September 30, 2022, due to the consolidation of various convertible notes with a lender into a single promissory note with modified terms that included the removal of conversion provisions. No such transactions occurred during the same period for 2021. Change in fair value of derivative liability decreased by $1,301,921, or approximately 103.4%, during the nine months ended September 30, 2022. There was also an increase in other income of $1,018,130 during the nine months ended September 30, 2022, due to forgiveness of Paycheck Protection Program (PPP) loans during the nine months ended September 30, 2021. Miscellaneous other income (expense) decreased by $344,500, or approximately 379.4%, during the nine months ended September 30, 2022, as compared to the same period for 2021.
Net Income (Loss)
We generated net income of $30,798,785 and a loss of $7,343,074 for the nine months ended September 30, 2022 and 2021, respectively, primarily as a result of the above-mentioned factors.
Liquidity and Capital Resources
Projected Future Working Capital Requirements - Next 12 Months
As of September 30, 2022, we had $480,141 in cash compared to $1,124,533 of cash as of December 31, 2021, and as of the date of this filing, we have approximately $500,000 in cash. We currently anticipate that future budget expenditures will be approximately $30 million for the next 12 months.
Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties, and even if we are successful, future equity issuances would result in dilution to our existing stockholders.
If we are unable to generate enough working capital from our current or future financing agreements with when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back or stopping solar programs. Insufficient liquidity may also require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us and our stockholders than we would otherwise choose in order to obtain up-front license fees needed to fund operations. These events could prevent us from successfully executing our operating plan.
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Cash Flows
The following table provides information regarding our cash position, cash flows and capital expenditures for the nine months ended September 30, 2022 and 2021:
|
| Nine months Ended |
|
| Change |
| ||||||
|
| September 30, |
|
| Increase/ |
| ||||||
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
| |||
|
|
|
|
|
|
| % |
| ||||
Net cash used in operating activities |
| $ | (5,609,232 | ) |
| $ | (1,322,756 | ) |
|
| 324.1 | % |
Net cash used in investing activities |
|
| (759,560 | ) |
|
| (11,212,644 | ) |
|
| (93.2 | )% |
Net cash provided by financing activities |
|
| 5,724,400 |
|
|
| 16,084,090 |
|
|
| (64.4 | )% |
Net increase (decrease) in cash |
| $ | (644,392 | ) |
| $ | 3,548,690 |
|
|
| (118.2 | )% |
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 and 2021, was $5,669,232 and $1,322,756, respectively.
Net cash used in operating activities for the nine months ended September 30, 2022, was due to net income of $30,798,785, which was increased by stock-based compensation of $3,260,418, loss on debt modification of $1,268,933, depreciation of $277,601, warrant expense of $147,500, stock option expense of $1,259,300, amortization of debt discount of $6,724, change in fair market value of derivative liability of $43,246, offset by net change in operating assets and liabilities of $(42,671,738). Comparatively, during the nine months ended September 30, 2021, net cash used in operating activities was comprised of net loss of $7,343,074, which was offset by stock-based compensation of $928,650, amortization of debt discount of $186,146, and depreciation of $303,982, and decreased by change in fair market value of derivative liability of $(1,285,675), PPP loan forgiveness of $(1,018,130), and net change in operating assets and liabilities of $5,887,216.
The increase in net cash used in operating activities from $1,322,756 in the nine months ended September 30, 2021, to $5,609,232 in the nine months ended September 30, 2022, was primarily due to (i) an increase in stock-based compensation from $928,650 in 2021 to $3,260,418 in 2022, (ii) a decrease in the fair value of derivative liabilities of $1,328,921 in the nine months 2022 as compared to 2021, (iii) PPP loan forgiveness of $1,018,130 during the nine months 2021 as compared to $0 in 2022, and (iv) increase in warrant and stock option expense of $1,406,800, (v) change in accounts receivable and work in progress receivables increasing by $43,137,020 in 2022 as a result of the Company starting to recognize revenue in accordance with contractual performance obligation milestones and accruing receivables based on reaching specific milestones; partially offset by (i) loss on debt modification in 2022 of $1,268,933, due to converting convertible notes with accrued interest into a promissory note, as compared to $0 in loss on debt modification in 2021, (ii) the change in prepaid expenses and other assets decreasing by $1,080,614 from 2021 to 2022 due to the Company prepaying D&O, worker’s compensation and general liability insurance, prepaying interest on debt and an interest receivable, and (iii) the change in accounts payable and accrued liabilities decreasing by $774,338 during nine months ended September 30, 2022 due to increasing operations as a result of operational acquisitions during 2021 and related expenses.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2022 and 2021, was $759,560 and $11,212,644, respectively. This was the result of cash paid for acquisitions of subsidiaries of $600,000 and $10,100,000 and the purchase of property and equipment of $159,560 and $1,112,644 during the nine months ended September 30, 2022 and 2021, respectively.
The decrease in net cash used in investing activities from $11,212,644 in the nine months ended September 30, 2021, to $759,560 in the nine months ended September 30, 2022, was primarily due to (i) a decrease in cash paid in acquisitions of subsidiaries by $9,500,000 as the Company did not complete any acquisitions in 2022, and (ii) a decrease in purchase of property and equipment by $953,084 due to acquisition of fewer vehicles during 2022.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2022 and 2021, was $5,724,400 and $16,084,090, respectively. This was the result of proceeds from notes payable of $5,452,105 and $6,813,218, repayments on notes payable of $2,762,245 and $1,841,218, proceeds from convertible notes payable of $2,440,000 and $21,055,610, proceeds from exercise of warrants of $0 and $16,480, repurchase of preferred stock class B for $0 and $10,000,00 and common stock for $0 and $100,000, and proceeds from the sale of common stock of $594,540 and $140,000 during the nine months ended September 30, 2022 and 2021, respectively.
The decrease in net cash used in financing activities from $16,084,090 during the nine months ended September 30, 2021, to $5,724,400 during the nine months ended September 30, 2022, was primarily due to (i) a decrease in net proceeds from notes payable in 2022 compared to 2021 by $1,361,113 as the Company received $56,452,105 in loans and repaid $2,762,245 during the nine months ended September 30, 2022, and (ii) an increase in proceeds from selling common stock for $594,540 during 2022, as compared to $140,000 during 2021 and (iii) a decrease in net proceeds from convertible notes payable in 2022 compared to 2021 by $18,615,610.
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As of September 30, 2022, the Company had $480,141 in cash to fund its operations. The Company does not believe its current cash balance will be sufficient to allow the Company to fund its planned operating activities for the next twelve months. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operations via debt and equity financing.
Commitments and Contingencies
Please see Note 17 Commitments and Contingencies of the Notes to Consolidated Unaudited Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, for a discussion of recent contractual commitments and contingent liability.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of September 30, 2022, management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, as of September 30, 2022, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures are not effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
35 |
Table of Contents |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us, other than as set forth herein.
SinglePoint Direct Solar, LLC v. Pablo Diaz Curiel, et al. – This is a pending lawsuit in the United States District Court for the District of Arizona initiated in June 2021 (Case No. 2:21-cv-01076-JAT). The principal parties are SinglePoint Inc. (“SING”), SinglePoint Direct (“SDS”), Greg Lambrecht, Corey Lambrecht, William Ralston, SIRC, Pablo Diaz (“Diaz”), and USA Solar Networks, LLC (“USN”). This case concerns the business relationship between SING and Diaz regarding SDS, which was formed after Diaz entered into an Asset Purchase Agreement with SING in February 2019. The litigation first started with Diaz’s lawsuit against SING and SDS (Case No. 2:21-cv-00989-MSB), which was eventually consolidated with this case (Case No. 2:21-cv-01076-JAT). While the majority of claims brought against SIRC and USA Solar are pleaded generally against all defendants, SING’s specific claims against SIRC and USA Solar arise out of SDS’s alleged confidential and proprietary information, trade secrets, and other assets for use in their business operations. SING has alleged two claims against SIRC: false designation of origin, and misappropriation of trade secrets. In or around August 2021, SING sought to enjoin SIRC, Diaz, USN and others, however, the court denied SING’s request finding that, inter alia, SING’s claims were unlikely to succeed on the merits. SIRC is contesting the claims. The lawsuit is in the discovery phase.
Heather Griffin, et al. vs. SIRC, et al. – This lawsuit was initiated in the Superior Court of California, County of Orange in December 2021 (Case Nos. 30-z0a I-0 Iz34T0s-cU-BC-ClC and 37 -2022-000 1 7 1 7 7 -C U -BC-CTL). The principal parties are SIRC, David Massey, Narrate, LLC (“Narrate”), Heather Griffin (“Griffin”), and Josiah Carroll (“Carroll”). The claims factually arise out of Heather Griffin and Josiah Carroll’s sale of Narrate LLC to SIRC, their subsequent executive employment agreement, and their requested relief for damages for an alleged breach by SIRC. All claims were dismissed for improper venue and transferred to Superior Court of California, County of San Diego. SIRC is contesting the claims. The matter is in very early pleading stages.
Milholland Family Trust LP v. Solar Integrated Roofing Corp. – This lawsuit was initiated in the Eighth Judicial District Court of Nevada on May 5, 2022 (Case No: A-22-852172-C). The principal parties are SIRC and Milholland Family Trust, LP (“MFT”). This lawsuit pertains to an alleged breach of contract between SIRC and MFT for approximately $7 million dollars. SIRC contested the claims, and in or around September 2, 2022, a settlement was reached between the parties. The amount has been accrued as a liability since 2021.
SIRC v. Pablo Diaz Curiel – This is a pending lawsuit in the Superior Court of California, County of San Diego (Case No. 37-2022-00036984-CU-FR-CTL). SIRC initiated suit on September 15, 2022, alleging, among other things, that Diaz fraudulently induced SIRC into acquiring a 60% interest in USA Solar Networks LLC. SIRC obtained a temporary restraining order against Diaz preventing him from selling the 12 million shares of SIRC stock he received through the acquisition. SIRC intends to amend the complaint to seek damages related to the acquisition of the remaining 40% interest in USA Solar as well. In the suit, SIRC seeks rescission and/or monetary damages in excess of $40 million. The matter is still in the pleading stage.
ITEM 1A. RISK FACTORS
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item. Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors,” in our Registration Statement on Form 10, as amended, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
August 2, 202 – 200,000 shares issued to Mammoth Corporation at the price of $0.4935 per share as a consideration for no interest on convertible debt valued $98,700.
August 2, 2022 – 600,000 shares of common stock issued to Marlena LeBrun at $0.1342 for cash of $80,500.
August 2, 2022 – 2,715,000 shares of common stock issued to Kiersten Massey at $0.1893 for cash of $514,040.
August 2, 2022 – 150,000 shares of common stock issued to Stephanie Hooper at the price of $0.2351 per share as a consideration for no interest on promissory note valued $35,265.
August 5, 2022 – 361,936 shares of common stock issued to James DiPrima at $0.1999 per share as consideration for legal settlement valued $72,387.
August 8, 2022 -1,200,000 shares of common stock issued to employees at $0.21 per share for compensation valued at $252,000.
August 18, 2022 – 25,074,285 shares of common stock issued to RB Capital Partners, Inc. at $0.07 per share as consideration for convertible notes valued $1,755,200.
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August 23, 2022 – 14,990,000 shares of common stock issued to SIRC Family LLC for conversion of 1,499,999 shares of preferred stock Class B.
August 29, 2022 – 45,000,000 shares of common stock were returned and cancelled as part of rescission of an acquisition agreement with Cornerstone Construction Team LLC at $0.81 per share valued at $36,450,000.
August 29, 2022 – 8,000,000 shares of common stock issued to Cornerstone Construction Team employees at $0.2185 per share as part of cancellation of acquisition agreement valued $1,748,000.
September 1, 2022 – 200,000 shares of common stock issued to directors at $0.31 per share as compensation valued $62,000.
September 7, 2022 – 3,400,000 shares of common stock issued to Future Home Power employees at $0.23 as an additional consideration for the acquisition of an existing subsidiary valued $782,000.
September 14, 2022 – 1,200,000 shares of common stock issued to AJB Capital Investments LLC in conjunction with a promissory note at $0.295 per share valued at $354,000.
October 5, 2022 – 37,000,000 shares of common stock issued to David Massey for conversion of 3,700,000 shares of Class B preferred stock.
October 18, 2022 – 1,925,134 shares of common stock issued to consultant at the price of $0.187 per share for a total of $360,000 for services.
October 18, 2022 – 630,000 shares of common stock to employees as compensation for a price of $0.287 per share valued $180,810.
October 26, 2022 – 2,717,351 shares of common stock issued to Continuation Capital Inc. for consulting services at a price of $0.18 per share valued $489,123.
On October 26, 2022 – 552,792 shares of common stock issued for consulting services at the price of $0.18 per share valued $99,503.
October 26, 2022 – 1,111,112 shares of common stock issued to an investor for cash at the price of $0.09 per share valued $100,000.
October 26, 2022 – 3,500,000 shares of preferred stock class B issued to debt holder at the price of $1.70 per share for consideration valued $5,950,000.
November 2, 2022 - 3,500,000 share of preferred stock clad B was converted into 35,000,000 shares of common stock.
November 15, 2022 – 2,800,000 shares of common stock issued for compensation for services at the price of $0.17 per share valued $476,000
November 17, 2022 – 1,344,327 shares of common stock issued for debt at the price of $0.11 per share valued $150,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
37 |
Table of Contents |
ITEM 6. EXHIBITS
(a) | Exhibit index |
(1) | The documents set forth below are filed herewith or incorporated herein by reference to the location indicated. |
EXHIBIT INDEX
38 |
Table of Contents |
EX-101.INS |
| XBRL INSTANCE DOCUMENT |
|
|
|
EX-101.SCH |
| XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT |
|
|
|
EX-101.CAL |
| XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
|
|
|
EX-101.DEF |
| XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
|
|
|
EX-101.LAB |
| XBRL TAXONOMY EXTENSION LABELS LINKBASE |
|
|
|
EX-101.PRE |
| XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
39 |
Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOLAR INTEGRATED ROOFING CORP. |
| ||
| |||
Dated: November 21, 2022 | By: | /s/ David Massey |
|
Name: | David Massey |
| |
Title: | Chief Executive Officer and Director |
| |
(Principal Executive Officer) |
| ||
| |||
Dated: November 21, 2022 | By: | /s/ Wanda Witoslawski |
|
Name: | Wanda Witoslawski |
| |
Title: | Chief Financial Officer |
| |
(Principal Financial Officer and Principal Accounting Officer) |
|
40 |