UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] ☒QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedSeptemberJune 30, 20172021.

Or

[  ]☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number001-36868

SUNWORKS, INC.

(Name of registrant in its charter)

1030 Winding Creek Road, 2270 Douglas Blvd., Suite 100216

Roseville, CA 9567895661

(Address of principal executive offices) (Zip Code)

(916)409-6900

(Registrant’s telephone Number, including area code)

Issuer’s telephone Number:(916) 409-6900

(Former Addressname, former address and former fiscal year, if Changed Since Last Report)changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] ☐ No [X] ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

The number of shares of registrant’s common stock outstanding as of November 14, 2017August 13, 2021 was 22,455,664.27,047,744

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this Quarterly Report) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report except for statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. As such, our actual results may differ significantly from those expressed in any forward-looking statements. Factors that might cause these differences include, but are not limited to, the impacts of the COVID-19 pandemic, including the impacts on us, our operations, or our future financial and operational results; those factors discussed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (our Annual Report), and the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (SEC). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Except as may be required by law, we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I –- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SUNWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBERJUNE 30, 20172021 AND DECEMBER 31, 20162020

(in thousands, except share and per share data)

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

SUNWORKS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2017 AND 20162021 and 2020

(in thousands, except share and per share data)

(unaudited)

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

SUNWORKS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE NINETHREE AND SIX MONTHS ENDED SEPTEMBERJune 30, 20172021 and 2020

(in thousands, except share and per share data)

(unaudited)

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

SUNWORKS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINESIX MONTHS ENDED SEPTEMBERJune 30, 2017 AND 20162021 and 2020

(in thousands, except share and per share data)

(unaudited)

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

SUNWORKS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)JUNE 30, 2021

SEPTEMBER 30, 2017(dollars in thousands, except share and per share data)

Unless otherwise noted, (1) “Sunworks” refersReferences herein to “we,” “us,” “Sunworks,” and “the Company” are to Sunworks, Inc., a Delaware corporation formerly known as Solar3D, Inc. (2) the “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Sunworks and its Subsidiaries, whether conducted through Sunworks or a subsidiary of Sunworks, (3) “Subsidiaries” refers collectively towholly owned subsidiaries Sunworks United, Inc. (“dba Sunworks United”), MD Energy, Inc. (“MD Energy”), Plan B Enterprises, Inc. (“Plan B”) and Elite Solar Acquisition Sub,Solcius LLC (“Solcius”).

1. BASIS OF PRESENTATION

Sunworks, Inc. (“Elite Solar”), (4) “Common Stock” refers(NASDAQ:SUNW) through its wholly owned subsidiaries is a provider of high-performance solar power systems. Sunworks sells, engineers, procures materials, constructs and maintains photo-voltaic solar power systems for customers in a wide range of industries including residential, agricultural, commercial and industrial, state and federal, and public works. Systems range in size from 2 kilowatt to Sunworks’ Common Stock, and (5) “Stockholder(s)” refers to the holders of Sunworks’ Common Stock.multi-megawatt in size.

1. BASIS OF PRESENTATIONOn April 8, 2021, Sunworks, Inc., through its operating subsidiary Sunworks United Inc. (the “Buyer”), acquired all of the issued and outstanding membership interests (the “Acquisition”) of Solcius LLC, a California limited liability company (“Solcius”), from Solcius Holdings, LLC (“Seller”). Located in Provo, Utah, Solcius is a full-service, residential solar systems provider. The transaction creates a national solar power provider with a presence in 12 states, including California, Oregon, Utah, Nevada, Arizona, New Mexico, Texas, Colorado, Minnesota, Wisconsin, Massachusetts, New Jersey, Hawaii and South Carolina. The transaction enhances economies of scale, leading to better access to suppliers, vendors and financial partners, as well as marketing and customer acquisition opportunities.

The accompanyingAcquisition was consummated on April 8, 2021 pursuant to a Membership Interest Purchase Agreement, dated as of April 8, 2021 (the “Purchase Agreement”), by and between Buyer and Seller. The purchase price for Solcius consisted of $51,750 in cash, subject to post-closing adjustments related to working capital, cash, indebtedness and transaction expenses. The acquired assets and operating results of Solcius are included in these unaudited condensed consolidated financial statements (“financial statements”) and footnotes since the date of acquisition through June 30, 2021 (see Note 3).

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted accounting principlesin the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotesnotes required by generally accepted accounting principlesGAAP for complete financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to2021. The financial statements should be read in conjunction with the consolidatedaudited financial statements and footnotesnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Sunworks, Inc.the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of AmericaGAAP and have been consistently applied in the preparation of the financial statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Sunworks, Inc., and its wholly owned operating subsidiaries, Sunworks United, Inc. (d/b/a Sunworks United), MD Energy, Inc.,Plan B and Elite Solar Acquisition Sub, Inc.Solcius. All material intercompany transactions have been eliminated upon consolidation of these entities.

Reclassifications

Certain reclassifications have been made to prior year’s financial statements to conform to classifications used in the current year. Sales commissions, finders’ fees and financing fees paid to third parties have been reclassified from cost of goods sold to selling and marketing in the condensed consolidated statements of operations with no change in the previously reported net losses. Customer deposits have been reclassified and included in contract liabilities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenuesrevenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to reviewassess the realizability of the Company’s goodwill, impairments and estimations of long-lived assets, project construction costs, revenue recognition on percentageconstruction contracts recognized over time, fair value of completion type contracts,assets acquired and liabilities assumed in a business combination, allowances for uncollectible accounts, operating and finance lease right-of-use assets and liabilities, warranty reserves, inventory valuation, debt beneficial conversion features, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Reclassifications and Corrections

Certain reclassifications have been made to conform prior period data to the current presentation. In addition, the Company identified an error and revised its financial statements for the three months and nine months ended September 30, 2016 related to the elimination of certain intercompany revenues. Management concluded that the errors had no material impact on any of the Company’s previously issued financial statements, are immaterial to the Company’s results for the first, second, and third quarters of 2016 and full year 2016 results, and had no material effect on the trend of the Company’s financial results. As a result of the immaterial errors discussed above, the unaudited condensed consolidated financial statements reflect the following adjustments for the three months ended September 30, 2016: a reduction in revenue of $6,000, an increase in cost of goods sold of $75,000 and a net decrease in Operating Expenses and Other Expenses of $81,000. The effect of the reclassifications and immaterial errors had no effect on reported net loss. The unaudited condensed consolidated financial statements reflect the following adjustments for the nine months ended September 30, 2016: an increase in cost of goods sold of $460,000 and a net decrease in Operating Expenses and Other Expenses of $460,000. The effect of the reclassifications and immaterial errors had no effect on reported net loss for the nine months ended 2016.

Revenue Recognition

RevenuesRevenue and related costs on construction contracts are recognized usingas the “percentage of completion method” of accountingperformance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 605-35, Accounting606, revenue and associated profit, engineering, procurement and construction (“EPC”) projects for Performanceresidential and smaller commercial systems that require us to deliver functioning solar power systems are generally completed within two to twelve months from commencement of Construction-Typeconstruction. Construction on larger commercial projects may be completed within eighteen to thirty-six months, depending on the size and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenseslocation. We recognize revenue from EPC services over time as our performance creates or enhances an energy generation asset controlled by the customer.

The cost of materials or equipment will generally be excluded from our recognition of profit, unless specifically produced or manufactured for a project, because such costs are recognized over the performance periodnot considered to be a measure of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs.progress. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss asin the period it is determined.

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts which require the revision become known. Provisions forWe use an input method based on costs incurred as we believe that this method most accurately reflects our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed-price construction contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated losses on uncompleted contracts are made incosts at completion of the period in which such losses are determined.performance obligations. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billings”, represents revenuesContract assets represent revenue recognized in excess of amounts billedinvoiced to customers on contracts in progress. The Liability, “Billingsprogress together with commissions paid to third-party sales partners prior to revenue being recognized on residential projects. Contract liabilities represent amounts invoiced to and deposits paid by customers in excess of costs”, represents billings in excess of revenuesrevenue recognized on contracts in progress. At September 30, 2017 and December 31, 2016, the costs in excess of billings balance were $5,314,000 and $4,307,000, and the billings in excess of costs balance were $7,210,000 and $4,997,000, respectively. Residential contract revenues are recognized using the “completed contract” method of accounting.

Contract receivablesAccounts Receivable

Accounts receivable are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts. Accounts payable to material suppliersRetention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $262 and subcontractors are recorded for amounts currently due based upon work completed or materials received,$392 were included in the balance of trade accounts receivable as are retention due subcontractors, which are payable upon completion of the contract. GeneralJune 30, 2021 and administrative expenses are charged to operations as incurred and are not allocated to contract costs.December 31, 2020, respectively.

Contract Receivable

The Company performs ongoing credit evaluation of its customers. Management monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, age of receivables and other information, and records bad debts using the allowance method. Accounts receivable are presented net of an allowance for doubtful accounts at June 30, 2021 of $240,000 at September 30, 2017, $295 and $50,000 at December 31, 2016.2020 of $253. During the three months ended June 30, 2021, $134 of uncollectible accounts receivable was written off against the allowance for doubtful accounts. Additionally, during the three months ended June 30, 2021, $183 was recorded as bad debt expense compared to $158in the prior year period. During the six months ended June 30, 2021 and 2020, $188 and $280, respectively,was recorded as bad debt expense.

Cash and Cash EquivalentInventory

The Company considers all highly liquid investments with an original maturityInventory is valued at lower of three monthscost or less to be cash equivalents.

Concentration Risk

Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (FDIC) limits. At times throughoutnet realizable value determined by the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of September 30, 2017, the cash balance in excess of the FDIC limits was $6,060,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Inventory

average on a first-in, first-out method. Inventory primarily consists of modules,panels, inverters, and mounting racks and other materials,materials. The Company reviews the cost of inventories against their estimated net realizable value and is recordedrecords write-downs if any inventories have costs in excess of their net of an estimated allowance of $100,000 for obsolesce, shrink and spoilage as of September 30, 2017 and $0 as of September 30,2016.realizable values.

Property and Equipment

Property and equipment are stated at cost. Depreciation for property and equipment commences when it’sproperty and equipment are put into service and are depreciated using the straight-line method over itsthe property and equipment’s estimated useful lives:

SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES

Intangible Assets

The Company’s intangible assets at June 30, 2021 consist of the following:

SCHEDULE OF INTANGIBLE ASSETS

Intangible assets are stated at their original estimated value at the date of acquisition. The amortization of intangible assets commences upon acquisition. The intangible assets are being amortized using the straight-line method over the intangible asset’s estimated useful life:

Amortization expenses for intangible assets for the three and six months ended June 30, 2021 was as follows:

SCHEDULE OF AMORTIZATION EXPENSES

Estimated future amortization expense for the Company’s intangible assets as June 30, 2021 is as follows:

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Depreciation and amortization expense for the three months ended SeptemberJune 30, 20172021 and 20162020 was $102,000 $1,905 and $101,000,$83, respectively. Depreciation and amortization expense for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 was $308,000$1,970 and $218,000,$164, respectively.

Advertising and MarketingLeases

The Company expenses advertisingdetermines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and marketing costs as incurred. Advertisingshort-term and marketing costs include printed material, billboards, sponsorships, direct mail, radio, telemarketing, tradeshow costs, magazine,long-term lease liabilities are included in the condensed consolidated balance sheet. With the acquisition of Solcius in April 2021, the Company has finance lease ROU assets and catalog advertisement. Included within selling and marketing expensesfinance lease liabilities, which are advertising and marketing costspresented appropriately in the condensed consolidated balance sheet.

ROU assets represent the right to use an underlying asset for the three months ended September 30, 2017lease term and 2016lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of $123,600lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating and $725,300, respectively. Advertising and marketing costsfinance lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the nine months ended September 30, 2017 and 2016 were $807,500 and $2,705,100, respectively.

Warranty Liability

lease term. The Company establishes warranty liability reserves to providehas lease agreements with lease and non-lease components, which are accounted for estimated future expenses as a result of installationsingle lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and product defects, product recallsrecognition exemption, and litigation incidental to the Company’s business. Liability estimates are determined basedCompany recognizes such lease payments on management’s judgment, considering such factors as historical experience,a straight-line basis over the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s outside counsel retained to handle specific product liability cases. Solar panel manufacturers currently provide substantial warranties between ten to twenty-five years with full reimbursement to replace and install replacement panels while inverter manufacturers currently provide warranties covering ten to fifteen-year replacement and installation. Warranty reserve liability as of September 30, 2017 and December 31, 2016 is $216,000 and $116,000, respectively.lease term.

Stock-Based Compensation

The Company periodically issues stock options and restricted stock and warrantsunits (“RSU”) to employees and non-employees in non-capital raising transactions for services and for financing costs.non-employees. The Company accounts for stock option restricted stock and warrantRSU grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrantRSU grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereFASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

Basic and Diluted Net (Loss) Income per Share Calculations

Income (Loss) per Share dictates the calculation of basic earnings (loss) per share and diluted earnings per share. Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The shares for employee options restricted stock, warrants and convertible notesRSUs were not used in the calculation of the net loss per share.

A net loss causes all outstanding common stock options restricted stock, warrants, convertible preferred stock, and convertible notesunvested RSUs to be anti-dilutive. As a result, the basic and diluted losses per common share are the same for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016.2020, respectively.

As of SeptemberJune 30, 2017,2021, the potentially dilutive securities that have been excluded from the computations of weighted average shares outstanding include 811,924 329,914 stock options 1,134,615 restricted stock grants, 2,997,000 warrants, and 3,589,978 shares underlying convertible notes and preferred stock.287,500 unvested RSUs.

As of SeptemberJune 30, 2016,2020, the potentially dilutive securities that have been excluded from the computations of weighted average shares outstanding include 938,188128,411 stock options and 2,997,000 warrants because they were below the period ending stock price. We also excluded 1,506,024 shares of Series B preferred stock convertible into common stock at a 1 to 1 ratio because of trading restrictions.options.

Dilutive per share amounts are computed using the weighted-average number of common shares outstanding and potentially dilutive securities, using the treasury stock method, if their effect would be dilutive.

Long-Lived Assets

The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Indefinite Lived IntangiblesBusiness Combinations and Goodwill Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

The Company testsretains a valuation consulting firm to test for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of thean asset exceeds its fair value and may not be recoverable. Early in 2020, as a result of the events and circumstances resulting from the COVID-19 pandemic, the Company’s outlook for revenue, profitability and cash flow had deteriorated. Therefore, the Company performed a quantitative assessment of goodwill at March 31, 2020. It was determined that the carrying value of goodwill exceeded its fair value at March 31, 2020. As a result, the Company recorded an impairment of $4,000. In accordance with itsthe Company’s policies, the Company performed a qualitativequantitative assessment of indefinite lived intangibles and goodwill at December 31, 2016.2020 and no impairment was found.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of SeptemberJune 30, 2017,2021, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We adopted ASC Topic 820 as of January 1, 2008account for financial instruments measured as fair value on a recurring basis.basis under ASC Topic 820. ASC Topic 820 defines fair value and established a framework for measuring fair value in accordance with accounting principles generally accepted in the United StatesGAAP and also expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements)1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Business Combinations

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized.

Segment Reporting

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

New Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU becomes effective for the Company on January 1, 2020. The amendments in this ASU should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed. We are currently evaluating the impact ASU No. 2017-04 will have on our consolidated financial statements and associated disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017. From January 1, 2018 we will begin including amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements and associated disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for fiscal years beginning after December 15, 2017. The new revenue standard is principle based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the accounting profession work to implement this new standard. The Company is still in the process of evaluating the effect of the new standard on the Company’s historical financial statements and disclosures. As the Company completes its evaluation of this new standard, new information may arise that could change the Company’s current understanding of the impact to revenue and expense recognized. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust the Company’s assessment and implementation plans accordingly.

Management reviewed currently issued pronouncements during the six months ended June 30, 2021, and believes that any other recently issued, but not yet effective, accounting standards, if currently adopted, would not have a material effect on the accompanying condensed consolidated financial statements.

3. LOANS PAYABLEBUSINESS ACQUISITION

Plan B, aOn April 8, 2021, pursuant to the Purchase Agreement, the Company, through its operating subsidiary Sunworks United Inc. acquired all of the Company, entered into a business loan agreement, prior to being acquired by the Company, with Tri Counties Bank dated March 14, 2014, in the original amountissued and outstanding membership interests of $131,000 bearing interest at 4.95%. The loan agreement called for monthly payments of $2,500 and was scheduled to mature on March 14, 2019. ProceedsSolcius from the loan were used to purchase a pile driver and related equipment and is secured by the equipment. The outstanding balance at September 30, 2017, is $42,500.

Plan B, entered into a business loan agreement prior to being acquired by the Company, with Tri Counties Bank dated April 9, 2014,Seller. Located in the original amount of $250,000 bearing interest at 4.95%. The loan agreement calls for monthly payments of $4,700 and is scheduled to mature on April 9, 2019. Proceeds from the loan were used to purchase racking inventory and related equipment. The loan is secured by the inventory and equipment. The outstanding balance at September 30, 2017, is $86,000.

On December 31, 2015, the Company entered into a $2.5 million Credit Facility or the Credit Agreement with JPMorgan Chase Bank, N.A. Availability under the Credit AgreementProvo, Utah, Solcius is a Linefull-service residential solar systems provider.

The purchase price for Solcius consisted of Credit with a Letter$51,750 in cash subject to post-closing adjustments related to working capital, cash, indebtedness and transaction expenses. The Acquisition was accounted for under ASC 805 and the financial results of Credit Sublimit up to $2.5 million. Upon execution, the Company accessed $1.8 million that was repaid in full on January 5, 2016. The Company had no of borrowings under the Credit Agreement as of September 30, 2017 and December 31, 2016. The Credit Agreement matures on November 30, 2017, but may be cancelled at any time by the Company. Loans are secured by a security interestSolcius have been included in the Company’s cash accounts held withfinancial statements since the Lender. Interest on any unpaid balance accruesdate of the Acquisition.

Purchase Price Allocation

Under the purchase method of accounting, the transaction was valued for accounting purposes at $52,111 which was the fair value of Solcius at the Prime Rate,time of acquisition. The assets and liabilities of Solcius were recorded at their respective fair values as definedof the date of acquisition. The Company used a valuation consultant who identified $15,600 of separately identifiable intangible assets. Any difference between the cost of Solcius and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following

SCHEDULE OF BUSINESS ACQUISITION LIABILITIES AND ASSETS ACQUIRED

During the three and six months ended June 30, 2021, we recorded total transaction costs related to the Acquisition of $40 and $750, respectively. These expenses were accounted for separately from the net assets acquired, and are included in general and administrative expense.

We will continue to conduct assessments of the Credit Agreement; providednet assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. We expect that on any given day, shall not be less than the Adjusted One Month LIBOR rate. Until the maturity date, the Company shall pay monthly interest only on loans. it may take into late 2021 until all post-closing assessments and adjustments are finalized.

Pro Forma Information

The Credit Facility providesresults of operations for the paymentAcquisition since the April 8, 2021 closing date have been included in our June 30, 2021 condensed consolidated financial statements and include approximately $22,812 of certain fees, including fees applicable to each standby lettertotal revenue. The following unaudited pro forma financial information represents a summary of credit and standard transaction fees with respect to any transactions occurring on accountthe consolidated results of any letter of credit. Subject to customary carve-outs, the Credit Agreement contains customary negative covenants and restrictions for agreements of this type on actions by the Company including, without limitation, restrictions on indebtedness, liens, investments, loans, consolidation, mergers, dissolution, asset dispositions outside the ordinary course of business, change in business and restriction on use of proceeds. In addition, the Credit Agreement requires compliance by the Company with covenants including, but not limited to, furnishing the lender with certain financial reports. The Credit Agreement contains customary events of default, including, without limitation, non-payment of principal or interest, violation of covenants, inaccuracy of representations in any material respect and cross defaults with certain other indebtedness and agreements.

On January 5, 2016, the Company entered into a loan agreementoperations for the three months and six months ended June 30, 2021 and 2020, assuming the acquisition had been completed as of a pile driver in the principal amount of $182,000 bearing interest at 5.5%. The loan agreement calls for monthly payments of $4,200 and is scheduled to mature on January 15,1, 2020. The loanpro forma financial information includes certain non-recurring pro forma adjustments that were directly attributable to the business combination. The proforma adjustments include the elimination of Acquisition transaction expenses totaling $750 incurred in 2021, and adjustments to recognize amortization of intangible assets, retention stock-based compensation programs and retention bonus accruals in 2020. The retention bonus expense is secured byrecognized over the equipment.first year following the Acquisition. The outstanding balance at September 30, 2017,pro forma financial information is $110,700.

On September 8, 2016,not necessarily indicative of the Company entered into a loan agreement forresults of operations that would have been achieved if the acquisition had been effective as of a pile driver in the principal amountthese dates, or of $174,000 bearing interest at 5.5%. The loan agreement calls for monthly payments of $4,000 and is scheduled to mature on January 15, 2020. The loan is secured by the equipment. The outstanding balance at September 30, 2017, is $134,000.future results.

On November 14, 2016, the Company entered into a 0% interest loan agreement for the acquisition of an excavator in the principal amount of $58,600. The loan agreement calls for monthly payments of $1,200 and is scheduled to mature on November 13, 2020. The loan is secured by the equipment. The outstanding balance at September 30, 2017, is $45,600.

On December 23, 2016, the Company entered into a loan agreement for the acquisition of modular office systems and related furniture in the principal amount of $172,000 bearing interest at 4.99%. The loan agreement calls for 16 quarterly payments of $11,900 and is scheduled to mature in September 2020. The loan is secured by the equipment. The outstanding balance at September 30, 2017, is $132,200.

As of September 30, 2017 and December 31, 2016, loans payable are summarized as follows:

4.

SCHEDULE OF BUSINESS ACQUISITION CONVERTIBLE PROMISSORY NOTESPROFORMA STATEMENTS OF OPERATIONS 

On January 31, 2014, the Company issued 4% convertible promissory notes in the aggregate principal amount of $1,750,000 as part of the consideration paid to acquire 100% of the issued and outstanding stock of Sunworks United. The notes are convertible into shares of the Company’s fully paid and non-assessable common stock at a conversion price of $0.52 per share and was originally due on March 30, 2015, which was amended to extend to September 30, 2016. The Notes were five (5) year notes and bore interest at the rate of 4% per annum. In February and March 2014, $625,000 of the notes was converted into 1,201,923 shares of common stock, leaving a remaining note balance of $1,125,000 as of December 31, 2014. During the twelve months ended December 31, 2015, the Company issued 721,154 shares of common stock upon conversion of principal in the amount of $375,000. The principal note balance remaining as of December 31, 2015 was $750,000. On February 29, 2016, the $750,000 balance remaining was fully converted into 1,442,308 shares of common stock.

On February 28, 2015, the Company issued a 4% convertible promissory note in the aggregate principal amount of $2,650,000 as part of the consideration paid to acquire 100% of the total outstanding stock of MD Energy. The note is convertible into shares of common stock on or after each of the following dates: November 30, 2015, November 30, 2016 and November 30, 2017. The conversion price is $2.60 per share. A beneficial conversion feature of $3,261,500 was calculated but capped at the $2,650,000 value of the note. The beneficial conversion feature was calculated by multiplying the difference between the fair value of stock at the date of the note $5.80 less the conversion price of $2.60 multiplied by the maximum number of share subject to conversion, 1,019,231. In November 2015, the Company issued 339,743 shares of common stock upon conversion of the principal amount of $883,000. Commencing on March 31, 2015, and each quarter thereafter during the first two (2) years of the note, the Company will make quarterly interest only payments to the shareholder for accrued interest on the Note during the quarter. Commencing with the quarter ending on June 30, 2017, the Company began to make quarterly payments of interest accrued on the convertible note during the prior quarter plus $151,429. The final payment of all outstanding principal and accrued but unpaid interest on the convertible note is due and payable on February 28, 2020 (the maturity date). The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $220,000 and $210,000 during the three months ended September 30, 2017 and 2016, respectively. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $657,000 and $693,000 during the nine months ended September 30, 2017 and 2016, respectively. The debt discount will be amortized over the life of the convertible note, or until such time that the convertible note is converted, in full or in part, into shares of common stock of the Company with any unamortized debt discount continuing to be amortized in the event of any partial conversion thereof and any unamortized debt discount being expensed at such time of full conversion thereof.

We evaluated the foregoing financing transactions in accordance4. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue by customer type from contracts with ASC Topic 470, Debt with Conversion and Other Options, and determined that the conversion feature of the convertible promissory note was afforded the exemption for conventional convertible instruments due to its fixed conversion rate. The convertible promissory notes have explicit limits on the number of shares issuable so they did meet the conditions set forth in current accounting standards for equity classification. The convertible promissory notes were issued with non-detachable conversion options that are beneficial to the investors at inception, because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The accountingcustomers for the beneficial conversion feature requires that the beneficial conversion feature bethree and six months ended June 30, 2021 and 2020:

SCHEDULE OF DISAGGREGATION OF REVENUE

Contract assets represent revenue recognized by allocating the intrinsic valuein excess of the conversion option to additional paid-in-capital, resultingamounts invoiced on contracts in a discountprogress. Contract liabilities represent billings in excess of revenue recognized on the convertible notes, which will be amortized and recognized as interest expense.

5. CONVERTIBLE PROMISSORY NOTES

Convertible promissory note at Septembercontracts in progress. At June 30, 20172021 and December 31, 2016 are as follows:

On January 31, 2014,2020, the contract asset balances were $9,824 and $2,397, and the contract liability balances were $12,911and $6,260, respectively. During the three and six months ended June 30, 2021, the Company entered intorecognized revenue of approximately $2,335 and $3,846 from the $6,260 contract liabilities balance as of December 31, 2020, respectively.

5. OPERATING SEGMENTS

The acquisition of Solcius was completed in April 2021. Solcius is a securities purchase agreement providingseparate segment for management reporting purposes. Segment net revenue, segment operating expenses and segment contribution (loss) information consisted of the following for the salethree months ended June 30, 2021.

SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT