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, 2022.

☐ 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)

Delaware

01-0592299

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1555 Freedom Boulevard

Provo, UT 84604

(Address of principal executive offices) (Zip Code)

(385) 497-6955

(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:

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
Common stock, par value $0.001 per share		SUNW		The Nasdaq Capital Market

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.

Large accelerated filer ☐	Accelerated filer ☐
Non-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 ☐ No ☒

The number of shares of registrant’s common stock outstanding as of August 9, 2022 was 32,940,656

TABLE OF CONTENTS

	Page

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	4

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	4

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	5

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021	6

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	7

Notes to the Unaudited Condensed Consolidated Financial Statements	8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25

ITEM 4. CONTROLS AND PROCEDURES	25

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	26

ITEM 1A. RISK FACTORS	26

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	26

ITEM 4. MINE SAFETY DISCLOSURES	26

ITEM 5. OTHER INFORMATION	26

ITEM 6. EXHIBITS	26

SIGNATURES	27

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 the risks and uncertainties discussed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (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, 2022 AND DECEMBER 31, 2021

(in thousands, except share and per share data)

	June 30, 2022			December 31, 2021
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	12,067		$	19,719
Restricted cash		323			323
Accounts receivable, net		8,012			4,568
Inventory		18,822			10,219
Contract assets		19,637			14,498
Other current assets		4,748			4,154
Total Current Assets		63,609			53,481
Property and equipment, net		2,778			3,195
Finance lease right-of-use assets, net		1,488			1,407
Operating lease right-of-use assets		2,212			2,502
Deposits		139			132
Intangible assets, net		6,383			7,910
Goodwill		32,186			32,186
Total Assets	$	108,795		$	100,813

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	16,323		$	11,127
Contract liabilities		19,417			12,201
Finance lease liability, current portion		440			424
Operating lease liability, current portion		967			993
Total Current Liabilities		37,147			24,745

Long-Term Liabilities:
Finance lease liability, net of current portion		618			542
Operating lease liability, net of current portion		1,245			1,509
Warranty liability		1,371			1,251
Total Long-Term Liabilities		3,234			3,302
Total Liabilities		40,381			28,047

Commitments and contingencies		-			-

Shareholders’ Equity:
Preferred stock, $0.001 par value, 5,000,000 authorized shares; no shares issued and outstanding		-			-
Common stock, $0.001 par value; 50,000,000 authorized shares; 32,934,822 and 29,193,772 shares issued and outstanding, at June 30, 2022 and December 31, 2021, respectively		33			29
Additional paid-in capital		199,433			187,997
Accumulated deficit		(131,052	)		(115,260	)
Total Shareholders’ Equity		68,414			72,766

Total Liabilities and Shareholders’ Equity	$	108,795		$	100,813

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, 2022 and 2021

(in thousands, except share and per share data)

	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
	Three Months Ended						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021

Revenue, net	$	36,397		$	32,091		$	67,593		$	38,260

Cost of Goods Sold		19,532			16,953			36,697			23,031

Gross Profit		16,865			15,138			30,896			15,229

Operating Expenses:
Selling and marketing		14,318			10,165			26,548			11,396
General and administrative		8,525			6,738			15,961			10,190
Stock-based compensation		371			1,113			1,655			1,264
Depreciation and amortization		1,312			1,905			2,595			1,970

Total Operating Expenses		24,526			19,921			46,759			24,820

Operating Loss		(7,661	)		(4,783	)		(15,863	)		(9,591	)

Other Income (Expense)
Other income, net		51			2,886			53			2,890
Interest expense		(59	)		(21	)		(66	)		(30	)
Gain on disposal of property and equipment		178			51			178			51

Total Other Income, net		170			2,916			165			2,911

Loss before Income Taxes		(7,491	)		(1,867	)		(15,698	)		(6,680	)

Income Tax Expense		94			-			94			-

Net Loss	$	(7,585	)	$	(1,867	)	$	(15,792	)	$	(6,680	)

LOSS PER SHARE:
Basic	$	(0.23	)	$	(0.07	)	$	(0.51	)	$	(0.26	)
Diluted	$	(0.23	)	$	(0.07	)	$	(0.51	)	$	(0.26	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic		32,907,289			27,047,744			31,262,031			26,145,676
Diluted		32,907,289			27,047,744			31,262,031			26,145,676

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)

						Additional
	Common Stock					Paid-in			Accumulated
	Shares			Amount		Capital			Deficit			Total
Balance at December 31, 2021		29,193,772		$	29	$	187,997		$	(115,260	)	$	72,766
Stock-based compensation		-			-		1,284			-			1,284
Issuance of common stock under terms of restricted stock grants		121,666			-		-			-			-
Sales of common stock pursuant to S-3 registration statement, net		2,757,830			3		7,811			-			7,814
Net loss for the three months ended March 31, 2022		-			-		-			(8,207	)		(8,207	)
Balance at March 31, 2022		32,073,268			32		197,092			(123,467	)		73,657
Stock-based compensation		-			-		371			-			371
Issuance of common stock under terms of restricted stock grants		95,000			-		-			-			-
Tax withholdings related to net share settlements of equity awards		(16,703	)		-		(34	)		-			(34	)
Sales of common stock pursuant to S-3 registration statement, net		783,257			1		2,004			-			2,005
Net loss for the three months ended June 30, 2022		-			-		-			(7,585	)		(7,585	)
Balance at June 30, 2022		32,934,822		$	33	$	199,433		$	(131,052	)	$	68,414

					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2020		23,835,258	$	24	$	122,668	$	(88,635	)	$	34,057
Stock-based compensation for options		-		-		151		-			151
Sales of common stock pursuant to S-3 registration statement		3,212,486		3		48,855		-			48,858
Net loss for the three months ended March 31, 2021		-		-		-		(4,813	)		(4,813	)
Balance at March 31, 2021		27,047,744		27		171,674		(93,448	)		78,253
Stock-based compensation for options		-		-		1,113		-			1,113
Net loss for the three months ended June 30, 2021		-		-		-		(1,867	)		(1,867	)
Balance at June 30, 2021		27,047,744	$	27	$	172,787	$	(95,315	)	$	77,499

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, 2022 and 2021

(in thousands)

	June 30, 2022			June 30, 2021
	Six Months Ended
	June 30, 2022			June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(15,792	)	$	(6,680	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		2,595			1,970
Amortization of right-of-use assets		536			484
Gain on sale of equipment		(178	)		(51	)
Paycheck Protection Program loan forgiveness		-			(2,881	)
Stock-based compensation		1,655			1,264
Bad debt expense		225			188
Changes in Operating Assets and Liabilities, net of acquisition
Accounts receivable		(3,669	)		(3,952	)
Inventory		(8,603	)		(1,961	)
Deposits and other current assets		(601	)		(782	)
Contract assets		(5,139	)		(91	)
Accounts payable and accrued liabilities		5,196			1,635
Contract liabilities		7,216			1,378
Warranty liability		120			60
Operating lease liability		(536	)		(484	)
NET CASH USED IN OPERATING ACTIVITIES		(16,975	)		(9,903	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Solcius LLC, net of cash acquired		-			(50,619	)
Purchase of property and equipment		(439	)		(429	)
Proceeds from sale of equipment		197			61
NET CASH USED IN INVESTING ACTIVITIES		(242	)		(50,987	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on finance lease liabilities		(220	)		(99	)
Proceeds from sale of common stock, net		9,819			48,858
Payments for taxes related to net share settlement of equity awards		(34	)		-
NET CASH PROVIDED BY FINANCING ACTIVITIES		9,565			48,759

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(7,652	)		(12,131	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH BEGINNING OF PERIOD		20,042			39,339
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	12,390		$	27,208

Cash and cash equivalents	$	12,067		$	26,860
Restricted cash		323			348
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	12,390		$	27,208

CASH PAID FOR:
Interest	$	18		$	11
Franchise and corporate excise taxes	$	42		$	-

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Increase in operating right-of-use assets and liabilities due to lease modification		-			103
Right-of-use assets obtained in exchange for new finance lease liability	$	338			87
Right-of-use assets obtained in exchange for new operating lease liability	$	247		$	481

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, 2022

(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. (“Sunworks United”), Commercial Solar Energy, Inc. (“CSE”), and Solcius LLC. (“Solcius”)

1. BASIS OF PRESENTATION

We provide photovoltaic (“PV”) and battery-based power and storage systems for the residential and commercial markets. Commercial projects include commercial, agricultural, industrial and public works 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 2kW (kilowatt) for residential projects to 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 (the “Buyer”),

SEC Form 10-Q filed by Sunworks Inc.