UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 20212022.

Or

Or

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

For the transition period from _______________ to _______________

Commission File Number 001-36868

SUNWORKS, INC.

(Name of registrant in its charter)

2270 Douglas Blvd.1555 Freedom Boulevard

Provo, Suite 216UT84604

Roseville, CA95661

(Address of principal executive offices) (Zip Code)

(916)(385) 409-6900497-6955

(Registrant’s telephone Number, including area code)

(Former name, former address and former fiscal year, if 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 ☒ No ☐

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 and post such files).

Yes ☒ No ☐

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.

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 ☒

The number of shares of registrant’s common stock outstanding as of August 13, 20219, 2022 was 27,047,74432,940,656

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 in actual results include but are not limited to, the impacts of the COVID-19 pandemic, including the impacts on us, our operations, or our future financialrisks and operational results; those factorsuncertainties discussed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 (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 JUNE 30, 20212022 AND DECEMBER 31, 20202021

(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 AND SIX MONTHS ENDED JUNE 30, 20212022 and 20202021

(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 SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED June 30, 2022 and 2021

(in thousands, except share data)

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

SUNWORKS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED June 30, 20212022 and 20202021

(in thousands, except share and per share data)thousands)

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 SIX MONTHS ENDED June 30, 2021 and 2020

(in thousands, except share and per share data)

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

SUNWORKS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 20212022

(dollars in thousands, except share and per share data)

References herein to “we,” “us,” “Sunworks,” and “the Company” are to Sunworks, Inc. and its wholly owned subsidiaries, Sunworks United Inc. (“dba Sunworks United”), MDCommercial Solar Energy, Inc. (“MD Energy”CSE”), Plan B Enterprises, Inc. (“Plan B”) and Solcius LLCLLC. (“Solcius”).

1. BASIS OF PRESENTATION

Sunworks, Inc. (NASDAQ:SUNW) through its wholly owned subsidiaries is a provider of high-performance solarWe provide photovoltaic (“PV”) and battery-based power systems. Sunworks sells, engineers, procures materials, constructs and maintains photo-voltaic solar powerstorage systems for customers in a wide range of industries includingthe residential and commercial markets. Commercial projects include commercial, agricultural, commercial and industrial state and federal, and public works. Systems rangeworks projects. We operate in several residential and commercial markets including California, Utah, Nevada, Arizona, New Mexico, Texas, Colorado, Minnesota, Wisconsin, Massachusetts, Rhode Island, New York, Pennsylvania, New Jersey and South Carolina. Through our operating subsidiaries, we design, arrange financing, integrate, install, and manage systems ranging in size from 2 kilowatt2kW (kilowatt) for residential projects to multi-megawatt in size.multi-MW (megawatt) systems for larger commercial and public works projects. Commercial installations have included installations at office buildings, manufacturing plants, warehouses, service stations, churches, and agricultural facilities such as farms, wineries, and dairies. Public works installations have included school districts, local municipalities, federal facilities and higher education institutions.

On 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”“Solcius 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 transactionCompany believes the Solcius Acquisition enhances economies of scale, leading to better access to suppliers, vendors and financial partners, as well as marketing and customer acquisition opportunities.

The Solcius Acquisition 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, 20212022 (see Note 3).

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in 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 notes required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. The financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. These accounting policies conform to GAAP and have been consistently applied in the preparation of the condensed consolidated financial statements.

There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Sunworks, Inc., and its wholly owned operating subsidiaries,subsidiaries: Sunworks United MDInc., Commercial Solar Energy, Plan BInc. and Solcius.Solcius LLC. All material intercompany transactions have been eliminated upon consolidation of these entities.

Reclassifications

Certain reclassificationsprior period amounts have been made to prior year’s financial statementsreclassified to conform to classifications used in the current year. Sales commissions, finders’ fees and financing fees paidpresentation. The reclassifications impact historical segment reporting disclosures as historical corporate payroll costs were moved from the commercial operations segment 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.corporate segment for enhanced reporting disclosures.

Segment Reporting

We currently operate in three segments based upon our organizational structure and the way in which our operations are managed and evaluated. Our largest segment is Residential Solar which are projects smaller in size and shorter in duration. Our second operating segment is Commercial Solar Energy which includes projects that are commonly larger in size and longer in duration serving commercial, industrial, agricultural and public works customers. Our third segment is the Corporate, which is responsible for general company oversight and management. Disaggregating the corporate costs from the residential and commercial operations simplifies the performance evaluation of the Residential Solar and Commercial Solar Energy segments.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenuerevenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to assess the realizability ofreview the Company’s goodwill, intangibles, impairments and estimations of long-lived assets, revenue recognition on construction contracts recognized over time, fair value of assets acquired and liabilities assumed in a business combination, allowances for uncollectible accounts, operatingfinance lease right-of-use assets and financeliabilities, operating lease right-of-use assets and liabilities, warranty reserves, inventory valuation, 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.

Revenue Recognition

Revenue and related costs on construction contracts are recognized as the performance obligations for work are satisfied over time in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under ASC 606, revenue and associated profit, engineering, procurement and construction (“EPC”) projects for residential 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. Construction on larger commercial projects may be completed within eighteen to thirty-six months, depending on the size and location. We recognize revenue from commercial 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 not considered to be a measure of 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,For residential contracts, the Company willrecognizes revenue upon completion of the job as determined by final inspection. We recognize revenue for systems operations and maintenance over the loss interm of the period it is determined.service period.

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. We 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 costs at completion of the 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.

Contract assets represent revenue recognized in excess of amounts invoiced to customers on contracts in progress 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 revenue recognized on contracts in progress.

Accounts 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. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $262 and $392 were included in the balance of trade accounts receivable as of June 30, 2021 and December 31, 2020, respectively.

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 $295 and at December 31, 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.

For commercial projects, we commence recognizing performance revenue when work starts on the job and continue recognizing revenue over time as work is performed based on the ratio of costs incurred, excluding modules and components, compared to the total estimated non-materials costs at completion of the performance obligations.

Inventory

Judgment is required to evaluate assumptions including the amount of net contract revenue and the total estimated costs to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue to recognize. If estimated total costs on any contract are greater than the net contract revenue, the Company recognizes the entire estimated loss in the period the loss becomes known.

Changes in estimates for commercial projects occur for a variety of reasons, including, but not limited to (i) construction plan accelerations or delays, (ii) product cost forecast changes, (iii) change orders, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect in the Company’s condensed consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and six months ended June 30, 2022 and 2021 as well as the number of projects that comprise such changes. For purposes of the following table, only projects with changes in estimates that have an impact on revenue and or cost of at least $100, calculated on a quarterly basis during the periods, are presented. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

SCHEDULE OF CHANGES IN ESTIMATE AGGREGATE REVENUE

Contract Assets and Liabilities

InventoryContract assets consist of (i) the earned, but unbilled, portion of a project for which payment is valued at lower of cost or net realizable value determineddeferred by the first-in, first-out method. Inventory primarily consistscustomer until certain contractual milestones are met; (ii) direct costs, including commissions, installation labor related costs and permitting fees paid prior to recording revenue, and (iii) unbilled receivables which represent revenue that has been recognized in advance of panels, inverters,billing the customer, which is common for larger construction contracts. Contract liabilities consist of deferred revenue, customer deposits and mounting rackscustomer advances, which represent consideration received from a customer prior to transferring control of goods or services to the customer under the terms of a contract. Total contract assets and other materials. The Company reviewscontract liabilities balances as of the cost of inventories against their estimated net realizable value and records write-downs if any inventories have costs in excess of their net realizable values.

Property and Equipment

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

  SCHEDULE OF PROPERTYCONTRACT ASSETS AND EQUIPMENT ESTIMATED USEFUL LIVESLIABILITIES