Sunworks
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KSunworks, Inc. - SUNWFiled: March 14, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)☑Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 2015 OR ☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission File No. 000-49805Sunworks, INC.(Exact name of registrant as specified in its charter)DELAWARE01-05922991(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.) 1010 Winding Creek Road, Suite 100Roseville, CA 95678(Address of principal executive office)Registrant’s telephone number, including area code (916) 409-6900Securities registered pursuant to Section 12(b) of the Act:Common Stock, Par Value $0.001(Title of class) The NASDAQ Stock Market LLC(Name of exchange on which registered)Securities registered pursuant to Section 12(g) of the Act: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No RIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No RIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes R No £Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired 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 shorterperiod that the registrant was required to submit and post such files). Yes R No £Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and,will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer £Accelerated filer £Non-accelerated filer £Smaller reporting company R (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £ No RThe aggregate market value of the common stock held by non-affiliates as of June 30, 2015 was $59.3 million.Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The outstanding number of shares of common stock as of March 11, 2016 was 19,762,844.Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS PagePART IItem 1.Business 1Item 1A.Risk Factors 6Item 1B.Unresolved Staff Comments18Item 2.Properties 18Item 3.Legal Proceedings19Item 4.Mine Safety Disclosures19PART IIItem 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20Item 6.Selected Financial Data20Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations21Item 7A.Quantitative and Qualitative Disclosures About Market Risk Item 8.Financial Statements and Supplementary Data25Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure26Item 9A.Controls and Procedures26Item 9B.Other Information27PART IIIItem 10.Directors, Executive Officers and Corporate Governance 28Item 11.Executive Compensation32Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters37Item 13.Certain Relationships and Related Transactions, Director Independence37Item 14.Principal Accounting Fees and Services38PART IVItem 15.Exhibits, Financial Statement Schedules39 Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Item 1. Business. Forward-looking Statements Statements in this annual report on Form 10-K that are not historical facts constitute forward-looking statements. Examples of forward-lookingstatements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results ofoperations or financial position, and other financial items, our business plans and objectives, and may include certain assumptions that underlie forward-looking statements. Risks and uncertainties that may affect our future results, levels of activity, performance or achievements expressed or implied by theseforward-looking statements include, among other things, those listed under “Risk Factors” and elsewhere in this annual report. These risks and uncertainties include but are not limited to: ·our limited operating history;·our ability to raise additional capital to meet our objectives;·our ability to compete in the solar electricity industry;·our ability to sell solar electricity systems;·our ability to arrange financing for our customers;·government incentive programs related to solar energy;·our ability to increase the size of our company and manage growth;·our ability to acquire and integrate other businesses;·relationships with employees, consultants and suppliers; and·the concentration of our business in one industry in one geographic area. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,”“anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are subject to business and economic risk and reflect management’s current expectations, and involve subjects that are inherentlyuncertain and difficult to predict. Actual events or results may differ materially. Moreover, neither we nor any other person assumes responsibility for theaccuracy or completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this annual report toconform these statements to actual results. Business Introduction/Summary References herein to “we,” “us,” “Sunworks,” and “the Company” are to Sunworks, Inc. and its wholly-owned subsidiaries Sunworks United, Inc.(“Sunworks United”), MD Energy, Inc. (“MD Energy”), and Elite Solar Acquisition Sub, Inc. (“Elite Solar”). All dollar figures are in thousands (000’s)unless otherwise specified. We provide photo voltaic (“PV”) based power systems for the residential, commercial and agricultural markets in California and Nevada. Throughour operating subsidiaries, we design, arrange financing, integrate, install and manage systems ranging in size from 2kW (kilowatt) for residential loads tomulti MW (megawatt) systems for larger commercial projects. Commercial installations have included office buildings, manufacturing plants, warehouses,and agricultural facilities such as farms, wineries and dairies. The Company provides a full range of installation services to our solar energy customersincluding design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring and maintenance. We adhere to the business principles of:1.Doing what is right for the customer2.Delivering the best value in our industry; and3.Doing what we say we will do.We have installed over 850 systems in 2015 in California and Nevada, an approximately 18 MW of capacity, which is more than a 250% increaseover the approximately 300 systems installations and 7MW of capacity in 2014. Approximately 60% of our 2015 revenue was from sales to the commercial market, including the agricultural market, and approximately 40% of ourrevenue was from sales to the residential market. In addition to our core solar integrator business, our technology division has developed a patent-pending 3-dimensional solar cell technology thatwe believe has the potential to increase PV conversion efficiency thereby reducing the cost of the electricity generated. 1Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Recent DevelopmentsName Change On March 1, 2016, we changed our name to Sunworks, Inc. with simultaneous NASDAQ stock symbol change from SLTD to SUNW. Also, onFebruary 26, 2016, we changed the name of our subsidiary, Solar United Network, Inc. to Sunworks United, Inc. Closing of Elite Solar Acquisition On August 6, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Plan B Enterprises, Inc., a Californiacorporation and d/b/a Universal Racking Solutions (“Plan B”), Kirk R. Short and Elite Solar Acquisition Sub., Inc., a wholly owned subsidiary of theCompany (the “Surviving Corporation”) whereby Plan B merged with and into the Surviving Corporation. The transactions contemplated by the MergerAgreement, as amended, closed on December 1, 2015. We paid a consideration of $7 million, with $2.5 million paid in cash and 1,506,024 in shares of ourSeries B Preferred Stock valued at $4.5 million. Market Opportunity We believe the following trends will contribute to the growth and prospects of our business: ·Growing Market for Solar Energy. The market for residential distributed solar energy is growing rapidly. According to research compiled by GTMResearch, an industry research firm, and the Solar Energy Industries Association, or SEIA, 7.4 gigawatts of capacity will be installed within the U.S.solar energy market in 2015, up 19% over 2014. GTM Research/SEIA forecasts that installations in 2016 will be up 25-50% over 2015. We believethat the market is growing rapidly yet possesses significant growth opportunities since solar energy is still a small percentage of the U.S. energymarket. We believe that there is a significant opportunity for distributed solar energy to increasingly displace traditional retail electricity generatedfrom fossil fuels.·Strong Regional Markets. According to the U.S. Solar Market Insight Report, 4.1 gigawatts of solar power were installed in the US in the first 3quarters of 2015, of which we believe, over half were installed in California and Nevada, our target market.·Highly Fragmented Industry. The solar installer industry is highly fragmented and populated with many companies that have been born out of theelectrical contractors industry. The solar installer industry has already undergone significant consolidation with the number of installers inCalifornia alone dropping, according to the U.S. Department of Energy, from 1,000 between 2009 and 2013 to 600 in 2014. While we believe thatsome consolidation has occurred, we also believe that there is opportunity for further consolidation. Strategy Our strategy for growth is twofold. First, we plan to continue to expand the reach and penetration of our existing businesses. Second, we also toplan to selectively acquire PV installers that are financially stable, quality oriented, profitable and have a strong management team that is compatible withour existing team. Our acquisition candidates primarily consist of small independent companies that generate between $15 million to $50 million of revenuesprofitably, but lack the resources to scale their businesses. This limits the exit options for the owners of these companies. We believe that a sale to us willoffer them a liquidity opportunity and an opportunity to participate in the continued growth of the business with our resources through convertible notesissued in the acquisition. Our acquisition criteria include the following: ·Same Target Market – Companies in the residential and commercial markets.·Willingness to Continue Participation – Prefer management of acquired companies to continue in an operating role.·Compatible and Collaborative Management – Target management must be willing to accept our best practices.·Profitable – Companies that generate an operating profit.·Location – Currently focused on the western states markets. We believe the keys to success in acquiring companies are to buy the right company, with a good transaction structure, and with strong managementin place. Our management team has experience in successfully executing a strategy of acquiring companies that have become successful enterprises undertheir new ownership. 2Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Company Operations Employees We employ a total of approximately 200 full-time employees. We also utilize outside subcontractors to assist with providing solar systems to ourcustomers. We split our direct labor between employees and contract labor. With each acquisition, we look to transition the majority of back office functionsto our corporate headquarters to reduce costs and make our operations consistent across our subsidiaries. We believe that our strategy of consolidating suchfunctions as purchasing, supplier relations, accounting, human resources and other basic functions help to realize cost reductions and strategic synergies. Sales and Marketing We have approximately 70 employees primarily focused on sales and marketing in California and Nevada. Over 60% of our commercial sales andapproximately 40% of our sales to the residential market are generated by referrals. In Northern California, we have specially-designed marketing efforts and tracking systems in place that enable us to attract new customers at a lowcost and higher conversion rate than what we believe to be the industry average. The Company utilizes several marketing tools and business strategies todifferentiate itself from its competitors and attract new customers, including its proprietary proposal tool, its proprietary CRM (customer relationshipmanagement software), radio shows and celebrity endorsements, our website, search engine optimization, social media, email marketing, direct mailers, itssolar outreach division (canvassing, trade shows and events, solar open houses), call center, strategic partnerships/joint ventures, sponsorships, shared spacein retail stores, solar stations (kiosks) and its referral program. In our Southern California operations, we have a strong advantage in the commercial solar market given our extensive contact list resulting from ourexperience in the commercial and industrial construction market, which provides access to customer lists. Through our network of vendors and independentsales consultants, we now have a growing list of repeat clients, as well as an active and loyal referral network. Financing To promote sales, we assist customers in obtaining financing. Our objective is to arrange the most flexible terms that meet the needs and wants ofthe customer. Although we do not provide financing ourselves, we have relationships to arrange financing with numerous private and public sources,including PACE (Property Assessed Clean Energy) Programs, which are programs that involve both municipal governments and private financing companiesthat allow property owners to receive upfront funding for renewable energy projects, and Farm Credit financing offered by a network of lending institutions. We believe it is best for customers to own their own systems, but some customers prefer not to own their systems. We also have the ability to arrangefinancing with third parties through power purchase agreements (“PPAs”) and leases for our customers. Suppliers We purchase solar panels and materials directly from multiple manufacturers. We intend to further coordinate purchases and optimize supplyrelationships to realize the advantages of greater scale. If one or more of our suppliers fail to meet our anticipated demand, or ceases or reduces production due to its financial condition, acquisition by acompetitor or otherwise, it may be difficult to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, andour ability to satisfy this demand may be adversely affected. We do not, however, rely on any single supplier and, we believe, we can obtain needed solarpanels and materials from a number of different suppliers. Accordingly, we believe that the loss of any single supplier would not materially affect ourbusiness. We also utilize strategic companies with subcontractors, such as Tiger Electric, Inc. for electrical installations, Aerotek Inc. for racking and moduleinstallations, as well as numerous subcontractors for grading, landscaping, and construction for our large commercial, industrial and agricultural customers. Installation We are a licensed contractor in the markets we serve, and we are responsible for every customer installation. We manage the entire process frompermitting through inspection to interconnection to the power grid, thereby making the system installation process simple and seamless for our customers.Controlling every aspect of the installation process allows us to minimize costs, ensure quality and deliver high levels of customer satisfaction. 3Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents After-Sales Support It is our intent to provide continuing operation and maintenance services for our installed residential and commercial PV system. We provideextended factory equipment technical support and act as a service liaison using our proprietary knowledge, technology and solar electric energy engineeringstaff. We do this through a 25 Year Limited Workmanship Warranty and Operations and Maintenance Program, which among other things provide a serviceand technical support line to our customers. We generally respond to our job site related issues within 24 hours and offer assistance as long as required tomaintain customer satisfaction. Our price to customers includes this warranty, which is essentially a pass through of manufacturers’ warranty. Facilities Our corporate headquarters was relocated from Santa Barbara, California to Roseville, California during the fourth quarter of 2015. We maintainsales and installation offices in Roseville, California, in Reno, Nevada, in Rancho Cucamonga, California and in Durham, California. We lease all of ouroffices and facilities. Customers Currently, the majority of our revenue comes from installations in California with a small amount in Nevada. Approximately 60% of our sales in2015 were in the commercial/agricultural market and approximately 40% were generated by residential sales, but we expect that these percentages will varyfrom year to year. Our residential operations address the needs of property owners installing systems smaller than 20kW. The typical residential system installed isabout 6kW with an average cycle time of 45 days. We facilitate purchase or lease financing and offer product options to fit the specific needs of eachcustomer. We also install systems for the commercial market, which includes offerings to agricultural customers. We define small commercial projects as theinstallation of systems under 100kW, whereas large commercial projects involve the installation of systems greater than 100kW. Solar projects have receivedlimited financing from traditional lending sources but we have been encouraged by municipal PACE programs in California which have drawn fundingsources such as Ygrene and California First into the financing of energy projects. Cycle times vary from fifteen to twenty weeks, which is a common cycle forcommercial projects. Larger projects typically have a longer cycle time than smaller projects. Agricultural system sizes vary significantly within this sectorand can range from 10kW to multiple megawatts. Agricultural loans to farmers and tax-oriented leases are the primary funding sources within the industry.Similar to commercial installations, cycle times for agricultural projects may commonly range from fifteen to twenty weeks or longer for larger projects. Competitors In the solar installation market, we compete with companies that offer products similar to ours. Some of these companies have greater financialresources, operational experience and technical capabilities than us. When bidding for solar installation projects, however, our current experience suggeststhat there is no clear dominant or preferred competitor in the markets in which we compete. We do not believe that any competitor has more than 10% of themarket across all of the areas that we operate. We compete with other solar installers on pricing, service and the ability to arrange financing. On a globalscale, we also compete, on a cost basis, with traditional utilities that supply electricity to our potential customers and with companies that are not regulatedlike traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies. Our advantage over traditional utilities is that we offer customers the opportunity to create their own electricityand detach from the traditional electrical grid. Seasonality Exposure to seasonality in our sales patterns is largely mitigated because of the breadth of our business offerings to residential, commercial andagricultural customers. We do find, however, that some customers tend to book projects by the end of a calendar year to realize the benefits of availablesubsidy programs prior to year-end. This results in fourth quarter sales being more robust usually at the expense of the first quarter. The first quarter inCalifornia often has rain, which also reduces our ability to install in that quarter relative to the remainder of the year. 4Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Technology and Intellectual Property Generally, the solar installation business is not dependent on intellectual property. With respect to our research efforts, patent applications havebeen filed for the Sunworks 3-dimensional solar cell technology for nationalization in the United States, China, Singapore, and India. The novel 3D cell,which is still in the development stage, is designed to collect sunlight from a wide angle and allow light to bounce around within 3-dimensionalmicrostructures on the solar cell surface more fully absorbing the light than traditional solar cells. To commercialize this technology, we plan to work with amanufacturing partner that has the capability to assist with the remaining steps (prototyping and volume runs to verify and prove improvement in conversionefficiency). Research and development expense was $53 and $113 for the years ended December 31, 2015 and 2014, respectively. During 2015, we have invested in the development and implementation of Vista by Viewpoint, a robust enterprise management system, to facilitatethe efficient integration and management of our recent and any future acquisitions. We expect to begin working with the new software for 2016 operationsand accounting. Government Regulation and Incentives Government RegulationWe are not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where we conductbusiness. To operate our systems we obtain interconnection permission from the applicable local primary electric utility. Depending on the size of the solarenergy system and local law requirements, interconnection permission is provided by the local utility and us and/or our customer. In almost all cases,interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or otherregulatory body with jurisdiction over net metering procedures. As such, no additional regulatory approvals are required once interconnection permission isgiven. Our operations are subject to stringent and complex federal, state and local laws, including regulations governing the occupational health and safetyof our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended, orOSHA, the U.S. Department of Transportation, or DOT, and comparable state laws that protect and regulate employee health and safety. Government Incentives Federal, state and local government bodies provide incentives to owners, end users, distributors, system integrators and manufacturers of solarenergy systems to promote solar energy in the form of rebates, tax credits and other financial incentives such as system performance payments, payments forrenewable energy credits associated with renewable energy generation and exclusion of solar energy systems from property tax assessments. These incentivesenable us to lower the price we charge customers for energy from, and to lease, our solar energy systems, helping to catalyze customer acceptance of solarenergy as an alternative to utility-provided power. The Federal government currently offers a 30% Investment Tax Credit (“ITC”) under Section 48(a) of the Internal Revenue Code, or the ITC, for theinstallation of certain solar power facilities until December 31, 2016. By statute, this tax credit was scheduled to decrease to 10% on January 1, 2017, but wasextended in December by Congress through 2019, after which it will fall to 26 percent in 2020, 22 percent in 2021 and 10 percent in 2022. The economics of purchasing a solar energy system are also improved by eligibility for accelerated depreciation, also known as the modifiedaccelerated cost recovery system, or MACRS, depreciation, which allows for the depreciation of equipment according to an accelerated schedule set forth bythe Internal Revenue Service. The acceleration of depreciation creates a valuable tax benefit that reduces the overall cost of the solar energy system andincreases the return on investment. Approximately half of the states offer a personal and/or corporate investment or production tax credit for solar energy that is additive to the ITC.Further, more than half of the states, and many local jurisdictions, have established property tax incentives for renewable energy systems that includeexemptions, exclusions, abatements and credits. Many state governments, traditional utilities, municipal utilities and co-operative utilities offer a rebate orother cash incentive for the installation and operation of a solar energy system or energy efficiency measures. Capital costs or “up-front” rebates providefunds to solar customers based on the cost, size or expected production of a customer’s solar energy system. Performance-based incentives provide cashpayments to a system owner based on the energy generated by their solar energy system during a pre-determined period, and they are paid over that timeperiod. Depending on the cost of the system and other site-specific variables, tax incentives can typically cover 30-40% of the cost of a commercial orresidential solar system. 5Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Many states also have adopted procurement requirements for renewable energy production. Thirty states and the District of Columbia have adopteda renewable portfolio standard that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the state fromeligible renewable energy sources, such as solar energy systems, by a specified date. California’s renewable portfolio standard requires all utilities in the stateto source 33% of their electric generation from renewable resources by 2020.In December 2015, the Nevada Public Utilities Commission, which regulates the state’s energy market, announced a net metering rate change.Effective January 1, 2016, the new tariffs will gradually increase the monthly fees that solar users pay to use the electric grid and cut by 75% users’reimbursements for feeding electricity into the grid. The Commission’s decision is retroactive. Following public outcry, the Commission agreed to holdhearings to reconsider imposing the new rates on existing solar users, and NV Energy Department announced that it would not insist on the immediateretroactive provision but will gradually phase in the new rates for all solar customers over a 12-year period. In response to the regulation, we have begun toshift focus from the residential to the commercial markets which we believe still have economic viability.Corporate History We were originally incorporated in Delaware on January 30, 2002 as MachineTalker, Inc. In September 2010, we shifted our engineering andresearch focus to developing a new means for generating solar-produced electrical power for use in the manufacture of highly efficient solar cells. In July2010, we changed our company name to Solar3D, Inc. in order to better reflect our new business plan and filed for patent protection covering our newconcepts for 3D solar cell designs. On January 31, 2014, we acquired 100% of the stock of Sunworks United, a California corporation. On March 2, 2015, weacquired MD Energy. On December 1, 2016, we acquired Plan B through a merger of Plan B Enterprises, Inc. into our wholly owned subsidiary, Elite SolarAcquisition Sub., Inc. On March 1, 2016 we changed our name to Sunworks, Inc. with simultaneous NASDAQ stock symbol change from SLTD to SUNW. Our principal executive offices are located at 1010 Winding Creek Road, Suite 100, Roseville, CA 95678 and our telephone number is (916) 409-6900. Our web site address is www.sunworksusa.com. Information contained in or accessible through our website does not constitute part of this annual reporton Form 10-K. Available Information We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, referred toherein as the SEC. Our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and anyamendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act are available to the public free of charge over the Internet at ourwebsite at http://www.Sunworksusa.com or at the SEC’s web site at http://www.sec.gov. Our SEC filings will be available on our website as soon asreasonably practicable after we have electronically filed or furnished them to the SEC. Information contained on our website is not incorporated by referenceinto this 10-K. You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C.20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can view our Code ofConduct and Ethics and the charters for each of our committees of the Board of Directors free of charge on the corporate governance section of our website. Item 1A. Risk Factors. Our business and operations are subject to a number of significant risks and uncertainties as described below. However, the risks and uncertaintiesdescribed below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, maybecome important factors that could harm our business, financial condition or results of operations. If any of the following risks actually occur, ourbusiness, financial condition or results of operations could suffer materially. Risks Related to Our Financial Position and Capital Requirements We have a limited operating history, which could make it difficult to accurately evaluate our business and prospects. Although we were formed in January 2002, we did not begin selling solar systems until we acquired Solar United Networks in January 2014. Also,we acquired MD Energy in March 2015 and merged with Plan B Enterprises in December 2015. Management believes that our success will depend in largepart on our ability to continue to successfully sell solar systems in California and Nevada against determined competition, to consummate synergisticacquisitions, and on the industry’s acceptance of our 3-dimensional solar cell technology as an alternative to traditional energy sources. We intend tocontinue to invest in acquisitions, improvements in solar systems and in completing development of our 3-dimensional solar cell technology. We cannotassure you at this time that we will operate profitably or that we will have adequate working capital to meet our obligations as they become due.6Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We have incurred significant losses since inception. We had an accumulated deficit of $39,763 and $40,819 on December 31, 2015 and December 31, 2014, respectively. We have discontinued researchand development expenses related to our 3D solar cells. We incurred operating losses from our inception until mid-2015 when we became profitable, and weexpect that profitability may increase as we: (i) consolidate our corporate infrastructure, (ii) continue to complete additional acquisitions and, (iii) continueto commercialize our products. As such, we are subject to all risks incidental to the sales and development of new solar energy products and relatedcompanion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affectour business. We may require substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additionalcapital, we may be unable to complete the development and commercialization of our products, or continue our development programs. Our operations have consumed substantial amounts of cash since inception. We may increase our spending to commercialize our products, includingbuilding our own commercial organizations to address certain markets. We will require additional capital for the further sale, development andcommercialization of our products, as well as to fund our other operating expenses and capital expenditures. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficientamounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue corporate acquisitions to commercialize our products.Any of these events could significantly harm our business, financial condition and prospects. Our future capital requirements will depend on many factors, including: • the progress of the sales and development to commercialize our products; • the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; • our plans to establish sales, marketing and/or manufacturing capabilities; • the effect of competing technological and market developments; • the terms and timing of any collaborative, licensing and other arrangements that we may establish; • general market conditions for offerings from solar energy companies; • our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization; • our revenues from successful sales, development and commercialization of our products; and • the continued availability of government financial incentives and regulations encouraging customer orders for solar power installations. In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to timeand may choose to raise additional funds through strategic collaborations, public or private equity or debt financing, bank lines of credit, asset sales,government grants, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all.Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject usto restrictive covenants and significant interest costs. Our inability to raise capital when needed could harm our business, financial condition and results of operations, and could cause our stock price todecline or require that we wind down our operations altogether. Risks Related to Our Business and Industry A material reduction in the retail price of traditional utility generated electricity or electricity from other sources could harm our business, financialcondition, results of operations and prospects. We believe that a significant number of our customers decide to buy solar energy because they want to pay less for electricity than what is offered bythe traditional utilities. However, distributed residential solar energy has yet to achieve broad market adoption as evidenced by the fact that distributed solarhas penetrated less than 1% of its total addressable market in the U.S. residential sector. 7Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The customer’s decision to choose solar energy may also be affected by the cost of other renewable energy sources. Decreases in the retail prices ofelectricity from the traditional utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm ourbusiness. The price of electricity from traditional utilities could decrease as a result of: • construction of a significant number of new power generation plants, including plants utilizing natural gas, nuclear, coal, renewable energy orother generation technologies; • relief of transmission constraints that enable local centers to generate energy less expensively; • reductions in the price of natural gas; • utility rate adjustment and customer class cost reallocation; • energy conservation technologies and public initiatives to reduce electricity consumption; • development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s average cost of electricity byshifting load to off-peak times; or • development of new energy generation technologies that provide less expensive energy. A reduction in utility electricity prices would make the purchase or the lease of our solar energy systems less economically attractive. If the retailprice of energy available from traditional utilities were to decrease due to any of these reasons, or other reasons, we would be at a competitive disadvantage,we may be unable to attract new customers and our growth would be limited. Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and useof solar energy systems that may significantly reduce demand for our solar energy systems. Federal, state and local government regulations and policies concerning the electric utility industry, and internal policies and regulationspromulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate toelectricity pricing and the interconnection of customer-owned electricity generation. In the United States, governments and utilities continuously modifythese regulations and policies. These regulations and policies could deter customers from purchasing renewable energy, including solar energy systems. Thiscould result in a significant reduction in the potential demand for our solar energy systems. For example, utilities commonly charge fees to larger, industrialcustomers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees couldincrease our customers’ cost to use our systems and make them less desirable, thereby harming our business, prospects, financial condition and results ofoperations. In addition, depending on the region, electricity generated by solar energy systems competes most effectively with expensive peak-hourelectricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities’ peak hour pricing policies or ratedesign, such as to a flat rate, would require us to lower the price of our solar energy systems to compete with the price of electricity from the electric grid. In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness andcause a significant reduction in demand for our products and services. For example, certain jurisdictions have proposed assessing fees on customerspurchasing energy from solar energy systems or imposing a new charge that would disproportionately impact solar energy system customers who utilize netmetering, either of which would increase the cost of energy to those customers and could reduce demand for our solar energy systems. For example, Californiahas adopted and implemented Assembly Bill 327, which has directly revised the caps on net metering applicable to each utility in the state, and furthermandates that the California Public Utilities Commission, or CPUC, study net metering and craft an updated program that may result in future charges beingimposed on our customers in California. It is possible these charges could be imposed on not just future customers but our existing customers, causing apotentially significant consumer relations problem and harming our reputation and business. Due to the concentration of almost all of our business inCalifornia, any such changes in these markets would be particularly harmful to our business, results of operations and future growth. Our growth strategy depends on the widespread adoption of solar power technology. The market for solar power products is emerging and rapidly evolving, and its future success is uncertain. If solar power technology provesunsuitable for widespread commercial deployment or if demand for solar power products fails to develop sufficiently, we would be unable to generate enoughrevenues to achieve and sustain profitability and positive cash flow. The factors influencing the widespread adoption of solar power technology include butare not limited to: ·cost-effectiveness of solar power technologies as compared with conventional and non-solar alternative energy technologies;·performance and reliability of solar power products as compared with conventional and non-solar alternative energy products;·fluctuations in economic and market conditions which impact the viability of conventional and non-solar alternative energy sources, suchas increases or decreases in the prices of oil and other fossil fuels;·continued deregulation of the electric power industry and broader energy industry; and·availability of governmental subsidies and incentives. 8Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of theserebates, credits and incentives would adversely impact our business. U.S. federal, state and local government bodies provide incentives to end users, distributors, system integrators and manufacturers of solar energysystems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments and payments forrenewable energy credits associated with renewable energy generation. We rely on these governmental rebates, tax credits and other financial incentives tolower the cost of installing solar systems and to incent customers to purchase solar systems. These incentives enable us to lower the price we charge customersfor energy and for our solar energy systems. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or bereduced or terminated as solar energy adoption rates increase. These reductions or terminations often occur without warning. The federal government recently extended the 30% investment tax credit under Section 48(a)(3) of the Internal Revenue Code, or the Federal ITC,for the installation of certain solar power facilities until December 31, 2019. Reductions in, or eliminations or expirations of, governmental incentives could adversely impact our results of operations and ability to compete inour industry by increasing our cost of capital, causing us to increase the prices of our energy and solar energy systems, and reducing the size of ouraddressable market. In addition, this would adversely impact our ability to attract investment partners and to form new financing funds and our ability to offerattractive financing to prospective customers. Net metering and related policies to offer competitive pricing to our customers in our current markets, and changes to net metering policies maysignificantly reduce demand for electricity from our solar energy systems. Forty-four states have a regulatory policy known as net energy metering, or net metering. Each of the states where we currently serve customers hasadopted a net metering policy. Net metering typically allows our customers to interconnect their on-site solar energy systems to the utility grid and offsettheir utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar energy system that is exported to thegrid in excess of the electric load used by the customers. At the end of the billing period, the customer simply pays for the net energy used or receives a creditat the retail rate if more energy is produced than consumed. Utilities operating in states without a net metering policy may receive solar electricity that isexported to the grid when there is no simultaneous energy demand by the customer without providing retail compensation to the customer for thisgeneration. Our ability to sell solar energy systems and the electricity they generate may be adversely impacted by the failure to expand existing limits on theamount of net metering in states that have implemented it, the failure to adopt a net metering policy where it currently is not in place, the imposition of newcharges that only or disproportionately impact customers that utilize net metering, or reductions in the amount or value of credit that customers receivethrough net metering. Our ability to sell solar energy systems and the electricity they generate also may be adversely impacted by the unavailability ofexpedited or simplified interconnection for grid-tied solar energy systems or any limitation on the number of customer interconnections or amount of solarenergy that utilities are required to allow in their service territory or some part of the grid. If such charges are imposed, the cost savings associated withswitching to solar energy may be significantly reduced and our ability to attract future customers and compete with traditional utility providers could beimpacted. Limits on net metering, interconnection of solar energy systems and other operational policies in key markets could limit the number of solar energysystems installed in those markets. For example, California utilities limit net metering credit to 5% of the utilities' aggregate customer peak demand.California has adopted legislation to establish a process and timeline for developing a new net metering program with no cap on participation. In December2015, the Nevada Public Utilities Commission, which regulates the state's energy market, announced a net metering rate change. Effective January 1, 2016,the new tariffs will gradually increase the monthly fees over a 12-year period that solar users pay to use the electric grid and cut by 75% users' reimbursementsfor feeding electricity into the grid. This change in the net metering laws negatively impacted our residential business in Nevada by making the economics ofinstalling residential solar less favorable to homeowners. While we have shifted our focus in Nevada to the commercial markets, which we believe still haveeconomic viability, if the caps on net metering in California and other jurisdictions are reached or if the amount or value of credit that customers receive fornet metering is significantly reduced, future customers will be unable to recognize the current cost savings associated with net metering. We relysubstantially on net metering when we establish competitive pricing for our prospective customers and the absence of net metering for new customers wouldgreatly limit demand for our solar energy systems. 9Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Our business depends in part on the regulatory treatment of third-party owned solar energy systems. Our leases and any power purchase agreements are third-party ownership arrangements. Sales of electricity by third parties face regulatory challengesin some states and jurisdictions. Other challenges pertain to whether third-party owned systems qualify for the same levels of rebates or other non-taxincentives available for customer-owned solar energy systems, whether third-party owned systems are eligible at all for these incentives, and whether third-party owned systems are eligible for net metering and the associated significant cost savings. Reductions in, or eliminations of, this treatment of these third-party arrangements could reduce demand for our systems, adversely impact our access to capital and could cause us to increase the price we charge ourcustomers for energy. Our ability to provide solar energy systems to customers on an economically viable basis depends on our ability to help customers arrange financing forsuch systems. Our solar energy systems have been eligible for Federal ITCs or U.S. Treasury grants, as well as depreciation benefits. We have relied on, and willcontinue to rely on, financing structures that monetize a substantial portion of those benefits and provide financing for our solar energy systems. With thelapse of the U.S. Treasury grant program, we anticipate that our customers’ reliance on these tax-advantaged financing structures will increase substantially.If, for any reason, our customers were unable to continue to monetize those benefits through these arrangements, we may be unable to provide and maintainsolar energy systems for new customers on an economically viable basis. The availability of this tax-advantaged financing depends upon many factors, including: • the state of financial and credit markets; • changes in the legal or tax risks associated with these financings; and • non-renewal of these incentives or decreases in the associated benefits. Under current law, the Federal ITC remain at 30% of the cost of the solar energy systems to the end of 2019 after which it will fall to 26 percent in2020, 22 percent in 2021 and 10 percent in 2022. In addition, U.S. Treasury grants are no longer available for new solar energy systems. Changes in existinglaw and interpretations by the Internal Revenue Service and the courts could reduce the willingness of funding sources to provide funds to customers of thesesolar energy systems. We cannot assure you that this type of financing will be available to our customers. If, for any reason, we are unable to find financingfor solar energy systems, we may no longer be able to provide solar energy systems to new customers on an economically viable basis. This would have amaterial adverse effect on our business, financial condition and results of operations. Rising interest rates could adversely impact our business. Increases in interest rates could have an adverse impact on our business by increasing our cost of capital, which would increase our interest expenseand make acquisitions more expensive to undertake. Further, rising interest rates may negatively impact our ability to arrange financing for our customers on favorable terms to facilitate our customers’purchases of our solar energy systems. The majority of our cash flows to date have been from the sales of solar energy systems. Rising interest rates may havethe effect of depressing the sales of solar energy systems because many consumers finance their purchases. As a result, an increase in interest rates may negatively affect our costs and reduce our revenues, which would have an adverse effect on our business,financial condition and results of operations. Our inability to arrange financing could hurt our future business. On a global scale, we also compete, on a cost basis, with traditional utilities that supply electricity to our potential customers and with companiesthat are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant tostate and local pro-competitive and consumer choice policies. Our advantage over traditional utilities is that we offer customers the opportunity to createtheir own electricity and detach from the traditional electrical grid. To offer customers the opportunity, we often have to arrange financing for our customersas solar projects have received limited financing from traditional lending sources. Our objective is to arrange the most flexible terms that meet the needs andwants of the customer. Although we do not provide financing ourselves, we have relationships to arrange financing with numerous private and publicsources, including PACE (Property Assessed Clean Energy) Programs, which are programs that involve both municipal governments and private financingcompanies that allows property owners to receive upfront funding for renewable energy projects, and Farm Credit financing offered by a network of lendinginstitutions. Our inability to arrange financing through these or other source could adversely affect our business and results of operations. 10Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If we cannot compete successfully against other solar and energy companies, we may not be successful in developing and commercializing our technologyand our business will suffer. The solar and energy industries are characterized by intense competition and rapid technological advances, both in the United States andinternationally. We will compete with a number of existing and future technologies and product candidates developed, manufactured and marketed byothers. Many of these competitors have validated technologies with products already in various stages of development. In addition, many of thesecompetitors, either alone or together with their collaborative partners, operate larger research and development programs and/or have substantially greaterfinancial resources than we do, as well as significantly greater experience. We compete with solar companies with business models that are similar to ours. In addition, we compete with solar companies in the downstreamvalue chain of solar energy. For example, we face competition from purely finance driven organizations that acquire customers and then subcontract out theinstallation of solar energy systems, from installation businesses that seek financing from external parties, from large construction companies and utilities,and increasingly from sophisticated electrical and roofing companies. Some of these competitors specialize in the residential solar energy market, and somemay provide energy at lower costs than we do. Further, some of our competitors are integrating vertically in order to ensure supply and to control costs. Manyof our competitors also have significant brand name recognition and have extensive knowledge of our target markets. For us to remain competitive, we mustdistinguish ourselves from our competitors by offering an integrated approach that successfully competes with each level of products and services offered byour competitors at various points in the value chain. If our competitors develop an integrated approach similar to ours including sales, financing,engineering, manufacturing, installation, maintenance and monitoring services, this could reduce our marketplace differentiation. Because we will be competing against significantly larger companies with established track records, we will have to demonstrate that, based onexperience, and other factors, our products, are competitive with other products or we may not be able to reach or maintain profitable sales levels. Adverse economic conditions may have material adverse consequences on our business, results of operations and financial condition. Unpredictable and unstable changes in economic conditions, including recession, inflation, increased government intervention, or other changes,may adversely affect our general business strategy. We rely upon our ability to generate additional sources of liquidity and we may need to raise additionalfunds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including acquisitions ofcomplementary businesses or technologies. Any adverse event would have a material adverse impact on our business, results of operations and financialcondition. Our business is concentrated in certain markets, putting us at risk of region specific disruptions. As of December 31, 2015, 99% of our total installations were in California. We maintain offices in California and Nevada and expect much of ournear-term future growth to occur in California and Nevada, further concentrating our customer base and operational infrastructure. Accordingly, our businessand results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in such markets and in othermarkets that may become similarly concentrated. Substantially all of our business is conducted primarily using one channel, direct-selling. While we are in the process of evaluating different distribution channels, currently substantially all of our business is conducted using direct selling.We compete against companies that sell solar energy systems to customers through a number of distribution channels, including homebuilders, homeimprovement stores, large construction, electrical and roofing companies and other third parties and companies that access customers through relationshipswith third parties in addition to other direct-selling companies. This single distribution channel may place us at a disadvantage with consumers who prefer topurchase products through these other distribution channels. Additionally, we are vulnerable to changes in laws related to direct marketing as regulationshave limited unsolicited residential sales calls and may impose additional restrictions. If additional laws affecting direct marketing are passed in the marketsin which we operate, it could take time to train our sales force to comply with such laws, and we may be exposed to fines or other penalties for violations ofsuch laws. If we fail to compete effectively through our direct-selling efforts or are not successful in executing our strategy to sell our solar energy systemsthrough other channels, our financial condition, results of operations and growth prospects will be adversely affected. 11Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents If we are unable to retain and recruit qualified technicians and advisors, or if our key executives, key employees or consultants discontinue his or heremployment or consulting relationship with us, it may delay our development efforts or otherwise harm our business. We may not be able to attract or retain qualified management or technical personnel in the future due to the intense competition for qualifiedpersonnel among solar, energy and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we arenot able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantlyimpede the successful development of any product candidates, our ability to raise additional capital and our ability to implement our overall businessstrategy. We are highly dependent on members of our management and technical staff. Our success also depends on our ability to continue to attract, retainand motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior technical personnel. The loss of any of ourexecutive officers, key employees or consultants and our inability to find suitable replacements could impede the achievement of our research anddevelopment objectives, potentially harm our business, financial condition and prospects. We may be unable to attract and retain personnel on acceptableterms given the competition among solar and energy companies, universities and non-profit research institutions for experienced scientists. Certain of ourcurrent officers, directors, scientific advisors and/or consultants or certain of the officers, directors, scientific advisors and/or consultants hereafter appointedmay from time to time serve as officers, directors, scientific advisors and/or consultants of other solar and energy companies. We do not maintain “key man”insurance policies on any of our officers or employees. Other than certain members of our senior management team, all of our employees are employed “atwill” and, therefore, each employee may leave our employment and join a competitor at any time. We plan to grant stock options, restricted stock grants, or other forms of equity awards in the future as a method of attracting and retainingemployees, motivating performance and aligning the interests of employees with those of our stockholders. If we are unable to implement and maintainequity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualifiedcandidates. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional qualified candidates, ourbusiness and results of operations could be adversely affected. The execution of our business plan and development strategy may be seriously harmed if integration of our senior management team is not successful. As we continue to grow and acquire new businesses like MD Energy and Elite Solar, we have experienced and we may continue to experiencesignificant changes in our senior management team. Specifically, four new board members and our chief financial officer have joined us since December2014. Further, we have added senior management through our acquisitions. As a result, our ability to integrate the board and senior management team andour ability to effectively manage our business may affect the successful operations of our business. We may not successfully implement our business model.Our business model is predicated on our ability to provide solar systems at a profit, and our growth through strategic acquisitions. We intend tocontinue to operate as we have previously with sourcing and marketing methods that we have used successfully in the past. However, we cannot assure thatour methods will continue to attract new customers nor that we can maintain the same profitability in the very competitive solar systems marketplace. We areactively seeking to acquire additional companies that are complementary to ours, and that make a profit. We cannot guarantee that such companies areavailable or that we can sustain their performance after we acquire them. Further, we intend to develop our proprietary technology. We intend to outsource manufacturing and/or to license the proprietary technology tocustomers for production in their own facilities. We cannot assure that customers will license our technology, to produce it in their own facilities or thatvarious industries will adopt our 3D solar cell technology in the volume that we project, or that prospective customers will agree to pay the prices that wepropose to charge. In the event our customers resist paying the prices projected in our business plan to purchase solar installations or to license our 3D solar celltechnology, our business, financial condition, and results of operations will be materially and adversely affected.12Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We will need to increase the size of our company and may not effectively manage our growth. Our success will depend upon growing our business and our employee base. Over the next 12 months, we plan to add additional employees to assistus with operations, sales, finance, administration and research and development. Our future growth, if any, may cause a significant strain on our management,and our operational, financial and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational,financial and management systems and to expand, train, manage and motivate our employees. These demands may require the hiring of additionalmanagement personnel and the development of additional expertise by management. Any increase in resources devoted to research and product developmentwithout a corresponding increase in our operational, financial and management systems could have a material adverse effect on our business, financialcondition, and results of operations. We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management. We acquired Sunworks United in January 2014 and completed our acquisition of MD Energy in March 2015 and merger with Elite Solar inDecember 2015. Our growth strategy is dependent on the success of these three acquisitions and in the future we may acquire additional companies, projectpipelines, products or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of this acquisition orany other future acquisition, and any acquisition has numerous risks. These risks include the following: ·difficulty in assimilating the operations and personnel of the acquired company;·difficulty in effectively integrating the acquired technologies or products with our current technologies;·difficulty in maintaining controls, procedures and policies during the transition and integration;·disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due tointegration issues;·difficulty integrating the acquired company’s accounting, management information and other administrative systems;·inability to retain key technical and managerial personnel of the acquired business;·inability to retain key customers, vendors and other business partners of the acquired business;·inability to achieve the financial and strategic goals for the acquired and combined businesses;·incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;·potential failure of the due diligence processes to identify significant issues with product quality, intellectual property infringement and otherlegal and financial liabilities, among other things;·potential inability to assert that internal controls over financial reporting are effective; and·potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent suchacquisitions. Mergers and acquisitions of companies are inherently risky and, if we do not complete the integration of acquired businesses successfully and in atimely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financialcondition or results of operations. A significant portion of our total assets consists of goodwill, which is subject to a periodic impairment analysis, and a significant impairmentdetermination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cashexpenses attributable to such period.A significant portion of our total assets consists of goodwill, which is subject to a periodic impairment analysis, and a significant impairmentdetermination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cashexpenses attributable to such period.We have goodwill totaling approximately $10.9 million associated with our acquisitions. We will be required to evaluate this goodwill forimpairment based on the fair value of the operating business units to which this goodwill relates, at least once a year. This estimated fair value could changeif we are unable to achieve operating results at the levels that have been forecasted, the market valuation of those business units decreases based ontransactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by the business units. Thesechanges could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations. 13Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We may be subject to claims arising from the operations of our various businesses for periods prior to the dates we acquired them. We may be subject to claims or liabilities arising from the ownership or operation of acquired businesses for the periods prior to our acquisition ofthem, including environmental, employee-related and other liabilities and claims not covered by insurance. These claims or liabilities could be significant.Our ability to seek indemnification from the former owners of our acquired businesses for these claims or liabilities may be limited by various factors,including the specific time, monetary or other limitations contained in the respective acquisition agreements and the financial ability of the former owners tosatisfy our indemnification claims. In addition, insurance companies may be unwilling to cover claims that have arisen from acquired businesses or locations,or claims may exceed the coverage limits that our acquired businesses had in effect prior to the date of acquisition. If we are unable to successfully obtaininsurance coverage of third-party claims or enforce our indemnification rights against the former owners, or if the former owners are unable to satisfy theirobligations for any reason, including because of their current financial position, we could be held liable for the costs or obligations associated with suchclaims or liabilities, which could adversely affect our financial condition and results of operations. With respect to providing electricity on a price-competitive basis, solar systems face competition from traditional regulated electric utilities, from less-regulated third party energy service providers and from new renewable energy companies. The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguishthemselves within their markets and compete with large traditional utilities. We believe that our primary competitors are the traditional utilities that supplyelectricity to our potential customers. Traditional utilities generally have substantially greater financial, technical, operational and other resources than wedo. As a result, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond morequickly to evolving industry standards and changes in market conditions than we can. Traditional utilities could also offer other value-added products orservices that could help them to compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources ofelectricity is non-solar, which may allow utilities to sell electricity more cheaply than electricity generated by our solar energy systems. We also compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmissionand distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies. These energy service companies are able to offercustomers electricity supply-only solutions that are competitive with our solar energy system options on both price and usage of renewable energytechnology while avoiding the long-term agreements and physical installations that our current fund-financed business model requires. This may limit ourability to attract new customers; particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels ontheir roofs. As the solar industry grows and evolves, we will also face new competitors who are not currently in the market. Low technological barriers to entrycharacterize our industry and well-capitalized companies could choose to enter the market and compete with us. Our failure to adapt to changing marketconditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business andprospects. Developments in alternative technologies or improvements in distributed solar energy generation may materially adversely affect demand for ourofferings. Significant developments in alternative technologies, such as advances in other forms of distributed solar power generation, storage solutions suchas batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized powerproduction may materially and adversely affect our business and prospects in ways we do not currently anticipate. Any failure by us to adopt new orenhanced technologies or processes, or to react to changes in existing technologies, could materially delay deployment of our solar energy systems, whichcould result in product obsolescence, the loss of competitiveness of our systems, decreased revenue and a loss of market share to competitors.Due to the limited number of suppliers in our industry, the acquisition of any of these suppliers by a competitor or any shortage, delay, price change,imposition of tariffs or duties or other limitation in our ability to obtain components or technologies we use could result in sales and installation delays,cancellations and loss of market share. While we purchase our products from several different suppliers, if one or more of the suppliers that we rely upon to meet anticipated demand ceasesor reduces production due to its financial condition, acquisition by a competitor or otherwise, is unable to increase production as industry demand increasesor is otherwise unable to allocate sufficient production to us, it may be difficult to quickly identify alternate suppliers or to qualify alternative products oncommercially reasonable terms, and our ability to satisfy this demand may be adversely affected. There are a limited number of suppliers of solar energysystem components and technologies. While we believe there are other sources of supply for these products available, transitioning to a new supplier mayresult in additional costs and delays in acquiring our solar products and deploying our systems. These issues could harm our business or financialperformance. 14Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents In addition, the acquisition of a component supplier or technology provider by one of our competitors could limit our access to such components ortechnologies and require significant redesigns of our solar energy systems or installation procedures and have a material adverse effect on our business. There have also been periods of industry-wide shortages of key components, including solar panels, in times of rapid industry growth. Themanufacturing infrastructure for some of these components has a long lead-time, requires significant capital investment and relies on the continuedavailability of key commodity materials, potentially resulting in an inability to meet demand for these components. The solar industry is currentlyexperiencing rapid growth and, as a result, shortages of key components, including solar panels, may be more likely to occur, which in turn may result inprice increases for such components. Even if industry-wide shortages do not occur, suppliers may decide to allocate key components with high demand orinsufficient production capacity to more profitable customers, customers with long-term supply agreements or customers other than us and our supply of suchcomponents may be reduced as a result. Typically, we purchase the components for our solar energy systems on an as-needed basis and do not operate under long-term supply agreements.All of our purchases are denominated in U.S. dollars. Since our revenue is also generated in U.S. dollars we are mostly insulated from currency fluctuations.However, since our suppliers often incur a significant amount of their costs by purchasing raw materials and generating operating expenses in foreigncurrencies, if the value of the U.S. dollar depreciates significantly or for a prolonged period of time against these other currencies this may cause our suppliersto raise the prices they charge us, which could harm our financial results. Since we purchase almost all of the solar photovoltaic modules we use from China,we are particularly exposed to exchange rate risk from increases in the value of the Chinese Renminbi. In addition, the U.S. government has recently imposedtariffs on solar cells manufactured in China and is investigating pricing practices concerning solar panels manufactured in China and Taiwan that containsolar cells produced in other countries, at the conclusion of which it could impose additional tariffs or duties. Any such tariffs or duties, or shortages, delays,price changes or other limitation in our ability to obtain components or technologies we use could limit our growth, cause cancellations or adversely affectour profitability, and result in loss of market share and damage to our brand. Our business has benefited from the declining cost of solar panels, and our financial results may be harmed now that the cost of solar panels has stabilizedand could increase in the future, including as a result of increases in the cost of solar panels or tariffs on imported solar panels imposed by the U.S.government. The declining cost of solar panels and the raw materials necessary to manufacture them has been a key driver in the pricing of our solar energysystems and customer adoption of this form of renewable energy. With the stabilization or increase of solar panel and raw materials prices, our growth couldslow, and our financial results could suffer. Further, the cost of solar panels and raw materials could increase in the future due to tariff penalties or otherfactors. The U.S. government has imposed tariffs on solar cells manufactured in China. Based on determinations by the U.S. government under the 2012solar trade case, the anti-dumping and countervailing tariff rates range from approximately 33%-255%. Such anti-dumping and countervailing tariffs aresubject to annual review and may be increased or decreased. Under the most recent preliminary annual review, the tariff rates under the 2012 trade casecovering solar cells manufactured in China have been decreased. These tariffs have increased the price of solar panels containing Chinese-manufactured solarcells. In the past, we purchased a significant portion of the solar panels used in our solar energy systems from manufacturers based in China. Currently, manyof the solar panels we purchase contain components from China or Taiwan. The purchase price of solar panels containing solar cells manufactured in Chinareflects these tariff penalties. While solar panels containing solar cells manufactured outside of China are not subject to these tariffs, the prices of these solarpanels are, and may continue to be, more expensive than panels produced using Chinese solar cells, before giving effect to the tariff penalties. In addition, the U.S. government is conducting trade investigations relating to solar modules manufactured in China (with cells from other countries)and cells manufactured in Taiwan. In early January 2015, the U.S. government announced its affirmative final determinations in both the countervailing dutyand anti-dumping cases against China and in the anti-dumping case again Taiwan. The new preliminary tariffs do not apply to modules with Chinese solarcells. Those modules are still covered by the existing tariffs from the first 2012 trade case. If additional tariffs are imposed or other negotiated outcomes occur, our ability to purchase these products on competitive terms or to accessspecialized technologies from those countries could be limited. Any of those events could harm our financial results by requiring us to account for the cost oftrade penalties or to purchase solar panels or other system components from alternative, higher-priced sources. 15Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We act as the licensed general contractor for our customers and are subject to risks associated with construction, cost overruns, delays, regulatorycompliance and other contingencies, any of which could have a material adverse effect on our business and results of operations. We are a licensed contractor and we are responsible for every customer installation. We are the general contractor, electrician, construction managerand installer for all our solar energy systems. We may be liable to customers for any damage we cause to their home, belongings or property during theinstallation of our systems. For example, we penetrate our customers’ roofs during the installation process and may incur liability for the failure to adequatelyweatherproof such penetrations following the completion of installation of solar energy systems. In addition, because the solar energy systems we deploy arehigh-voltage energy systems, we may incur liability for the failure to comply with electrical standards and manufacturer recommendations. Because our profiton a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to notachieve our expected results or cover our costs for that project. In addition, the installation of solar energy systems is subject to oversight and regulation in accordance with national, state and local laws andordinances relating to building, fire and electrical codes, safety, environmental protection, utility interconnection and metering, and related matters. We alsorely on certain of our employees to maintain professional licenses in many of the jurisdictions in which we operate, and our failure to employ properlylicensed personnel could adversely affect our licensing status in those jurisdictions. It is difficult and costly to track the requirements of every authorityhaving jurisdiction over our operations and our solar energy systems. Any new government regulations or utility policies pertaining to our systems, orchanges to existing government regulations or utility policies pertaining to our systems, may result in significant additional expenses to us and ourcustomers and, as a result, could cause a significant reduction in demand for our systems. Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result inpotentially significant monetary penalties, operational delays and adverse publicity. The installation of solar energy systems requires our employees to work at heights with complicated and potentially dangerous electrical systems.The evaluation and modification of buildings as part of the installation process requires our employees to work in locations that may contain potentiallydangerous levels of asbestos, lead, mold or other materials known or believed to be hazardous to human health. We also maintain a fleet of trucks and othervehicles to support our installers and operations. There is substantial risk of serious injury or death if proper safety procedures are not followed. Ouroperations are subject to regulation under the U.S. Occupational Safety and Health Act, or OSHA, the U.S. Department of Transportation, or DOT, andequivalent state laws. Changes to OSHA or DOT requirements, or stricter interpretation or enforcement of existing laws or regulations, could result inincreased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil orcriminal enforcement and be required to pay substantial penalties, incur significant capital expenditures or suspend or limit operations. Because ourinstallation employees are compensated on a per project basis, they are incentivized to work more quickly than installers that are compensated on an hourlybasis. While we have not experienced a high level of injuries to date, this incentive structure may result in higher injury rates than others in the industry andcould accordingly expose us to increased liability. In the past, we have had workplace accidents and received citations from OSHA regulators for allegedsafety violations, resulting in fines. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us toadverse publicity, damage our reputation and competitive position and adversely affect our business.Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation and prevent us from maintainingor increasing our market share. If our products fail to perform as expected while under warranty, or if we are unable to support the warranties, sales of our products may be adverselyaffected or our costs may increase, and our business, results of operations and financial condition could be materially and adversely affected. We may also be subject to warranty or product liability claims against us that are not covered by insurance or are in excess of our available insurancelimits. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future salesopportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation. The possibility of futureproduct failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damageour market reputation and reduce our market share causing sales to decline. 16Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents A failure to comply with laws and regulations relating to our interactions with current or prospective residential customers could result in negativepublicity, claims, investigations, and litigation, and adversely affect our financial performance. Our business substantially focuses on contracts and transactions with residential customers. We must comply with numerous federal, state and locallaws and regulations that govern matters relating to our interactions with residential consumers, including those pertaining to privacy and data security,consumer financial and credit transactions, home improvement contracts, warranties, and door-to-door solicitation. These laws and regulations are dynamicand subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws orregulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affecthow we do business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costsassociated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible,however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with otherrules or our practices. Our non-compliance with any such law or regulations could also expose the company to claims, proceedings, litigation andinvestigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adverselyaffect our business. We have incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased regulation ofmatters relating to our interactions with residential consumers could require us to modify our operations and incur significant additional expenses, whichcould have an adverse effect on our business, financial condition and results of operations. If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, ourbusiness could be adversely affected. We depend on information systems throughout our company to control our manufacturing processes, process orders, manage inventory, process andbill shipments and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of ourproperty, plant and equipment, and record and pay amounts due vendors and other creditors. If we were to experience a prolonged disruption in ourinformation systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, whichcould adversely affect our overall business operation. Seasonality may cause fluctuations in our financial results. We often find that some customers tend to book projects by the end of a calendar year to realize the benefits of available subsidy programs prior toyear-end. This results in third and fourth quarter sales being more robust usually at the expense of the first quarter. The first quarter in California often hasrain and Nevada snow, which also reduces our ability to install in that quarter relative to the remainder of the year. In the future this seasonality may causefluctuations in our financial results. In addition, other seasonality trends may develop and the existing seasonality that we experience may change. Risks Relating to our Common Stock The market price of our common stock may fluctuate significantly, and investors in our common stock may lose all or a part of their investment. The market prices for securities of solar and energy companies have historically been highly volatile, and the market has from time to timeexperienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The market price of ourcommon stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: • our failure to commercialize our product candidates; • unanticipated serious safety concerns related to the use of any of our product candidates; • adverse regulatory decisions; • changes in laws or regulations applicable to our product candidates; • legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patentprotection for our product candidates, and the results of any proceedings or lawsuits, including patent or stockholder litigation; • our dependence on third parties; • announcements of the introduction of new products by our competitors; • market conditions in the solar and energy sectors; • announcements concerning product development results or intellectual property rights of others; • future issuances of common stock or other securities; • the addition or departure of key personnel; • failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public; 17Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • actual or anticipated variations in quarterly operating results; • our failure to meet or exceed the estimates and projections of the investment community; • overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance ofour competitors, including changes in market valuations of similar companies; • announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; • issuances of debt or equity securities; • sales of our common stock by us or our stockholders in the future; • trading volume of our common stock; • ineffectiveness of our internal controls; • publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securitiesanalysts; • general political and economic conditions; • effects of natural or man-made catastrophic events; and, • other events or factors, many of which are beyond our control. Further, the equity markets in general have recently experienced extreme price and volume fluctuations. Continued market fluctuations could resultin extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility of our common stockmight worsen if the trading volume of our common stock is low. The realization of any of the above risks or any of a broad range of other risks, includingthose described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock. A substantial number of shares of common stock may be sold in the market, which may depress the market price for our common stock or the warrants. Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline. Asubstantial majority of the outstanding shares of our common stock are, and the shares of common stock included in the units, or issuable upon exercise ofthe warrants included in the units, sold in the March 2015 offering upon issuance will be, freely tradable without restriction or further registration under theSecurities Act of 1933, as amended. Because the warrants are exercisable into our common stock, volatility or a reduction in the market price of our commonstock could have an adverse effect on the market price of the warrants. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. Sunworks United leases 19,140 square feet of mixed used space consisting of office and warehouse facilities in Roseville, California, at a monthlylease rate of $10. The lease expires in September 2019. Sunworks United leases 2,340 square feet of mixed used space consisting of office and warehouse facilities in Reno, Nevada at monthly lease rate of$2. The lease expired in January 2016 and new mixed use space of 7,000 square feet was leased at a monthly lease rate of $4 and the lease expires in January2019.Sunworks United leases 2,846 square feet of retail space consisting in Rocklin, California, at a monthly lease rate of $9. The lease expires in August2020.Sunworks United leases 5,304 square feet of office space in Rocklin, California, at a monthly lease rate of $6. The lease expires in April 2019.MD Energy leases approximately 6,400 square feet of mixed used space consisting of office and warehouse facilities in Rancho Cucamonga,California, at a monthly lease rate of $4. The lease expires in April 2016.Elite Solar leases 15,600 square feet of mixed used space consisting of office and warehouse facilities in Durham, California, at a monthly lease rateof $8. The lease expires in December 2019.Sunworks United leases various vehicles to perform installations and other purposes on 36-month terms with lease payments less than $1 monthly.All of these properties are adequate for our current needs and we expect that we can extend our leases on these properties, or replace them withsimilar space, at approximately the same cost. 18Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Item 3. Legal Proceedings. We are not currently a party to any legal proceedings that, individually or in the aggregate, are deemed to be material to our financial condition orresults of operations. Item 4. Mine Safety Disclosures. Not applicable. 19Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents PART II Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. On March 4, 2015 our common stock began to be traded on The NASDAQ Capital Market under the symbol SLTD that was changed on March 1,2016 to SUNW simultaneously with our name change to Sunworks, Inc. Our common stock previously traded on the OTC QB under the symbol “SLTD.” Themarket for our common stock was often sporadic, volatile and limited. The following table shows the range of high and low sale prices for our common stock as reported on NASDAQ commencing in the first quarterending March 31, 2015 through the fourth quarter ended December 31, 2015 and the high and low bid quotations for our common stock on the OTCQB forthe quarters ended December 31, 2014. The prices are adjusted to reflect a 26:1 reverse stock split of our outstanding common stock effected in February2015. The prices reflect inter-dealer quotations, without retail markup, markdown or commissions, and may not represent actual transactions. High Low Fiscal Year 2014 First Quarter $3.30 $0.78 Second Quarter $2.16 $1.48 Third Quarter $4.81 $1.57 Fourth Quarter $8.19 $4.47 Fiscal Year 2015 First Quarter $8.88 $2.46 Second Quarter $5.72 $3.55 Third Quarter $4.57 $2.00 Fourth Quarter $3.85 $2.66 Holders of Common Stock. On March 11, 2016, we had 92 registered holders of record of our common stock. Dividends and dividend policy. We have never declared or paid any dividends on our common stock and we do not anticipate paying dividends on our common stock at the presenttime. We currently intend to retain earnings, if any, for use in our business. We do not anticipate paying dividends in the foreseeable future. Securities authorized for issuance under equity compensation plans. We do not currently have any equity compensation plans in place. We have granted options and restricted stock awards to our officers and directors,but such issuances have not been pursuant to an equity incentive plan and were granted prior to February 2015. Recent Sales of Unregistered Securities. None Item 6. Selected Financial Data As a smaller reporting company, we are not required to provide the information under this item, pursuant to Regulation S-K Item 301(c). 20Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with ourconsolidated financial statements and related notes appearing elsewhere in this annual report on Form 10-K. This discussion and analysis containsforward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in theseforward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this annualreport on Form 10-K. Overview Sunworks provides photo voltaic (“PV”) based power systems for the residential, commercial and agricultural markets in California and Nevada. Wedesign, arrange financing, integrate, install and manage systems ranging in size from 2kW (kilowatt) for residential loads to multi MW (megawatt) systems forlarger commercial projects. Commercial installations have included office buildings, manufacturing plants, warehouses, and agricultural facilities such asfarms, wineries and dairies. The Company provides a full range of installation services to our solar energy customers including design, system engineering,procurement, permitting, construction, grid connection, warranty, system monitoring and maintenance. We have installed over 850 systems in 2015 in California and Nevada, with approximately 18 MW of capacity, which is more than a 250% increaseover the approximately 300 systems installations in 2014 with approximately 7 MW of capacity. Approximately 60% of Sunworks United 2015 revenue was from sales to the commercial market, including the agricultural market, andapproximately 40% of its revenue was from sales to the residential market. In addition to our core solar integrator business, Sunworks technology division has developed a patent-pending 3-dimensional solar cell technologythat we believe has the potential to increase PV conversion efficiency thereby reducing the cost of the electricity generated.The Company’s business currently operates in one segment based upon the Company’s organizational structure and the way in which the operationsare managed and evaluated. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets andliabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets,deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on variousother assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, includingthose for the above-described items, are reasonable.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at thedate of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenuerecognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, valuations of non-cash capital stockissuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptionsthat are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 21Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Revenue RecognitionRevenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance withASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contractrevenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of totalestimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocableindirect 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, theCompany will recognize the loss, as it is determined. The Asset, “Costs and estimated earnings in excess of billings”, represents revenues recognized inexcess of amounts billed on contracts in progress. The Liability, “Billings in excess of costs and estimated earnings”, represents billings in excess of revenuesrecognized on contracts in progress. Indefinite Lived Intangibles and Goodwill AssetsThe Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “BusinessCombinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on theirestimated 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 purchaseprice in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstancesindicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed aqualitative assessment of indefinite lived intangibles and goodwill at December 31, 2015 and 2014, and determined there was no impairment of indefinitelived intangibles and goodwill. Business CombinationsWe allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on theirestimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded asgoodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significantestimates 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 assumptionsbelieved to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During themeasurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with thecorresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.Stock-Based CompensationThe Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services andfor financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidanceprovided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vestingperiod. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of theFinancial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date atwhich a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employeestock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no futureperformance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in theperiod of the measurement date.Results of Operations for the Years Ended December 31, 2015 and 2014On February 25, 2015, the Company effected a 26:1 reverse stock split on its common stock. All share amounts have been retrospectively revised toreflect the twenty six-for-one (26:1) reverse stock split. All common stock share and per share information in this report, including the accompanyingconsolidated financial statements and notes thereto, have been adjusted to reflect retrospective application of the reverse split, unless otherwise indicated. 22Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents REVENUE AND COST OF REVENUESFor the year ended December 31, 2015 the Company had revenue of $53.7million with $36.7million in cost of revenues. The revenue includes 10months of activity from MD Energy and 1 month of activity from Elite Solar which were acquired during the fiscal year ended December 31, 2015. Approximately 60% of 2015 revenue was from sales to the commercial market, including the agricultural market, and approximately 40% was from sales tothe residential market. For the year ended December 31, 2014 the Company had revenue of $20.2 million with $14.6 million in cost of revenues. The revenue represents 11months of activity from Sunworks United which we acquired on January 31, 2014. Approximately 60% of our 2014 revenue was from sales to thecommercial market, including the agricultural market, and approximately 40% was from sales to the residential market.SELLING AND MARKETING EXPENSESSelling and marketing expenses for the year ended December 31, 2015 were $5.9 million compared to $1.6 million for the year ended December 31,2014. We have specially-designed marketing efforts and tracking systems in place that enable us to attract new customers at a low cost and higherconversion rate than what we believe to be the industry average. We utilize several marketing tools and business strategies to differentiate ourselves from ourcompetitors and attract new customers. The significant rise in expense year over year represents increased activity to grow our business which has contributedto increased sales and backlog.GENERAL AND ADMINISTRATIVE EXPENSESGeneral and administrative expenses for the year ended December 31, 2015 were $8.6 million compared to $3.6 million for the year ended December31, 2014. The 2015 increase of $5.0 million primarily represents expenses associated with 1 additional month of Sunworks United, 10 months of MD Energyand 1 month of Elite Solar compared to 11 months of Sunworks United operations in 2014. During 2015 we incurred approximately $1.3 million in expensesassociated with our secondary stock offering and subsequent uplisting from the OTCQB to NASDAQ. We had approximately $.1 million non-cash expenserelated to issuance of stock through restricted stock grants compared to $.4 million in 2014. We incurred approximately $.2 million each year in acquisitioncosts associated with MD Energy and Elite Solar in 2015 and Sunworks United in 2014. With each acquisition, we look to transition the majority of backoffice functions to our corporate headquarters to reduce costs and make our operations consistent across our subsidiaries. We believe that our strategy ofconsolidating such functions as purchasing, supplier relations, accounting, human resources and other basic functions help to realize cost reductions andstrategic synergies.RESEARCH AND DEVELOPMENTResearch and development (“R&D”) costs decreased by $60 to $53 for the year ended December 31, 2015 compared to $113 for the year endedDecember 31, 2014. Our research costs have been for research and patent work for a 3-dimensional solar cell. The novel 3D cell is still in the developmentstage. OTHER EXPENSESTotal other expenses decreased for the year ended December 31, 2015 to $1.3 million compared to $25.2 million for the year ended December 31,2014. The decrease is due primarily to the $20.8 million non-cash expense in 2014 related to the change of fair value of the derivative liabilities. TheCompany previously sold convertible promissory notes to certain accredited investors in 2013 and 2014 with conversion prices that were not fixed butvaried with market prices and other conditions. Effective December 2014, the Company entered into amendments to those convertible promissory notes to fixthe conversion price which eliminated any further derivative gains/losses. Interest expense also decreased for the year ended December 31, 2015 to $1.4 million compared to $4.2 million for the year ended December 31,2014 due primarily to non-cash less beneficial conversion feature treated as interest for convertible promissory notes.NET INCOME (LOSS)Net income of $1.1 million for the year ended December 31, 2015, increased compared to a loss of $24.9 million for the year ended December 31,2014. The improvement was primarily due to significant decreases in non-cash amortization of debt discount, lower non-cash interest expense associatedwith the beneficial conversion feature for debt financing and improved operating income. During 2015 operating income of $2.4 million increased by $2.0million compared to $0.3 million for 2014. 23Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Liquidity and Capital ResourcesWe had $12.0 million in cash at December 31, 2015, as compared to $0.4 million at December 31, 2014. We believe that the aggregate of ourexisting cash and cash equivalents, in addition to the funds available under our debt agreements and the funds raised in March 2015, will be sufficient tomeet our operating cash requirements for at least the next 12 months.During the year ended December 31, 2015, we generated $1.3 million of cash from operating activities compared to $0.4 million used in operatingactivities for the prior year ended December 31, 2014. The $1.7 million increase in cash generated from operating activities year over year was primarily theresult of the difference in net income/(loss) net of the change in derivative liability and amortization of debt discount. We used $3.0 million in investing activities for the current year ended December 31, 2015, as compared to $0.7 million used for the prior year endedDecember 31, 2014. The increase in cash used for investing in 2015 is primarily due to the amount of cash payments related to our acquisitions and thepurchase of equipment compared to the prior year.Cash provided by financing activities during the year ended December 31, 2015 was $13.4 million primarily from the issuance of common from oursecondary offering in March 2015, and the convertible notes associated with the MD Energy acquisition as compared to $1.5 million for the prior year endedDecember 31, 2014, in the form of convertible notes associated with the Sunworks United acquisition.On January 31, 2014, the Company entered into a securities purchase agreement providing for the sale of four 4% convertible promissory notes inthe aggregate principal amount of $1,750 as part of the consideration to acquire 100% of the total outstanding stock of Sunworks United. The notes areconvertible at any time after issuance into shares of our common stock. The conversion price is $0.52 per share until March 30, 2015, and thereafter theconversion price will be the greater of $0.52 or 50% of the average closing price of the common stock during the ten (10) consecutive trading days followingthe submission of the conversion notice. The notes are five (5) year notes and bear interest at the rate of 4% per annum.In February and March 2014, $625 of the notes were converted into 1,201,923 shares of common stock, leaving a remaining balance of $1,125 andaccrued interest of $12 as of December 31, 2014. The Company recorded amortization of the beneficial conversion feature as interest expense in the amountof $1,271, during the year ended December 31, 2014.On March 3, 2015, the Company entered into an underwriting agreement with Cowen & Company, LLC, relating to the sale and issuance by theCompany of 3,000,000 Units to the Underwriter in a firm commitment underwritten public offering. Each Unit consisted of one share of the Company'scommon stock and a warrant to purchase one share of the Company's common stock. The shares of common stock and Warrants were immediately separatedand issued separately but were sold together as a Unit. The Warrants are exercisable during the period commencing from the date of issuance and ending onMarch 9, 2020 at an exercise price of $4.15 per share of common stock (subject to adjustment under certain circumstances).On November 3, 2014, we entered into an asset purchase agreement with MD Energy and the members of MD Energy who held 100% of theoutstanding membership interests to acquire the tangible and intangible assets of MD Energy, including cash and cash equivalents. The acquisition wascompleted on March 2, 2015. The purchase price was $3,500 comprised of $850 in cash and the issuance of a convertible promissory note in the principalamount of $2,650 with an interest rate of 4% that may be convertible at the seller’s option based on a share conversion price of $2.60 per share.On August 6, 2015, we entered into an Agreement and Plan of Merger with Plan B Enterprises, Inc., a California corporation and d/b/a UniversalRacking Solutions (“Plan B”), Kirk R. Short and Elite Solar Acquisition Sub., Inc., a wholly owned subsidiary of the Company (the “Surviving Corporation”)whereby Plan B merged with and into the Surviving Corporation. The transactions contemplated by the Merger Agreement, as amended, closed on December1, 2015. We paid a consideration of $7 million, with $2.5 million paid in cash and 1,506,024 in shares of our Series B Preferred Stock valued at $4.5 million. On December 31, 2015, we entered into a $2.5 million Credit Facility with JPMorgan Chase Bank, N.A. Availability under the Credit Facility is aLine of Credit with a Letter 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 Note matures on November 30, 2017, but may be cancelled at any time by the Company. Loans are secured by a security interest in theCompany's account held with the Lender. Interest on any unpaid balance accrues at the Prime Rate; provided that, on any given day, shall not be less thanthe Adjusted One Month LIBOR rate. Until the maturity date, the Company shall pay monthly interest only. While we currently generate sufficient cash tomeet our operating cash requirements, we have the ability to access cash under the credit facility should our management determine to do so. Off-Balance Sheet ArrangementsWe do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues,results of operations, liquidity or capital expenditures. 24Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 8. Financial Statements and Supplementary Data. SUNWORKS, INC. (FORMERLY SOLAR3D, INC.) FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014CONTENTSReport of Independent Registered Public Accounting Firm – Liggett & Webb, P.A. F-1 Consolidated Balance Sheets as of December 31, 2015 and 2014F-2 Consolidated Statements of Operations for the years ended December 31, 2015 and 2014F-3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and 2014F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014F-5 Notes to Consolidated Financial StatementsF-6 25Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and ShareholdersSunworks, Inc. (formerly Solar3D, Inc.)Roseville, CaliforniaWe have audited the accompanying consolidated balance sheets of Sunworks, Inc. (the “Company”) as of December 31, 2015 and 2014, and the relatedconsolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that ouraudits provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sunworks, Inc. as ofDecember 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generallyaccepted in the United States of America. /s/ Liggett & Webb, P.A. Liggett & Webb, P.A. March 11, 2016New York, New York F-1Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SUNWORKS, INC. (FORMERLY SOLAR3D, INC.)CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2015 AND 2014(in thousands, except share and per share data) December 31,2015 December 31,2014 Assets Current Assets Cash and cash equivalents $12,040 $414 Restricted cash 37 - Accounts receivable 7,023 2,023 Inventory 1,269 23 Costs in excess of billings 2,130 1,277 Other current assets 220 281 Total Current Assets 22,719 4,018 Property and Equipment, net 745 84 Other Assets Other deposits 36 20 Goodwill 10,864 2,599 Other intangible assets 500 - Total Other Assets 11,400 2,619 Total Assets $34,864 $6,721 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued liabilities $5,033 $1,971 Billings in excess of costs 1,990 892 Customer deposits 394 52 Loan payable, current portion 2,028 - Derivative liability - 68 Acquisition convertible promissory notes, net of beneficial conversion feature of $1,767 and $234,respectively 750 891 Convertible promissory notes, net of debt discount of $0 and $1, respectively 850 887 Total Current Liabilities 11,045 4,761 Long Term Liabilities Loan payable 232 - Warranty liability 45 - Total Long Term Liabilities 277 - Total Liabilities 11,322 4,761 Shareholders' Equity Preferred stock, $.001 par value; 5,000,000 authorized shares; 1,506,024 and 0 shares issued and outstanding, respectively 2 - Common stock, $.001 par value; 1,000,000,000 authorized shares; 18,320,535 and 14,016,252 shares issued and outstanding, respectively 18 14 Additional paid in capital 63,285 42,765 Accumulated Deficit (39,763) (40,819) Total Shareholders' Equity 23,542 1,960 Total Liabilities and Shareholders' Equity $34,864 $6,721 The accompanying notes are an integral part of these consolidated financial statements. F-2Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SUNWORKS, INC. (FORMERLY SOLAR3D, INC.)CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014(in thousands, except share and per share data) 2015 2014 Sales $53,713 $20,190 Cost of Goods Sold 36,664 14,578 Gross Profit 17,049 5,612 Operating Expenses Selling and marketing expenses 5,941 1,575 General and administrative expenses 8,633 3,602 Research and development cost 53 113 Depreciation and amortization 51 10 Total Operating Expenses 14,678 5,300 Income/Loss before Other Income/(Expenses) 2,371 312 Other Income/(Expenses) Interest and other income 10 - Other expense (3) (33)Loss on settlement of debt - (187)Gain (Loss) on change in fair value of derivative liability 69 (20,770)Interest expense (1,391) (4,194) Total Other Income/(Expenses) (1,315) (25,184) Income (Loss) before Income Taxes 1,056 (24,872) Income Tax Expense - - Net Income (Loss) $1,056 $(24,872) EARNINGS (LOSS) PER SHARE: Basic $0.06 $(2.15)Diluted $0.05 $(2.15) WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING Basic 16,966,921 11,589,412 Diluted 23,709,210 11,589,412 The accompanying notes are an integral part of these consolidated financial statements. F-3Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SUNWORKS, INC. (FORMERLY SOLAR3D, INC.)CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014(in thousands, except share and per share data) Series B Additional Preferred stock Common stock Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance at December 31,2013 - $- 8,203,472 $8 $12,492 $(15,947) $(3,447)Issuance of common stockfor conversion ofpromissory notes, plusaccrued interest - - 5,192,399 5 12,768 - 12,773 Issuance of common stockfor exercise of warrants - - 75,049 - - - - Issuance of common stockfor cashless exercise ofwarrants - - 62,217 - - - - Issuance of common stockfor services at fair value - - 384,615 1 179 - 180 Issuance of common stockfor services - - 31,193 - 122 - 122 Issuance of common stockfor commitment fee - - 67,308 - 26 - 26 Beneficial conversionfeature on convertiblepromissory note - - - - 1,750 - 1,750 Fair value of exchangedconvertible notes - - - - 15,183 - 15,183 Stock based compensation - - - - 245 - 245 Net loss for the twelvemonths ended December31, 2014 - - - - - (24,872) (24,872)Balance at December 31,2014 - $- 14,016,253 $14 $42,765 $(40,819) $1,960 Issuance of common stockfor cash - - 3,000,000 3 11,576 - 11,579 Issuance of common stockfor conversion ofpromissory notes, plusaccrued interest - - 1,175,517 1 1,299 - 1,300 Issuance of common stockfor services at fair value - - 57,529 - 239 - 239 Issuance of common stockfor commitment fee - - 11,583 - 3 - 3 Issuance of common stockfor exercise of warrants - - 3,000 - 12 - 12 Issuance of common stockfor cashless exercise ofoptions - - 53,649 - - - - Contributed capital - - - - 39 - 39 Beneficial conversionfeature on convertiblepromissory note - - - - 2,718 - 2,718 Rounding shares due toreverse split - - 3,004 - - - Issuance of preferred stockfor Plan B acquisition 1,506,024 2 - - 4,498 - 4,500 Stock based compensation - - - - 136 - 136 Net income for the twelvemonths ended December31, 2015 - - - - - 1,056 1,056 Balance at December 31,2015 1,506,024 $2 18,320,535 $18 $63,285 $(39,763) $23,542 The accompanying notes are an integral part of these consolidated financial statements.F-4Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SUNWORKS, INC. (FORMERLY SOLAR3D, INC.)CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014(in thousands, except share and per share data) 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $1,056 $(24,872)Adjustments to reconcile net loss to net cash (used) in operating activities Depreciation and amortization 51 10 Stock based compensation 136 425 Common stock issued for services 239 76 (Gain) Loss on change in derivative liability (69) 20,770 Amortization of debt discount 1,186 4,014 Loss on settlement of debt - 187 Impairment of patents - 23 Common stock issued for commitment fees 3 26 Changes in Assets and Liabilities (Increase) Decrease in: Accounts receivable (1,228) (1,457)Inventory (690) (23)Other current assets 76 (271)Cost in excess of billings (28) (1,137) Other receivable - 39 Other asset (37) (13)Accounts payable and accrued liabilities 368 990 Billings in excess of cost (197) 666 Other liabilities 387 138 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,253 (409) NET CASH FLOWS USED IN INVESTING ACTIVITIES: Net cash paid for acquisitions, (2,814) (572)Purchase of property and equipment (224) (80)NET CASH USED IN INVESTING ACTIVITIES (3,038) (652) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable net of payments 1,780 - Proceeds from convertible promissory notes - 1,465 Proceeds from conversion of warrants 13 - Capital contribution 39 - Proceeds from issuance of common stock, net of cost 11,579 - NET CASH PROVIDED BY FINANCING ACTIVITIES 13,411 1,465 NET INCREASE IN CASH AND CASH EQUIVALENTS 11,626 404 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 414 10 CASH AND CASH EQUIVALENTS, END OF YEAR $12,040 $414 SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS Convertible promissory notes and Preferred Shares issued for acquisitions $7,150 $1,750 Issuance of common stock upon conversion of debt at fair value $1,300 $12,773 Issuance of common stock upon a cashless exercise of stock options $- $1 Issuance of common stock upon a cashless conversion of warrants $- $1 Fair value of exchanged convertible notes $- $15,184 The accompanying notes are an integral part of these consolidated financial statements.F-5Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSUNWORKS, INC. (FORMERLY SOLAR3D, INC.)Notes to Consolidated Financial StatementsDecember 31, 2015 and 2014 1. ORGANIZATION AND LINE OF BUSINESSOrganizationSunworks, Inc. (the "Company") was incorporated in the state of Delaware on January 30, 2002. The Company, based in Santa Barbara, California, beganoperations on January 30, 2002. We were originally formed in January 2002 as MachineTalker, Inc. in order to pursue the development of new wirelessprocess control technology. In September 2010, we shifted our engineering and research focus to developing a new means for generating solar-producedelectrical power, which we plan to patent and perfect for use in the manufacture of highly efficient solar cells. In July 2010, we changed our companyname to Solar3D, Inc. and in March 2016, we changed our company name to Sunworks, Inc. in order to better reflect our new business plan. Line of BusinessThrough the acquisitions of Sunworks United, Inc. (d/b/a Sunworks United), MD Energy, LLC, and Elite Solar Acquisition, Inc. the Company providessolar photovoltaic installation and consulting services to residential, commercial, and agricultural properties. The work is performed under fixed pricebid contracts, cost-plus contracts and negotiated price contracts. The Company performed all of its work in California during 2014 and opened an officein Reno, Nevada in 2015.We are also developing and marketing a new three-dimensional version of solar cell technology in order to maximize the conversion of sunlight intoelectricity. We have applied for patent protection on what we believe to be a breakthrough design for the next generation in solar cell technology withincreased efficiency and resulting in a lower cost per watt of electricity produced. To commercialize this technology, we plan to work with amanufacturing partner that has the capability to assist with the remaining steps (prototyping and volume runs to verify and prove improvement inconversion efficiency). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThis summary of significant accounting policies of Sunworks, Inc. is presented to assist in understanding the Company’s financial statements. Thefinancial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Theseaccounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in thepreparation of the financial statements.Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Sunworks, Inc., and its wholly owned operating subsidiaries, SunworksUnited, Inc. (d/b/a Sunworks United), MD Energy, Inc., and Elite Solar Acquisition Sub, Inc. All material intercompany transactions have beeneliminated upon consolidation of these entities.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities atthe date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets,revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, debt beneficial conversionfeatures, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates onhistorical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.Revenue RecognitionRevenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance withASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contractrevenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage oftotal estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. 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 isforeseen, the Company will recognize the loss as 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 therevision, become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changesin job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlementsmay result in revisions to costs and income and are recognized in the period in which the revisions are determined.F-6Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The Asset, “Costs in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billings inexcess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2015 and December 31, 2014, the costs inexcess of billings balance were $2,130 and $1,277, and the billings in excess of costs balance were $1,990 and $892, respectively.Contract receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible uponcompletion of the contracts. Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon workcompleted or materials received, as are retention due subcontractors, which are payable upon completion of the contract. General and administrativeexpenses are charged to operations as incurred and are not allocated to contract costs. Retention receivable is the amount withheld by a customer until acontract is completed. Retention receivables of $218 and $0 were included in the balance of trade accounts receivable as of December 31, 2015 andDecember 31, 2014, respectively. Contract ReceivableThe Company performs ongoing credit evaluation of its customers. Management closely monitors outstanding receivables based on factors surroundingthe credit risk of specific customers, historical trends, and other information, and records bad debts using the direct write-off method. Generally acceptedaccounting principles require the allowance method be used to reflect bad debts, however, the effect of the use of the direct write-off method is notmaterially different from the results that would have been obtained had the allowance method been followed. Accounts receivable are presented net ofan allowance for doubtful accounts of $0 at December 31, 2015, and 2014. Cash and Cash EquivalentThe Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Property and EquipmentProperty and equipment are stated at cost. Depreciation for property and equipment commences when it's put into service and are depreciated using thestraight line method over its estimated useful lives: Machinery & equipment 5 Years Furniture & fixtures 5-7 Years Computer equipment 3-5 Years Vehicles 5-7 Years Leaseholder improvements 7-15 YearsDepreciation expenses as of December 31, 2015 and 2014 was $51 and $10, respectively.Concentration RiskCash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (FDIC) limits. At timesthroughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2015, the cashbalance in excess of the FDIC limits was $10,879. The Company has not experienced any losses in such accounts and believes it is not exposed to anysignificant credit risk in these accounts. InventoryInventory is valued at the lower of cost or market and is determined by the first-in, first-out method. Inventory primarily consists of panels and othermaterials. Advertising and MarketingThe Company expenses advertising and marketing costs as incurred. Advertising and marketing costs include printed material, direct mail, radio,telemarketing, tradeshow costs, magazine and catalog advertisement. Advertising and marketing costs for the years ended December 31, 2015 and 2014were $2,915 and $637, respectively.Research and Development CostsResearch and development costs are expensed as incurred. These costs consist primarily of consulting fees, salaries and direct payroll related costs. Thecosts for the years ended December 31, 2015 and 2014 were $53 and $113, respectively.Fair Value of Financial InstrumentsDisclosures 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 December 31, 2015 and 2014, the amounts reported for cash, accrued interest and other expenses, andnotes payable approximate the fair value because of their short maturities. F-7Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) for financial instruments measured as fair value on a recurringbasis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted inthe United States and 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 participantsat the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. Thehierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowestpriority to unobservable inputs (level 3 measurements). These tiers include:·Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;·Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similarinstruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and·Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such asvaluations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as followsat December 31, 2015 and 2014: The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value: Beginning balance as of January 1, 2014 $2,822 Fair value of derivative liabilities issued 1,465 Conversion of notes payable (24,989)Loss on change in derivative liability 20,770 Ending balance as of December 31, 2014 $68 Fair value of derivative liabilities issued - Conversion of notes payable (76)Loss on change in derivative liability 8 Ending balance as of December 31, 2015 $- We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion featureswithin certain convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate.The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equityclassification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract andderivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair valuerecognized in earnings. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, anyremaining derivative liability will be charged to additional paid-in capital.For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. During the yearended December 31, 2015 and 2014, the significant assumptions used in the Black Scholes valuation of the derivative are as follows: 2015 2014 Stock Price on valuation dates $5.00 $1.66 - $2.60 Conversion price for the debt $0.52 $0.34 - $1.30 Dividend yield 0.00% 0.00%Years to maturity - 6 months - 1year Risk free rate 0.05% .03% - .13%Expected volatility 142.25% 54.43% - 256.72% F-8Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Warranty LiabilityThe Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, productrecalls and litigation incidental to the Company’s business. Liability estimates are determined based on management’s judgment, considering suchfactors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost ofcorrective action, consultations with third party experts such as engineers, and discussions with the Company’s general counsel and outside counselretained to handle specific product liability cases. Solar panel manufacturers currently provide substantial warranties between ten to twenty-five yearswith full reimbursement to replace and install replacement panels while inverter manufacturers currently provide warranties covering ten to fifteen yearreplacement and installation. Warranty costs and associated liabilities for the years ended December 31, 2015 and 2014 were $45 and $0, respectively. Stock-Based CompensationThe Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and forfinancing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidanceprovided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vestingperiod. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidanceof the Financial Accounting Standards Board 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 wherethere are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation chargeis recorded in the period of the measurement date. Basic and Diluted Net Income (Loss) per Share CalculationsIncome (Loss) per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed bydividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share iscomputed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that wouldhave been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The shares for employeeoptions, warrants and convertible notes were used in the calculation of the income per share.As of December 31, 2014, potentially dilutive securities have been excluded from the computations of weighted average shares outstanding including957,266 stock options, 700,000 restricted stock grants and shares underlying convertible notes.Dilutive per share amounts are computed using the weighted-average number of common shares outstanding and potentially dilutive securities, usingthe treasury stock method if their effect would be dilutive. The following schedule reconciles the denominators of the Company’s calculation for basic and diluted net income per share: Twelve monthsended December 31,2015 Shares used in basic per share computation 16,966,921 Effect of dilutive common stock options outstanding 599,677 Effect of dilutive conversion options 4,636,588 Effect of dilutive conversion of Series B Preferred Stock 1,506,024 Shares used in diluted per share computation 23,709,210 Long-Lived AssetsThe Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicatethat 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 cashflow 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 bywhich 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 amountor fair value less costs to sell. F-9Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Indefinite Lived Intangibles and Goodwill AssetsThe 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 fairvalues. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, afterobtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchaseprice in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstancesindicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performeda qualitative assessment of indefinite lived intangibles and goodwill at December 31, 2015 and 2014, and determined there was no impairment ofindefinite lived intangibles and goodwill. Business CombinationsWe allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on theirestimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded asgoodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significantestimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquiredtechnology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based uponassumptions 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 TaxesThe Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax creditcarry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred taxassets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to berealized. Segment ReportingOperating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chiefoperating decision maker, or decision making group, in deciding the method to allocate resources and assess performance. The Company currently hasone reportable segment for financial reporting purposes, which represents the Company's core business. Recently Issued Accounting PronouncementsOn June 19, 2014, the Company adopted the amendment to (Topic 718) Stock Compensation: Accounting for Share-Based Payments when the terms ofan award provide that a performance target could be achieved after the requisite service period. The amendment for accounting for share based payments,when an award provides that a performance target that affects vesting could be achieved after an employee completes the requisite service period shall beaccounted for as a performance condition. The performance target shall not be reflected in estimating the fair value of the award at the grant date, andcompensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and will represent thecompensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable ofbeing achieved before the end of the requisite service period, the remaining unrecognized compensation cost shall be recognized prospectively over theremaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect thenumber of awards that are expected to vest and shall be adjusted to reflect the awards that ultimately vest. The Company does not believe the accountingstandards currently adopted will have a material effect on the accompanying condensed financial statements.F-10Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenuerecognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer ofnonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance.The standard’s core principle is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflectsthe consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use morejudgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimatingthe amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. InAugust 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers" (Topic 606): Deferral of the Effective Date, which deferred theeffective date of ASU 2014-09 to fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlyadoption is permitted for fiscal years beginning after December 15, 2016. The Company is currently evaluating the method and impact the adoption ofASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” this Update as part of its initiative to reducecomplexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentationrequirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferredcharge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs bededucted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuancecosts as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debtissuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. ConceptsStatement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debtissuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as adirect deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debtissuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financialstatements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendmentsin this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal yearsbeginning after December 15, 2016. The Company is currently evaluating the effects of adopting this ASU, if it is deemed to be applicable.Management reviewed currently issued pronouncements during the twelve months ended December 31, 2015, and does not believe that any otherrecently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financialstatements.3. BUSINESS ACQUISITION Solar United Network, Inc. (Sunworks United) On January 31, 2014, the Company acquired 100% of the issued and outstanding stock of Solar United Network, Inc. (Sunworks United) for cash in theamount of $1,062 and by issuance of convertible promissory notes in the principal amount of $1,750. The acquisition was accounted for under ASC805. Sunworks United provides solar photovoltaic installation and consulting services to residential, commercial and agricultural properties. Theacquisition is designed to enhance our services for solar technology. Sunworks United became a wholly-owned subsidiary of the Company.Under the purchase method of accounting, the transactions were valued for accounting purposes at $2,812, which was the fair value of Sunworks Unitedat time of acquisition. The assets and liabilities of Sunworks United were recorded at their respective fair values as of the date of acquisition. Since theCompany determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fairvalue of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferredconsisted of the following: Closing cash payment $1,062 Convertible promissory notes 1,750 Total purchase price $2,812 Tangible assets acquired $1,253 Liabilities assumed (1,040)Net tangible assets 213 Goodwill 2,599 Total purchase price $2,812 F-11Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Key factors that make up the goodwill created by the transaction include knowledge and experience of the acquired workforce and infrastructure.MD Energy, LLC (MD Energy) On March 2, 2015, the Company acquired 100% of the tangible and intangible assets of MD Energy, LLC (MD Energy), for cash in the amount of $850,a convertible promissory note in the principal amount of $2,650, and payment of working capital surplus in the amount of $437. The acquisition wasaccounted for under ASC 805. MD Energy designs, arranges financing, monitors and maintains solar systems, but outsources the physical constructionof the systems. The acquisition is designed to enhance our services for solar technology. MD Energy is now a wholly-owned subsidiary of the Company. Under the purchase method of accounting, the transactions were valued for accounting purposes at $3,937, which was the fair value of the Company attime of acquisition. Since the Company determined there were no other separately identifiable intangible assets, any difference between the cost of theacquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of theconsideration transferred consisted of the following:Closing cash payment $850 Working capital surplus 437 Convertible promissory notes 2,650 Total purchase price $3,937 Tangible assets acquired $1,442 Liabilities assumed (799)Net tangible assets 643 Goodwill 3,294 Total purchase price $3,937 Plan B Enterprises, Inc. (Plan B)On August 6, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger”) with Plan B Enterprises, Inc., a California corporationand d/b/a Elite Solar, Universal Racking Solutions (collectively, “Plan B”), Kirk R. Short (the “Plan B Shareholder”) and Elite Solar Acquisition Sub,Inc., a wholly owned subsidiary of the Company (“Acquisition Sub”) whereby Plan B was merged with and into Acquisition Sub, with Acquisition Subsurviving as the Surviving Corporation. Plan B is engaged in the business of designing and installing photovoltaic systems for residential, commercial,agricultural and municipal customers.On December 1, 2015, the Company acquired 100% of the issued and outstanding stock of Plan B for cash in the amount of $2,500 and by issuance of1,506,024 shares of convertible preferred stock in the principal amount of $4,500. The acquisition was accounted for under ASC 805. Plan B providessolar photovoltaic installation and consulting services to residential, commercial and agricultural properties. The acquisition is designed to enhance ourservices for solar technology. Plan B was merged into Acquisition Sub that is now a wholly-owned subsidiary of the Company.Under the purchase method of accounting, the transactions were valued for accounting purposes at $7,000, which was the fair value of Plan B at time ofacquisition. The assets and liabilities of Plan B were recorded at their respective fair values as of the date of acquisition. Since the Company determinedthere were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assetsacquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of thefollowing:Closing cash payment $2,500 Preferred share value / Series B 4,500 Total purchase price 7,000 Tangible assets acquired 5203 Liabilities assumed (3,674)Net tangible assets 1,529 Goodwill 4,971 Other intangible assets 500 Total purchase price $7,000 F-12Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The above estimated fair value of the intangible assets of MDE and Plan B is based on a preliminary purchase price allocation prepared by management.As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may recordadjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocationperiod, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in theperiod in which the adjustments were determined.Pro forma resultsThe following tables set forth the unaudited pro forma results of the Company as if the acquisition of Sunworks United, MDE and Plan B had taken placeon the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had thecompanies been combined as of the first day of the periods presented. Year ended,December 31,2015 Year ended,December 31,2014 Total revenues $66,981 $36,017 Net Income (loss) 1,858 (23,472)Basic and diluted net income (loss) per common share $0.10 $(2.02) 4. PROPERTY AND EQUIPMENT, NET Property and equipment is summarized as follows at December 31, 2015 and 2014: 2015 2014 Leasehold improvements $48 $20 Vehicles 221 26 Office equipment & furniture 552 41 Computers and software 65 80 886 167 Less accumulated depreciation (141) (83) $745 $84 Depreciation expense for the years ended December 31, 2015 and 2014 was $51 and $10, respectively. 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at December 31, 2015 and 2014 are as follows: 2015 2014 Trade payables $4,273 $1,500 Accrued payroll and commissions 295 295 Accrued expenses 465 176 Total $5,033 $1,971 6. LOANS PAYABLEPlan B, a subsidiary of the Company, established a line of credit prior to the acquisition on March 10, 2014, with Tri Counties Bank to borrow up to$200 maturing on March 10, 2015. The maturity date was subsequently extended to March 10, 2016. The minimum monthly payment is dependent uponthe outstanding balance due. This was a variable rate revolving line of credit with a minimum interest rate of 4.75%. The outstanding balance atDecember 31, 2015 is $137. Subsequent to year-end the outstanding balance was paid in full before the maturity date. Plan B, a subsidiary of the Company, entered into a business loan agreement prior to the acquisition with Tri Counties Bank dated March 14, 2014, inthe original amount of $130, bearing interest at 4.95%. The loan agreement called for monthly payments of $2 and was scheduled to mature on March14, 2019. Proceeds from the loan were used to purchase a pile driver and related equipment and is secured by the equipment. The outstanding balance atDecember 31, 2015, is $88.F-13Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Plan B, a subsidiary of the Company, entered into a Business loan agreement prior to the acquisition with Tri Counties Bank dated April 9, 2014, in theoriginal amount of $250, bearing interest at 4.95%. The loan agreement calls for monthly payments of $5 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. Theoutstanding balance at December 31, 2015, is $173. MDE, a subsidiary of the Company, entered into notes payable in October 2014, secured by transportation equipment, requiring combined monthlypayments of $1, including principal and interest at various rates of interest per annum. Principal and any accrued interest are payable until September2019. The outstanding balance at December 31, 2015, is $61. On December 31, 2015, the Company entered into a $2.5 million Credit Facility with JPMorgan Chase Bank, N.A. Availability under the Credit Facilityis a Line of Credit with a Letter of Credit Sublimit up to $2.5 million. Upon execution the Company accessed $1.8 million that was repaid in full onJanuary 5, 2016. The Note matures on November 30, 2017, but may be cancelled at any time by the Company. Loans are secured by a security interestin the Company’s account held with the Lender. Interest on any unpaid balance accrues at the Prime Rate; provided that, on any given day, shall not beless than the Adjusted One Month LIBOR rate. Until the maturity date, the Company shall pay monthly interest only. The Credit Facility provides for thepayment of certain fees, including fees applicable to each standby letter of credit and standard transaction fees with respect to any transactions occurringon account of any letter of credit. Subject to customary carve-outs, the Credit Agreement contains customary negative covenants and restrictions foragreements 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, theCredit Agreement requires compliance by the Company of 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. As of December 31, 2015 and December 31, 2014, loans payable are summarized as follows: 2015 2014 Business line dated March 10, 2014 $137 $- Business loan agreement dated March 14, 2014 88 - Business loan agreement dated April 9, 2014 174 - Equipment notes payable 61 Line of credit 1,800 - Subtotal 2,260 - Less: Current position (2,028) - Long-term position $232 $- 7. ACQUISITION CONVERTIBLE PROMISSORY NOTEOn January 31, 2014, the Company entered into a securities purchase agreement providing for the sale of four 4% convertible promissory notes in theaggregate principal amount of $1,750 as part of the consideration paid to acquire 100% of the issued and outstanding stock of Sunworks United. Thenotes are convertible at any time after issuance into shares of fully paid and non-assessable shares of common stock. The conversion price is $0.52 pershare until March 30, 2015, which has been amended to extend to March 31, 2016, and thereafter the conversion price will be the greater of $0.52 or50% of the average closing price of the common stock during the ten (10) consecutive trading days following the submission of the conversion notice.The Notes are five (5) year notes and bear interest at the rate of 4% per annum. As amended on June 30, 2015, the Company will make quarterlypayments of principal and interest payable over a three-year period commencing March 31, 2016. In February and March 2014, $625 of the notes wasconverted into 1,201,923 shares of common stock, leaving a remaining balance of $1,125 as of December 31, 2014. During the twelve months endedDecember 31, 2015, the Company issued 721,154 shares of common stock upon conversion of principal in the amount of $375. The principal balanceremaining as of December 31, 2015 is $750. The Company recorded amortization of the beneficial conversion feature as interest expense in the amountof $234 during the twelve months ended December 31, 2015. Subsequent to year-end in March 2016, the notes were fully converted to 1,442,308 sharesof common stock.On February 28, 2015, the Company entered into a securities purchase agreement providing for the sale of a 4% convertible promissory note in theaggregate principal amount of $2,650 as part of the consideration paid to acquire 100% of the total outstanding stock of MD Energy. The note isconvertible into shares of common stock on or after each of the following dates: November 30, 2015, November 30, 2016 and November 30, 2017. Theconversion price shall be $2.60 per share. A beneficial conversion feature of $2,650 was calculated and capped at the value of the note based on effectiveconversion price of $3.20. In November 2015, the Company issued 339,743 shares of common stock upon conversion of the principal amount of $883. Commencing on March 31, 2015, and on the last day of each quarter thereafter during the first two (2) years of the note, the Company will makequarterly interest only payments to the shareholder for interest accrued on the Note during the quarter. Commencing with the quarter ending on June 30,2017, the Company will make quarterly payments of interest accrued on the Note during the prior quarter plus $221, with the final payment of alloutstanding principal and accrued but unpaid interest on the Note due and payable on February 28, 2020 (the maturity date). The Company recordedamortization of the beneficial conversion feature as interest expense in the amount of $952 during the twelve months ended December 31, 2015. Thedebt discount will be amortized over the life of the Convertible Note, or until such time that the Convertible Notes are converted, in full or in part, intoshares of common stock of the Company with any unamortized debt discount continuing to be amortized in the event of any partial conversion thereofand any unamortized debt discount being expensed at such time of full conversion thereof.F-14Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents We evaluated the foregoing financing transactions in accordance with ASC Topic 470, Debt with Conversion and Other Options, and determined thatthe conversion feature of the convertible promissory note was afforded the exemption for conventional convertible instruments due to its fixedconversion rate. The convertible promissory notes have explicit limits on the number of shares issuable so they did meet the conditions set forth incurrent accounting standards for equity classification. The convertible promissory notes were issued with non-detachable conversion options that arebeneficial to the investors at inception, because the conversion option has an effective strike price that is less than the market price of the underlyingstock at the commitment date. The accounting for the beneficial conversion feature requires that the beneficial conversion feature be recognized byallocating the intrinsic value of the conversion option to additional paid-in-capital, resulting in a discount on the convertible notes, which will beamortized and recognized as interest expense. 8. CONVERTIBLE PROMISSORY NOTESConvertible promissory note at December 31, 2015 and 2014 are as follows: 2015 2014 Convertible promissory notes payable $850 $888 Less, debt discount - (1)Convertible promissory notes payable, net $850 $887 On March 1, 2013, the Company entered into a securities purchase agreement providing for the sale of a 5% convertible promissory note in the aggregateprincipal amount of $8, for consideration of $8. The note is convertible into shares of common stock of the Company at a price equal to a variableconversion price equal to the lesser of $0.52 per share or the lowest closing price after the effective date. The note matured on March 31, 2015. As ofDecember 31, 2015, the Company had issued 16,987 shares of common stock for principal in the amount of $8, plus accrued interest of $1.On January 29, 2014, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in theprincipal amount of up to $100. Upon execution of the note, the Company received an initial advance of $90. On December 4, 2014, the Companyissued 192,543 shares of common stock upon conversion of $60 in principal, plus interest of $5. As of December 31, 2014, the remaining balance is $30.The note was convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.338 pershare, or fifty percent (50%) of the lowest trading price after the effective date. The Company issued 97,633 shares of common stock upon conversion ofprincipal in the amount of $30, plus accrued interest of $3 during the twelve months ended December 31, 2015On January 31, 2014, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in theprincipal amount of up to $500, for consideration of $500. The proceeds were restricted and were used for the purchase of Solar United Network, Inc.During the year ended December 31, 2014, the Company issued 1,567,606 shares of common stock upon conversion of $500 in principal, plus $30 inaccrued interest. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $500 during the yearended December 31, 2014.On January 31, 2014, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in theprincipal amount of up to $750, for consideration of $750. The proceeds were restricted and were used for the purchase of Solar United Network, Inc. Thenote was convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $1.30 per share, orfifty percent (50%) of the lowest trading price after the effective date. As of September 30, 2014, the note was exchanged for a new note with a fix price of$0.338, and convertible into shares of common stock. Per ASC 815, the derivative liability on the note was extinguished and the new note was re-valuedper ASC 470 as a beneficial conversion feature, which was expensed in the statement of operations during the prior year. The note matured on October28, 2014, with an extension of three months. The note matured on January 31, 2015, and was extended to June 30, 2016, and in March 2016 wassubsequently extended to June 30, 2019 with zero interest. The Company recorded interest expense in the amount of $75 and $69, during the twelvemonths ended December 31, 2015 and 2014, respectively. F-15Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On February 11, 2014, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in theprincipal amount of up to $100. Upon execution of the note, the Company received an initial advance of $20. In February and March, the Companyreceived additional advances in an aggregate amount of $80 for an aggregate total of $100. The note was convertible into shares of common stock of theCompany at a price equal to a variable conversion price equal to the lesser of $1.30 per share, or fifty percent (50%) of the lowest trading price after theeffective date. As of September 30, 2014, the note was exchanged for a new note with a fixed price of $0.338, and convertible into shares of commonstock. Per ASC 815, the derivative liability on the note was extinguished and the new note was re-valued per ASC 470 as a beneficial conversion feature.The note matured on various dates from the effective date of each advance with respect to each advance. At the sole discretion of the lender, the lenderwas able to modify the maturity date to be twelve (12) months from the effective date of each advance. The note matured on various dates in 2014, andwas extended to June 30, 2016, and in March 2016 was subsequently extended to June 30, 2019 with zero interest. The Company recorded interestexpense in the amount of $10 and $8, during the twelve months ended December 31, 2015 and 2014, respectively. At the time of issuance, the Company evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determinedthat the conversion feature of the convertible promissory note was not afforded the exemption for conventional convertible instruments due to itsvariable conversion rate. The notes had no explicit limit on the number of shares issuable so they did not meet the conditions set forth in currentaccounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be aseparation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fairvalue, with changes in fair value recognized in earnings. The derivative liability was adjusted periodically according to the stock price fluctuations. 9. CAPITAL STOCKReverse Stock SplitOn February 25, 2015, the Company effected a 26:1 reverse stock split on its issued and outstanding shares of common stock. All share and per sharedollar amounts have been retrospectively revised to reflect the twenty six-for-one (26:1) reverse stock split.Preferred StockOn November 25, 2015, the Company established a new series of the authorized preferred stock designated as Series B Preferred Stock, $0.001 par valueper share, and which will consist of 1,700,000 shares. The Certificate of Designation was filed with the Secretary of State of the State of Delaware. Pursuant to the Certificate of Designation and subject to the rights of any other series of preferred stock to be established by the Board of Director,holders of Series B Preferred Stock (the “Holders”) will have liquidation preference over the holders of the Company’s Common Stock in anydistribution upon winding up, dissolution, or liquidation. Holders will also be entitled to receive dividends, if, when and as declared by the Board ofDirector, which dividends shall be payable in preference and priority to any payment of any dividend to holders of Common Stock. Holders will beentitled to convert each share of Series B Preferred Stock into one (1) share of Common Stock, and will also entitled to vote together with the holdersCommon Stock on all matters submitted to shareholders at a rate of one (1) vote for each share of Series B Preferred Stock. In addition, so long as at least100,000 shares of Series B Preferred Stock are outstanding, the Company may not, without the consent of the Holders of at least a majority of the sharesof Series B Preferred Stock then outstanding: (i) amend, alter or repeal any provision of the Certificate of Incorporation or bylaws of the Company or theCertificate of Designation so as to adversely affect any of the rights, preferences, privileges, limitations or restrictions provided for the benefit of theHolders or (ii) issue or sell, or obligate itself to issue or sell, any additional shares of Series B Preferred Stock, or any securities that are convertible into orexchangeable for shares of Series B Preferred Stock. 1,506,024 shares of Series B Preferred stock, at a fair value of $4,500, were issued in December 2015in connection with the acquisition of Plan B. See Note 3. Twelve months ended December 31, 2015During the year ended December 31, 2015, the Company issued 3,000,000 shares of common stock at $4.15 per share in an underwritten offering. Thenet proceeds to the Company were $11,579.During the year ended December 31, 2015, the Company issued 1,175,517 shares of common stock conversion of principal for convertible promissorynotes in the amount of $1,300.During the year ended December 31, 2015, the Company issued 57,529 shares of restricted common stock valued at $239 for services.During the year ended December 31, 2015, the Company issued 11,583 shares of common stock valued at $3 in conversion of restricted common stockfor commitment fees.F-16Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents During the year ended December 31, 2015, the Company issued 3,000 shares of common stock valued at $12 in exercise of common stock warrants.During the year ended December 31, 2015, the Company issued 53,649 shares of common stock for the cashless exercise of options.During the year ended December 31, 2015, the Company received $39 in contributed capital which was the disgorged profits related to Company stocktransactions by an officer within a 180 day period.During the year ended December 31, 2015, the Company issued 3,004 shares of common stock for rounding associated with the 26:1 reverse split. Twelve months ended December 31, 2014During the year ended December 31, 2014, the Company issued 5,192,399 shares of common stock at prices per share ranging from $0.338 to $2.60 forconversion of principal for convertible promissory notes in the amount of $1,921, plus accrued interest payable of $95, and recognized a loss on changein derivative of $10,757.During the year ended December 31, 2014, the Company issued 62,217 shares of common stock at fair value for a cashless exercise of 76,923 commonstock purchase warrants.During the year ended December 31, 2014, the Company issued 75,049 shares of common stock for the cashless exercise of 81,197 stock options.During the year ended December 31, 2014, the Company issued 384,615 shares of common stock valued at $180 in conversion of restricted commonstock for services.During the year ended December 31, 2014, the Company issued 28,846 shares of common stock valued at $112 for settlement of accrued expenses forservices in the amount of $47.During the year ended December 31, 2014, the Company issued 2,347 shares of common stock for services in the amount of $10.During the year ended December 31, 2014, the Company issued 67,308 shares of common stock with a fair value of $26 for a price adjustment for theshares issued to investors.10. STOCK OPTIONS, RESTRICTED STOCK AND WARRANTSOptionsAs of December 31, 2015, the Company has 899,574 non-qualified stock options outstanding to purchase 899,574 shares of common stock, per the termsset forth in the option agreements. The stock options vest at various times, and are exercisable for a period of seven years from the date of grant atexercise prices ranging from $0.26 to $4.42 per share, the market value of the Company’s common stock on the date of each grant. The Companydetermined the fair market value of these options by using the Black Scholes option valuation model.F-17Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents A summary of the Company’s stock option activity and related information follows: December 31, 2015 December 31, 2014 Weighted Weighted Number average Number average of exercise of exercise Options price Options price Outstanding, beginning January 1, 2015 957,266 $2.20 961,539 $1.04 Granted - - 76,924 4.42 Exercised (53,649) 0.26 (81,197) 0.69 Expired (4,043) 0.26 - - Outstanding, end of December 31, 2015 899,574 1.30 957,266 2.20 Exercisable at the end of December 31, 2015 822,650 1.13 808,761 1.09 Weighted average fair value of options granted during period - 4.42 The following summarizes the options to purchase shares of the Company’s common stock which were outstanding at December 31, 2015: Weighted Average Remaining Exercisable Stock Options Stock Options Contractual Prices Outstanding Exercisable Life (years) $1.300 576,923 576,923 1.59 $0.260 192,308 192,308 3.01 $0.468 53,419 29,914 4.73 $4.420 76,923 23,505 5.96 899,574 822,650 Aggregate intrinsic value of options outstanding and exercisable at December 31, 2015 and 2014 was $2,042 and $3,437, respectively. Aggregateintrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $3.70 and$4.60 as of December 31, 2015 and 2014, respectively, and the exercise price multiplied by the number of options outstanding. Restricted Stock CEODuring the year ended December 31, 2013, the Company entered into a restricted stock grant agreement (“or RSGA”) with its Chief Executive Officer,James B. Nelson, intended to provide and incentivize Mr. Nelson to improve the economic performance of the Company and to increase its value andstock price. All shares issuable under the RSGA are performance-based shares. The RSGA provides for the issuance of up to 769,230 shares of theCompany’s common stock to Mr. Nelson provided certain milestones are met in certain stages. As of September 30, 2014, two of the stages were met,when the Company’s market capitalization exceeded $10,000, and the consolidated gross revenue, calculated in accordance with GAAP, equaled orexceeded $10,000 for the trailing twelve-month period. The Company issued 384,615 shares of common stock to Mr. Nelson, which was exercisedthrough a cashless exercise at fair value of $786 during the year ended December 31, 2014. If the Company’s consolidated net profit, calculated inaccordance to GAAP, equals or exceeds $2,000 for a trailing twelve month period, the Company will issue an additional 384,615 shares of theCompany’s common stock to Mr. Nelson. We have not recognized any cost associated with the second milestone due to not being able to estimate theprobability of it being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance. F-18Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Restricted Shares to ShareholdersDuring the year ended December 31, 2014, the Company entered into a RSGA with the Shareholders of Sunworks United (Sunworks UnitedShareholders), intended to provide incentive to the recipients to ensure economic performance of the Company. All shares issuable under the RSGA areperformance based shares and none have yet vested nor have been issued. The RSGA’s provide for the issuance of up to 276,923 shares of the Company’scommon stock in the aggregate to the Sunworks United Shareholders provided certain milestones are met in certain stages as follows: a) If theCompany’s aggregate net income from operations, for any trailing four (4) quarters equals or exceeds $2,000, the Company will issue 92,308 shares ofcommon stock in the aggregate; b) If the Company’s aggregate net income from operations, for any trailing four (4) quarters exceeds $3,000, theCompany will issued 92,308 shares of common stock in the aggregate; c) If the Company’s aggregate net income from operations, for any trailing four(4) quarters exceeds $4,000, the Company will issue 92,307 in the aggregate. Based on the probability that the first milestone will be achieved duringthe year 2015 the Company recognized $100 in stock compensation expense. We have not recognized any cost associated with the last two milestonesas we are not yet able to estimate the probability of such milestones being achieved. As the performance goals are achieved, the shares shall becomeeligible for vesting and issuance.Restricted Shares to EmployeesDuring the year ended December 31, 2014, the Company entered into a RSGA with the employees of Sunworks United, intended to provide incentive tothe recipients to ensure certain economic performance of the Company. All shares issuable under the RSGA are performance based shares and none haveyet vested nor have been issued. The RSGA provides for the issuance of up to 38,462 shares of the Company’s common stock provided certainmilestones are met in certain stages as follows: a) If the Company’s aggregate net income from operations, for any trailing four (4) quarters equals orexceeds $2,000, the Company will issue 12,821 shares of common stock; b) If the Company’s aggregate net income from operations, for any trailing four(4) quarters exceeds $3,000, the Company will issued 12,821 shares of common stock; c) If the Company’s aggregate net income from operations, for anytrailing four (4) quarters exceeds $4,000, the Company will issue 12,820. Based on the probability that the Company will reach the $2,000 in aggregateincome for the four (4) trailing quarters, the Company recognized $33 in stock compensation expense. We have not recognized any cost associated withthe last two milestones as we are not yet able to estimate the probability of such milestones being achieved. As the performance goals are achieved, theshares shall become eligible for vesting and issuance.Restricted Shares to CFOOn February 1, 2015, the Company entered into a RSGA with the Chief Financial Officer (“CFO) of Sunworks United, intended to provide incentive tothe CFO to ensure certain economic performance of the Company. All shares issuable under the RSGA are performance-based shares and none have yetvested nor have been issued. The RSGA provides for the issuance of up to 115,385 shares of the Company’s common stock provided certain milestonesare met in certain stages as follows: a) If the Company’s aggregate net income from operations, for any trailing four (4) quarters equals or exceeds $2,000,the Company will issue 38,462 shares of common stock; b) If the Company’s aggregate net income from operations, for any trailing four (4) quartersexceeds $3,000, the Company will issued 38,462 shares of common stock; c) If the Company’s aggregate net income from operations, for any trailingfour (4) quarters exceeds $4,000, the Company will issue 38,461. We have not recognized any cost associated as we are not yet able to estimate theprobability of such milestones being achieved. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.The total stock-based compensation expense recognized in the statement of operations during the twelve months ended December 31, 2015 and 2014was $136 and $107, respectively.WarrantsDuring the twelve months ended December 31, 2015, we issued 3,000,000 common stock purchase warrants. The warrants were issued as part of the unitssold by the Company in a public offering in March 2015. The warrants are exercisable at a price of $4.15 per share. As of December 31, 2015, theCompany had 2,997,000 common stock purchase warrants outstanding. F-19Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents A summary of the Company’s warrant activity and related information follows: December 31, 2015 December 31, 2014 Weighted Weighted Number average Number average of exercise of exercise Warrants price Warrants price Outstanding, beginning of period 0 115,385 $0.91 Granted 3,000,000 4.15 - - Exercised 3,000 4.15 (76,923) 0.39 Expired (38,462) 1.95 Outstanding, end of period 2,997,000 $4.15 - $- Exercisable at the end of period 2,997,000 $4.15 - $- Weighted average fair value of options granted during the period $4.15 $0.00 11. INCOME TAXESThe Company files income tax returns in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subjectto U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2012.Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets foramounts when the realization is uncertain. Included in the balances at December 31, 2015 and 2014, are no tax positions for which the ultimatedeductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred taxaccounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but wouldaccelerate the payment of cash to the taxing authority to an earlier period.The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.During the periods ended December 31, 2015 and 2014, the Company did not recognize interest and penalties.The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income fromcontinuing operations for the year ended December 31, 2015 and 2014 due to the following: 2015 2014 Net income (loss) $415 $(9,973)Depreciation and amortization 301 (112)Stock Compensation Expense 53 168 (Gain) Loss on Derivative (27) 8,225 Amortization of Debt Discount 466 1,590 Gain/Loss on Settlement of Debt - 74 Research and development costs - 4 Acquisition change in tax method - (63)Other - 5 Valuation Allowance (1,208) 82 Income tax expense $- $- Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax creditcarry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reportedamounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it ismore likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment.F-20Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents At December 31, 2015, the Company had net operating loss carry-forwards of approximately $3.4 million that may be offset against future taxableincome through 2033. No tax benefit has been reported in the December 2015 financial statements, since the potential tax benefit is offset by a valuationallowance of the same amount.Net deferred tax liabilities consist of the following components as of December 31, 2015 and 2014: 2015 2014 Deferred tax assets: NOL carryover $1,347 $2,754 R&D carryover 167 167 Other 30 21 Deferred tax liabilities: Amortization (196) - Depreciation (180) (112) 1,168 2,830 Less valuation allowance (1,168) (2,830) Net deferred tax asset $- $- Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for federal income tax reporting purposes aresubject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.12. COMMITMENTS AND CONTINGENCIESSunworks United leases 19,140 square feet of mixed used space consisting of office and warehouse facilities in Roseville, California, at a monthly leaserate of $10. The lease expires in September 2019. Sunworks United leases 2,340 square feet of mixed used space consisting of office and warehouse facilities in Reno, Nevada at monthly lease rate of $2.The lease expired in January 2016 and new mixed use space of 7,000 square feet was leased at a monthly lease rate of $4 and the lease expires in January2019.Sunworks United leases 2,846 square feet of retail space consisting in Rocklin, California, at a monthly lease rate of $9. The lease expires in May 2021.Sunworks United leases 5,304 square feet of office space in Rocklin, California, at a monthly lease rate of $6. The lease expires in April 2019.MD Energy leases approximately 6,400 square feet of mixed used space consisting of office and warehouse facilities in Rancho Cucamonga, California,at a monthly lease rate of $4. The lease expires in April 2016.Elite Solar leases 15,600 square feet of mixed used space consisting of office and warehouse facilities from an entity controlled by the former soleshareholder of Plan B Enterprises, Inc. and current Series B Preferred Shareholder of the Company in Durham, California, at a monthly lease rate of $8.The lease expires in December 2019.Sunworks United leases various vehicles to perform installations and other purposes on 36-month terms with lease payments less than $1 monthly. At December 31, 2015, commitments for minimum property rental and vehicle payments were as follows: For the twelve months ended: 2016 $458,527 2017 503,104 2018 532,454 2019 351,635 2020 and thereafter 367,350 Total $2,213,070 F-21Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents 13. MAJOR CUSTOMER/SUPPLIERSFor the years ended December 31, 2015 and 2014 we had no customers that represented more than 10% of sales.For the years ended December 31, 2015 and 2014 the following suppliers represented more than 10% of direct material costs: 2015 2014 Wesco Distribution 6.9% 14.2%SunPower 22.9% 10.1%Canadian Solar 10.7% 0% 14. RELATED PARTY TRANSACTIONSIn October 2015, the Company entered into a consulting agreement with John Van Slooten, a Board member. The consulting services include, but arenot be limited to, consulting on and assisting with sourcing, assessing, modeling, due diligence and documentation with respect to potential acquisitioncandidates for the Company. The agreement is subject to the provisions for termination with the term of the Agreement commencing on October 1, 2015,and shall continue until September 30, 2018. The Company agreed to pay Mr. Van Slooten, $33 upon signing and $9 per month plus out-of-pocketexpenses. The Company may, in its discretion and at its option terminate this Agreement at any time.15. SUBSEQUENT EVENTSOn March 1, 2016, Solar3D, Inc. changed its name to Sunworks, Inc. with simultaneous NASDAQ stock symbol change from SLTD to SUNW.During March 2016, all of the convertible note holders from the Sunworks United acquisition converted their remaining $750 aggregate convertiblenotes into 1,442,309 shares of Common Stock.On March 1, 2016, one of the Company’s outstanding convertible notes in the principal amount of $100 plus accrued interest of $20 and a maturity dateof June 30, 2016, was amended to provide that the note will become interest free and the maturity date extended to June 30, 2019.On March 1, 2016, one of the Company’s outstanding convertible notes in the principal amount of $750 plus accrued interest of $155 and a maturitydate of June 30, 2016, was amended to provide that the note will become interest free and the maturity date extended to June 30, 2019. F-22Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer andprincipal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Basedupon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, ourdisclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within the required time periods specified in the Commission’s rules and forms and isaccumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timelydecisions regarding required disclosure.Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and proceduresor our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resourceconstraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. During the quarter ended December 31,2015, we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and theprincipal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation and due to thelack of segregation of duties and failure to implement accounting controls of acquired businesses, our principal executive officer and principal financialofficer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidatedfinancial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly,management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operationsand cash flows for the periods presented.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as ofDecember 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission ("COSO") in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internalcontrol over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will notbe prevented or detected on a timely basis. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.Management of the Company believes that these material weaknesses are primarily due to the continued integration of the 2015 acquisitions of Plan BEnterprises, Inc. and MD Energy LLC. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation ofduties, due to the cost/benefit of such remediation. We do expect to retain additional personnel to remediate these control deficiencies in the future.Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting asof December 31, 2015, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO. 26Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Changes in Internal Control Over Financial ReportingThere was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during thefiscal quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.No Attestation Report by Independent Registered AccountantThe effectiveness of our internal control over financial reporting as of December 31, 2015 has not been audited by our independent registered publicaccounting firm by virtue of our exemption from such requirement as a smaller reporting company.Item 9B. Other Information. Not applicable. 27Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. The following persons are our executive officers and directors, and hold the offices set forth opposite their names.Name Age PositionJames B. Nelson 63 Chief Executive Officer, President and DirectorTracy M. Welch 60 Chief Financial OfficerAbe Emard 38 Chief Operating Officer and DirectorMark J. Richardson 62 DirectorFrank L. Hunt 65 DirectorJohn D. Van Slooten 55 DirectorBrigham Tomco 36 DirectorShane Mace 50 Director The following is a brief account of the business experience during the past five years of each of our directors and executive officers:James B. Nelson has been a director and Chief Executive Officer of Sunworks since October 2010. Mr. Nelson also served as Interim Chief FinancialOfficer from August 2012 until February 2014. Mr. Nelson is also a director of Sunworks United, a position he has held since February 1, 2014. Mr. Nelsonbegan his executive career 30 years ago at Bain and Company, a business strategy consulting firm, where he managed a team of consultants on fourcontinents solving CEO-level programs for global companies. Prior to joining Sunworks, he spent 20 years working in the private equity industry as both acapital partner and operating CEO to portfolio companies. Mr. Nelson was a general partner at Peterson Partners (2007-2009) and at Millennial CapitalPartners (1991-2010--previously known as Invest West Capital). In addition to his responsibilities in acquisition and divestiture, Mr. Nelson worked as anexecutive of a number of portfolio companies. He served as chief executive officer of Euro-Tek Store Fixture, LLC, chairman of the board of American RetailInteriors, chairman of the board and chief executive officer of Panelview Inc. and chairman of the board of Critical Power Exchange, as well as sitting onnumerous boards both in and out of the private equity funds' portfolios. Prior to his years in private equity, Mr. Nelson served as Vice President of Marketingat Banana Republic/The Gap, where he managed company-wide marketing, as well as the initial international expansion of Banana Republic. He was alsogeneral manager for Banana Republic's catalog division. He also served as Vice President of Marketing and Corporate Development at Saga Corporation, amulti-billion dollar food service company. Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and wasnamed the Outstanding Master of Business Administration Graduate.The Board believes that Mr. Nelson is qualified to serve as a director because of his extensive experience as an executive and as a strategicconsultant. Tracy M. Welch was appointed as Chief Financial Officer effective February 6, 2015. Mr. Welch began his executive career 34 years ago withMarathon Oil, a fully integrated oil & gas publically held Fortune 100 company where he spent nine years in a variety of roles. Tracy recently served as theController of Maverik, a $2.4 billion Utah retail company with 270 locations from June, 2014 until February, 2015. From 2011 until 2013, Welch served asthe Chief Financial Officer of Ambre Energy North America, a $400 million energy and mining firm, where he oversaw all financial reporting, investment andpublic offering activities. From 2010 until 2011, Mr. Welch served as the Treasurer of Verso Paper, a public paper manufacturer, where Mr. Welch oversawfinancing and risk management activities. From 2009 until 2010, Mr. Welch served as the Treasurer of Hawkeye Energy, a $1 billion Iowa ethanol companyand from 2007 until 2008 served as the Chief Financial Officer of Global Ethanol, a $400 million Minnesota ethanol company. Mr. Welch worked for theSchwan Food Company (2002-2007) a $3.5 billion global frozen food manufacturer and distributor as Corporate Treasurer and later as Senior Vice-President,and Chief Financial Officer of their Global Food Service division where he oversaw the creation of the company’s treasury department, facilitated andstructured company M&A activities, and oversaw risk management activities for the company. Mr. Welch previously worked from 1999 to 2001 as Treasurerof Iomega, Inc. a public $2 billion high tech manufacturer where he also oversaw investor relations. Earlier in his career Mr. Welch worked for large publiclyheld energy and manufacturing companies. Tracy received a Bachelor of Science degree in accounting from Utah State University and his MBA from theUniversity of Utah. Mr. Welch was also previously a Certified Public Accountant in the State of Ohio.Abe Emard is a co-founder and served as the CEO of Sunworks United Inc., a division of Sunworks, from the company's inception in February 2011until February 2016, when he was named Chief Operating Officer of Sunworks. He is actively engaged in the design, installation and management of solarenergy solutions for commercial, agricultural and residential customers. From 2000 until co-founding Sunworks United, he worked for Emard Electric, Inc. asits Project Manager, Vice President and Business Development Officer. Mr. Emard is pursuing a construction management degree from the University ofCalifornia at Davis extension program and holds the Company’s electrical C-10 License. He is a certified installer for Canadian Solar, Sharp, AE Solaron,SunPower and PV Powered. 28Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The Company’s Board of directors believes that Mr. Emard is qualified to serve as a Director because of his background with more than fifteen years’electrical and solar construction management experience. Mark J. Richardson has served as a director of the Company since July 2014 and previously served as a director of Solar3D from October 2008through February 2014. Mr. Richardson has been a securities lawyer since he graduated from the University of Michigan Law School in 1978. He practicedas an associate and partner in large law firms until 1993, when he established his own practice under the name Richardson & Associates. He has been theprincipal securities counsel on a variety of equity and debt placements for corporations, partnerships, and real estate companies. His practice includes publicand private offerings, venture capital placements, debt restructuring, compliance with federal and state securities laws, representation of publicly tradedcompanies, Nasdaq filings, corporate law, partnerships, joint ventures, mergers, asset acquisitions, and stock purchase agreements. As a partner in a majorinternational law firm in the 1980’s, Mr. Richardson participated in the leveraged buyout and recapitalization of a well-known producer of animatedprogramming for children, financed by Prudential Insurance and Bear Stearns, Inc. He was also instrumental in restructuring the public debentures of a realestate company without resorting to a bankruptcy proceeding. From 1986 to 1993 Mr. Richardson was a contributing author to State Limited PartnershipsLaws – California Practice Guide, Prentice Hall Law and Business. Prior to receiving his Juris Doctor degree cum laude from the University of Michigan LawSchool in 1978, Mr. Richardson received a Bachelor of Science degree summa cum laude in Resource Economics from the University of Michigan School ofNatural Resources in 1975, where he earned the Bankstrom Prize for academic excellence and achieved Phi Beta Kappa honors. Mr. Richardson is an activemember of the Los Angeles County and California State Bar Associations, including the Section on Corporations, Business and Finance and the Section onReal Estate.The Board of Directors believes that Mr. Richardson is qualified to serve as a Director because of his background as a securities attorney with overtwenty years’ experience representing small and mid-sized companies.John Van Slooten has served as a director of the Company since December 2014. Mr. Van Slooten is the Managing Partner of Intrepid EquityPartners since 2013. From 2007 until 2013 he served as the Managing Partner of Atlanta-based VVS Capital. Previously, Mr. Van Slooten served as aManaging Director at SunTrust Robinson Humphrey Capital Markets. He has over 25 years’ experience in private equity and the capital markets. He hasexecuted private equity investments in a variety of industries. He has worked for Standard Chartered Bank and First Interstate Bank Ltd. He holds a Bachelorof Science in Accounting and an MBA from Brigham Young University. Mr. Van Slooten’s twenty-five years of experience in management, public finance and private equity bring to the Board a broad knowledge of publiccompany management, and investment community relationships among institutional investors, analysts and investment bankers.Frank Hunt has served as a director of the Company since December 2014. Mr. Hunt is the owner of Hunt Business Consulting, a company thatprovides consultation to companies regarding current requirements under GAAP, where Mr. Hunt provides consulting service since 2010. Mr. Hunt has over30 years of experience as a CPA and served as a member (partner) of HJ & Associates, LLC, a public accounting firm, from 1995 to 2010. Mr. Hunt haspreviously served on the board and advisory committee for both public and private companies. Currently, Mr. Hunt is serving on the advisory board forIndependent Stock Market and American Gunity companies. Mr. Hunt served as the Audit Committee Chairman for Cereplast, Inc., a public company, fromSeptember 2010 until March 2014. Mr. Hunt received a Bachelor of Science degree from Brigham Young University.Mr. Hunt’s thirty years of experience in public accounting bring to the Board a broad knowledge of public finance, audit processes, and complianceexpertise.Brigham Tomco has served as a director of the Company since April 2015. Since 2010, Mr. Tomco has served as the Chairman and Founder ofZylun Global, a private equity backed investment holding company, and is the Founder of its operating entities Zylun Staffing, Zylun Insights, andEmmersion Learning. Zylun Staffing is an offshore technical outsourcing firm with offices in Utah and the Philippines. Zylun Insights is a market andopinion research firm with offices in Utah and Idaho. Emmersion Learning is a language education company focused on live one-on-one teaching. Inaddition, Mr. Tomco sits on multiple boards including the Presidents Advancement Council at BYU-Idaho, Foundation Investment Committee at UtahValley University, Q-Sciences, and Oxzen Media. From 2011 until 2012, he was an Adjunct Professor at Brigham Young University-Marriott School teachingFinancing New Ventures. Prior to Zylun, Brigham worked at Ocean Road Advisors and Meyer Ventures, an $800+ million portfolio investing in public andprivate equities, hedge funds, real estate, venture capital, high-yield debt, and fixed income. He earned his JD/MBA and Accounting degrees at BrighamYoung University and an AA in Management from Ricks College.Mr. Tomco’s six years of experience as an entrepreneur, CEO and educational background brings to the Board a broad knowledge of public finance,audit processes, and compliance expertise. 29Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Shane Mace has served as a director of the Company since October 2015. Since 2004, Mr. Mace has been a member owner of Buffalo Hump, LLC,based in Meridian, Idaho, which is engaged in real estate development and property management. In 2013, Mr. Mace became a member owner of Long RodEquipment, LLC, also based in Meridian, Idaho, which is engaged in aircraft and construction equipment leasing. Immediately prior to his current positions,from 2002-2012, Mr. Mace was the Founder, President, and Chief Executive Officer of Track Utilities, LLC (“Track”) in Meridian, Idaho. Track providesmission-critical electric and telecommunications infrastructure services in the Northwest and Intermountain West through its skilled labor force. Mr. Maceholds a BS degree in finance from the College of Idaho and is well versed in financial statements and analysis with more than twenty-six (26) years ofexperience performing accounting and financial tasks. Mr. Mace qualifies to serve on the Company’s Board of Directors because of his extensive experience as a member/owner of other businesses and hisaccounting and financial background. Family Relationships There are no family relationships among our executive officers and directors with the exception that Mr. Nelson is the first cousin of Mr. Hunt’s wife.Involvement in Certain Legal ProceedingsDuring the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:●the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the timeof the bankruptcy or within two years prior to that time; ●convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); ●subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or Stateauthority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities orbanking activities; ●found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federalor state securities or commodities law. ●the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended orvacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respectingfinancial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution,civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail orwire fraud or fraud in connection with any business entity; or ●the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined inSection 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associatedwith a member.Compliance with Section 16(a) of Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class ofour equity securities, to file reports of ownership and changes in ownership with the SEC. These persons are required by regulation to furnish us with copiesof all Section 16(a) reports that they file. Based on our review of the copies of these reports received by us, or written representations from the reportingpersons that no other reports were required, we believe that, during fiscal 2015, all filing requirements applicable to our current officers, directors and greaterthan 10% beneficial owners were complied with.Code of Conduct and EthicsWe have adopted a code of conduct that applies to all of our directors, officers and employees. The text of the code of conduct has been posted onour internet website and can be viewed at www.Sunworks.com. Any waiver of the provisions of the code of conduct for executive officers and directors maybe made only by the audit committee and, in the case of a waiver for members of the audit committee, by the board of directors. Any such waivers will bepromptly disclosed to our shareholders. 30Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Committees of the Board of Directors Audit Committee. The Board has a standing Audit Committee, consisting of Messrs. Frank Hunt (Chairman), Brigham Tomco and Shane Mace. TheAudit Committee acts under a written charter, which more specifically sets forth its responsibilities and duties, as well as requirements for the AuditCommittee’s composition and meetings. The audit committee charter is available on the Company’s website (www.sunworksusa.com). The Audit Committeeheld 4 meetings during the fiscal year ended December 31, 2015. The Audit Committee’s responsibilities include (1) the integrity of the Company’s financial statements and disclosures; (2) the independentauditor’s qualifications and independence; (3) the performance of the Company’s internal audit function and independent registered public accounting firm;(4) the adequacy and effectiveness of the Company’s internal controls; (5) the Company’s compliance with legal and regulatory requirements; and (6) theprocesses utilized by management for identifying, evaluating, and mitigating strategic, financial, operational, regulatory, and external risks inherent in theCompany’s business. The Audit Committee also prepares the Audit Committee report that is required pursuant to the rules of the SEC. The Board has determined that each member of the audit committee is “independent,” as that term is defined by applicable SEC rules. In addition,the Board has determined that each member of the audit committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market. The Board has determined that Mr. Hunt is an “audit committee financial expert” serving on its Audit Committee, and is independent, as the SEChas defined that term in Item 407 of Regulation S-K.Corporate Governance/Nominating Committee. The Board has a standing Corporate Governance/Nominating Committee. The Nominating andGovernance Committee consists of Messrs. John Van Slooten, Frank L. Hunt, and Mark J. Richardson (Chairman). The Nominating and GovernanceCommittee acts under a written charter, which more specifically sets forth its responsibilities and duties, as well as requirements for its composition andmeetings. The corporate governance/nominating committee charter is available on the Company’s website (ir.sunworksusa.com/corporate-governance). TheCorporate Governance/Nominating Committee held 3 meetings during the fiscal year ended December 31, 2015. The Corporate Governance/Nominating Committee has been established by the Board in order, among other things to: (1) develop and recommendto the Board the Corporate Governance Guidelines of the Company and oversee compliance therewith; (2) assist the Board in effecting Board organization,membership and function including identifying qualified Board nominees; (3) assist the Board in effecting the organization, membership and function ofBoard committees including the composition of Board committees and recommending qualified candidates therefor; (4) evaluate and provide successorplanning for the Chief Executive Officer and other executive officers; and (5) to develop criteria for Board membership, such as independence, term limits,age limits and ability of former employees to serve on the Board and the evaluation of candidates' qualifications for nominations to the Board its committeesas well as removal therefrom, respectively. The Corporate Governance/Nominating Committee does not have a formal policy that requires it to consider any director candidates that might berecommended by stockholders, but adheres to the Company’s By-Laws provisions and Securities and Exchange Commission rules relating to proposals byshareholders. The Corporate Governance/Nominating Committee of the Board of Directors is responsible for identifying and selecting qualified candidatesfor election to the Board of Directors prior to each annual meeting of the Company’s stockholders. In identifying and evaluating nominees for director, theCorporate Governance/Nominating Committee considers each candidate’s qualities, experience, background and skills, as well as other factors, such as theindividual’s ethics, integrity and values which the candidate may bring to the Board of Directors.The Board has determined that all of the members of the Corporate Governance/Nominating Committee are “independent” under the current listingstandards of NASDAQ.Compensation Committee. The Board has a standing Compensation Committee. The Compensation Committee of the Board is composed entirelyof directors who are not our current or former employees, each of whom meets the applicable definition of “independent” as defined by the rules of theNasdaq Stock Market. None of the members of the Compensation Committee during fiscal 2014 (i) had any relationships requiring disclosure by theCompany under the SEC’s rules requiring disclosure of related party transactions or (ii) was an executive officer of a company of which an executive officerof the Company is a director. The current members of the Compensation Committee are Messrs. John Van Slooten (Chairman) and Mark J. Richardson. TheCompensation Committee has no interlocks with other companies. The compensation committee charter is available on the Company’s website(ir.sunworksusa.com/corporate-governance). The Compensation Committee held 2 meetings during the fiscal year ended December 31, 2015. 31Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The purpose of the Compensation Committee is to discharge the Board’s responsibilities relating to compensation of the Company’s directors andexecutive officers. The Committee has overall responsibility for evaluating the Company’s compensation and benefit plans, policies and programs andinsuring overall alignment to the corporate compensation philosophy. The Compensation Committee also is responsible for preparing any report onexecutive compensation required by the rules and regulations of the SEC. The Board has determined that all of the members of the Compensation Committee are “independent” under the current listing standards ofNASDAQ.Board of Directors Leadership Structure and Role in Risk Oversight. Our Board is responsible for the selection of the Chairman of the Board and the Chief Executive Officer. Our Board does not have a policy onwhether or not the roles of Chief Executive Officer and Chairman should be separate and, if they are to be separate, whether the Chairman should be selectedfrom the non-employee directors or be an employee. Our Board has not selected a Chairman of the Board. While management is responsible for managing the day-to-day issues faced by the Company, our Board has an active role, directly and through itscommittees, in the oversight of the Company’s risk management efforts. The Board carries out this oversight role through several levels of review. The Boardregularly reviews and discusses with members of management information regarding the management of risks inherent in the operation of the Company’sbusiness and the implementation of the Company’s strategic plan, including the Company’s risk mitigation efforts. Each of the Board’s committees also oversees the management of the Company’s risks that are under each committee’s areas of responsibility. Forexample, the Audit Committee oversees management of accounting, auditing, external reporting, internal controls, and cash investment risks. TheNominating and Governance Committee oversees the Company’s compliance policies, Code of Conduct and Ethics, conflicts of interests, directorindependence and corporate governance policies. The Compensation Committee oversees risks arising from compensation practices and policies. While eachcommittee has specific responsibilities for oversight of risk, the Board is regularly informed by each committee about such risks. In this manner the Board isable to coordinate its risk oversight.Changes in Nominating ProceduresNone. Item 11. Executive Compensation. Compensation Discussion and AnalysisThe following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in theSummary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described above, theCompensation Committee is responsible for recommendations relating to compensation of the Company’s directors and executive officers. Compensation Program Objectives and RewardsOur compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, workingtoward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following thisphilosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay withperformance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance,and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensationpackages consisting of a combination of competitive base salary and incentive compensation.32Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents The primary purpose of the compensation and benefits described below is to attract, retain, and motivate highly talented individuals when we dohire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitivemarketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts, which may be awarded to each NamedExecutive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executivecompensation structure. ·Base salary and benefits are designed to attract and retain employees over time.·Incentive compensation awards are designed to focus employees on the business objectives for a particular year.·Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control thatthey believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in ourprofitability and other elements.·Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talentedemployees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our NameExecutive Officers.BenchmarkingWe have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compareeach element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includesboth publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, theyare not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies basedon scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.The Elements of Sunworks’ Compensation ProgramBase SalaryExecutive officer base salaries are based on job responsibilities and individual contribution. The board reviews the base salaries of our executiveofficers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to anyspecific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employmentagreements with us. Additional factors reviewed by the board of directors in determining appropriate base salary levels and raises include subjective factorsrelated to corporate and individual performance. For the year ended December 31, 2015, the board of directors approved all executive officer base salarydecisions.Our board of directors determines base salaries for the Named Executive Officers at the beginning of each fiscal year, and the board proposes newbase salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, butwe plan to adopt one during 2016, and base salary would be the only element of compensation that would be used in determining the amount ofcontributions permitted under the 401(k) Plan.Incentive Compensation AwardsSome Named Executives have been paid some discretionary bonuses but our Compensation Committee has not yet established a formalcompensation policy for the determination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the followingparameters in justifying and quantifying bonuses for our Named Executive Officers and our other officers: (1) the growth in our revenue, (2) the growth in ourearnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. Our compensation committee has not adoptedspecific performance goals and target bonus amounts for any of our fiscal years, but may do so in the future.Equity Incentive AwardsOur board has not yet adopted an equity incentive plan. We have however granted stock options to certain of our Executive Officers andDirectors. In the future we plan to adopt a formal equity incentive plan pursuant to which we plan to grant stock options and make restricted stock awards toour employees, including members of management, which would not be assignable during the executive’s life, except for certain gifts to family members ortrusts that benefit family members. These equity incentive awards, we believe, would motivate our employees to work to improve our business and stockprice performance, thereby further linking the interests of our senior management and our stockholders. Our compensation committee will consider severalfactors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or herperformance and responsibilities, and the amount of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy willprohibit backdating options or granting them retroactively. 33Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Benefits and PrerequisitesAt this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits thatare generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We donot have a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for ourexecutive officers in the future if our business grows sufficiently to enable us to afford them.Separation and Change in Control ArrangementsAt the date of each acquisition of our subsidiaries, we established three-year employment agreements with the owners and have entered intoemployment agreements with the three of the former owners of Sunworks United, Abe Emard, Emil Beitpolous and Mikhail Podnebesnyy; the former ownerof MD Energy, Danny Mitchell and the former owner of Elite, Kirk Short. None of these employees are eligible for specific benefits or payments if theiremployment or engagement terminates in a separation or if there is a change of control. Executive Officer CompensationThe following table sets forth the total compensation paid in all forms to the executive officers of the Company and includes two of the most highlycompensated officers other than our principal executive officer, our principal operating officer and our principal financial officer during the periodsindicated:Summary Compensation Table Name andPrincipal Position Year Salary Bonus StockAwards(1)(3) OptionAwards(2) Non-EquityIncentive PlanCompensation Non-QualifiedDeferredCompensationEarnings All OtherCompensation Total James B. Nelson,Chief ExecutiveOfficer 20152014 $ 294276 $ 2500 $ 180 $ 00 00 00 00 $ 544456 and President Abe Emard, ChiefOperating Officer 20152014 $ 129105 $ 13642 00 00 00 00 0 $ 265147 Tracy Welch, ChiefFinancial Officer 2015 $ 174 $ 300 00 00 00 00 0 $ 204 Emil Beitpolous,President ofResidential 20152014 $ 125105 $ 7741 0 0 00 00 $ 202145 MikhailPodnebesnyy,Director ofEngineering 20152014 $ 125105 $ 7735 0 0 0 00 00 $ 202140 (1) The amount reflected in this column is the compensation cost recognized by the Company during fiscal years 2014 and 2015 under Statement ofFinancial Accounting Standard No. 123R (Share-Based Payment) for grants made in 2015 and 2014. The fair value of each restricted stock grant isestimated on the date of grant using the closing price of our common stock on the date of the grant as reported on the OTCQB.(2) The amount reflected in this column is the compensation cost recognized by the Company during fiscal years 2014 and 2015 under Statement ofFinancial Accounting Standard No. 123R (Share-Based Payment) for grants made in 2015 and 2014. The fair value of each grant is estimated onthe date of grant using the Black-Scholes option-pricing model. (3) On September 23, 2013, Mr. Nelson was granted 769,231 restricted shares of our common stock. These shares vest according to a schedule ofperformance goals, which is described below under “Restricted Stock.” As of December 31, 2015, half of the restricted stock in this award hadvested and issued, based on the achievement of two performance milestones: the achievement of $10,000 in revenues in a 12-month period of timeand the achievement of $10,000 in market value. The vesting of the second half of the shares is based on the achievement of $2,000 in GAAP NetProfit in a 12-month period. 34Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Employment AgreementsWe have not entered into any employment agreements with our executive officers to date, except for employment agreements at will with theexecutive officers of our subsidiaries as follows:We entered into employment agreements with three executive officers of Sunworks United, the Company’s wholly owned subsidiary. Each of theseemployment agreements provides for a base annual salary of $100 with the potential for periodic bonuses and equity incentive awards at the discretion of theCompany’s board of directors. In October 2014, our Board of Directors approved increases in the annual base salaries to $120 and in January 2016 the basesalaries of two of the officers was increased to $140 and to $175 for Abe Emard who assumed the role of our Chief operating Officer.We entered into an employment agreement at will with the chief executive officer of MD Energy, Inc., a wholly owned subsidiary acquired on March2, 2015. The employment agreement provides for a base annual salary of $150 with the potential for periodic bonuses and equity incentive awards at thediscretion of the Company’s board of directors. We entered into an employment agreement at will with the chief executive officer of Elite Solar Acquisition Sub., Inc., another wholly ownedsubsidiary acquired on December 1, 2015. The employment agreement provides for a base annual salary of $140 with the potential for periodic bonuses andequity incentive awards at the discretion of the Company’s board of directors. Outstanding Equity AwardsThe following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awardsheld by our executive officers at December 31, 2015.Outstanding Equity Awards at Fiscal Year-End Option Awards Stock Awards Name and Principal Position Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable Number ofSecuritiesUnderlyingUnexercisedOptionsUnexercisable OptionExercisePrice OptionExpirationDate Number ofShares ofStockthat Have notVested Market Valueof Shares ofStockthat Have notVested James B. Nelson,Chief Executive Officer and President $ 576,923192,308 (1) (2) $ 00 $ 1.300.26 7/22/1711/1/19 $ 384,616 (3) $1,423,079 (4) _________________________(1) On July 22, 2010, Mr. Nelson was granted nonqualified stock options to purchase 576,923 shares of our common stock at an exercise price of $1.30per share exercisable until July 22, 2017 in consideration for his services to us. These stock options vest 1/36th per month, commencing on August21, 2010, on a monthly basis for as long as Mr. Nelson is an employee or consultant of Sunworks.(2) On November 1, 2012, Mr. Nelson was granted nonqualified stock options to purchase 192,308 shares of our common at an exercise price of $0.26per share exercisable on a cash or cashless basis until November 1, 2019 for his services to us. These stock options vest according to the followingschedule: 53,419 on the date of grant, 5,342 on the first day of each month thereafter commencing on December 1, 2012 until December 1, 2014,and then 5,342 on January 1, 2015; provided Mr. Nelson is an employee or consultant of Sunworks. As of January 1, 2015, all of Mr. Nelson’soptions are fully vested. (3) On September 23, 2013, Mr. Nelson was granted 769,231 restricted shares of our common stock. These shares vest according to a schedule ofperformance goals, which is described below under “Restricted Stock.” As of December 31, 2014, half of the restricted stock in this award hadvested and issued, based on the achievement of two performance milestones: the achievement of $10,000 in revenues in a 12-month period of timeand the achievement of $10,000 in market value. The vesting of the second half of the shares is based on the achievement of $2,000 in GAAP NetProfit in a 12-month period. (4) Based on the last sale price of the Company’s common stock as quoted on the NASDAQ Market at the closing on December 31, 2015, which was$3.70 per share. 35Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Restricted Stock During fiscal year ended December 31, 2015, we did not grant any restricted stock awards to our employees.Option Exercises and Stock VestedDuring the fiscal year ended December 31, 2015, Chang Won Son, our former Technology Director, exercised 53,649 stock options and during thefiscal year ended December 31, 2014, Mark Richardson, a director, exercised 23,504 stock options.Director CompensationThe following table sets forth certain information regarding the compensation paid to our directors during the fiscal year ended December 31, 2015:Director Compensation Name Fees earned orcash paid Stock Awards Option Awards All othercompensation Total Mark J. Richardson $5 5 Frank Hunt 5 38,462 5 John Van Slooten 5 38,462 61 66 Brigham Tomco 5 5 Shane Mace 2 2 Commencing in December 2014, our non-employee Board members are paid $1,500 for attendance in-person or telephonically at each boardmeeting. Directors may also be reimbursed their expenses for travelling, hotel and other expenses reasonably incurred in connection with attending board orcommittee meetings or otherwise in connection with the Company’s business.In October 2015, the Company entered into a consulting agreement with John Van Slooten, a Board member. The consulting services include, butare not be limited to, consulting on and assisting with sourcing, assessing, modeling, due diligence and documentation with respect to potential acquisitioncandidates for the Company. The agreement is subject to the provisions for termination with the term of the Agreement commencing on October 1, 2015, andshall continue until September 30, 2018. The Company agreed to pay Mr. Van Slooten, $33 upon signing and $9 per month plus out-of-pocket expenses.The Company may, in its discretion and at its option terminate this Agreement at any time.There are currently no other cash compensation arrangements in place for members of the Board of Directors acting as such. 36Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table is based upon 19,762,844 shares of common stock outstanding as of March 8, 2016, and sets forth, based on the public filings ofsuch individuals and entities and our knowledge of securities issued by us to them, certain information concerning the ownership of voting securities of: (i)each current member of the Board, (ii) our Chief Executive Officer and other executive officers named in the Summary Compensation Table, (iii) all of ourcurrent directors and executive officers as a group and (iv) each beneficial owner of more than 5% of the outstanding shares of any class of our votingsecurities. Common Stock Preferred Stock All Stock Number of Number of Shares Percentage Shares Percentage Number of Percentage Name of Beneficial Owner (1) Owned (2) Owned (2)(3) Owned (2)(4) Owned (2)(3)(4) Votes (2)(4) Owned (2)(3)(4) James Nelson 167,324 .8% - -% 167,324 .8%Tracy Welch (5) 6,000 * * 6,000 * Mark Richardson 32,626 .2% - * 32,626 .2%Emil Beitpolous 817,308 4.1% - * 817,308 4.1%Abe Emard 710,344 3.6% - * 710,344 3.6%Frank Hunt 4,273 * - * 4,273 * Daniel Mitchell 339,744 1.7% 339,744 1.7%Mikhail Podnebesnyy 645,463 3.3% 645,463 3.3%John Van Slooten 33,762 .2% - * 33,762 .2%All officers and directors as a group (9persons) 2,756,844 13.9% - -% 2,756,844 13.9% Kirk Short 1,506,024 100.0% (1) The address for our officers and directors is c/o of the Company, 1010 Winding Creek Road, Suite 100, Roseville, California 95678. (2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting orinvestment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable orconvertible within 60 days of March 8, 2016 are deemed outstanding for computing the percentage of the person holding such option or warrant but are notdeemed outstanding for computing the percentage of any other person. (3) Percentage based on 19,762,844 shares of Common Stock issued and outstanding at March 8, 2016. (4) James Nelson was issued 4,400 shares of Series A Preferred Stock by the Company on January 9, 2015, which were automatically redeemed andconverted to 170 shares of Common Stock upon the listing of the Company’s common stock for trading on the Nasdaq Capital Market which occurred onMarch 4, 2015. (5) Mr. Welch has been issued a restricted stock grant of 115,384 shares that has not vested.Item 13. Certain Relationships and Related Transactions and Director Independence. The following is a description of transactions since January 1, 2014, to which we have been a party in which the amount involved exceeded or willexceed $120 and in which any of our directors, executive officers, beneficial holders of 5% or more of our capital stock, or entities affiliated with them, had orwill have a direct or indirect material interest: In October 2015, the Company entered into a consulting agreement with John Van Slooten, a Board member. The consulting services include, butare not be limited to, consulting on and assisting with sourcing, assessing, modeling, due diligence and documentation with respect to potential acquisitioncandidates for the Company. The agreement is subject to the provisions for termination with the term of the Agreement commencing on October 1, 2015, andshall continue until September 30, 2018. The Company agreed to pay Mr. Van Slooten, $33 upon signing and $9 per month plus out-of-pocket expenses.The Company may, in its discretion and at its option, terminate this Agreement at any time. 37Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents On January 31, 2014, the Company closed the acquisition of 100% of the issued and outstanding common stock of Sunworks United from AbeEmard, the Company’s COO and three other shareholders, in consideration for cash and convertible promissory notes. Three of the sellers of the commonstock of SUNworks also received employment agreements with us. The terms and conditions of the acquisition and employment, and copies of the relatedmaterial agreements, are included in reports on Form 8-K filed by us with the Securities and Exchange Commission on November 1, 2013 and February 3,2014.Director Independence Our Board of Directors presently consists of seven members. Our Board of Directors has determined that each of Messrs Hunt, Van Slooten,Richardson, Tomco and Mace are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and asdetermined in accordance with Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market, Inc.Item 14. Principal Accountant Fees and Services. Audit Fees The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of theCompany's annual financial statements and review of financial statements included in the Company's Form 10-K or services that are normally provided bythe accountant in connection with statutory and regulatory filings or engagements for the fiscal years ending December 31, 2015 and 2014 were: $108 and$110, respectively. The fees were billed by Liggett & Webb, P.A., our independent auditors for the years ended December 31, 2015 and 2014 audits were$108 and $70, respectively. HJ Associates & Consultants, LLP billed $40 for the year ended December 31, 2014, who served as the Company’s independentauditors until January 15, 2015.Audit-Related FeesThe aggregate fees billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonablyrelated to the performance of the audit or review of the registrant's financial statements and are not reported under item (1) for the fiscal years endingDecember 31, 2015 and 2014 were $65, and $0, respectively. Audit related fees primarily include fees due to the acquisition audits for Plan B Enterprises,Inc. and MD Energy, LLC. Tax FeesThe aggregate fees were billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for thefiscal years ending December 31, 2015 was $8 and $0 for 2014.All Other FeesOther fees billed for professional services provided by the principal accountant, other than the services reported above, for the fiscal years endingDecember 31, 2015 and 2014 were $0 and $0.Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting FirmThe audit committee’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimisnon-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accountingfirm and management are required to periodically report to the full board of directors regarding the extent of services provided by the independent registeredpublic accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the board’s review, the board willevaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, andapprove or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-auditservice on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management maypresent subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at thebeginning of the year.The audit committee has considered the provision of non-audit services provided by our independent registered public accounting firm to becompatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by ourindependent registered public accounting firm. 38Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (1) Financial Statements. The financial statements required by item 15 are submitted in a separate section of this report, beginning on Page F-1, incorporated herein and made apart hereof. (2) Financial Statement Schedules. Schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in thefinancial statements or notes thereto. (3) Exhibits. The following exhibits are filed with this report, or incorporated by reference as noted: 2.1Agreement and Plan of Merger dated August 6, 2015 with Plan B Enterprises, Inc. d/b/a Universal Racking Solutions, Kirk R. Short and Elite SolarAcquisition Sub., Inc. (Incorporated by reference to the current report on Form 8-K filed with the Securities and Exchange Commission on August12, 2015).2.2Amendment No.1 dated October 30, 2015 to Agreement and Plan of Merger dated August 6, 2015(Incorporated by reference to the current reporton Form 8-K filed with the Securities and Exchange Commission on November 2, 2015).2.3Amendment No.2 dated November 30, 2105 to Agreement and Plan of Merger dated August 6, 2015(Incorporated by reference to the currentreport on Form 8-K filed with the Securities and Exchange Commission on December 2, 2015).3.1Certificate of Incorporation (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and ExchangeCommission dated August 1, 2005).3.2Amendments to Certificate of Incorporation (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities andExchange Commission dated August 1, 2005).3.3Amendment to Certificate of Incorporation (Incorporated by reference to the Form 10K filed with the Securities and Exchange Commission, datedJuly 15, 2009).3.4Amendment to Certificate of Incorporation (Incorporated by reference from the Definitive Information Statement on Schedule 14Cfiled by theCompany with the Securities and Exchange Commission, dated August 30, 2010).3.5Amendment to Certificate of Incorporation filed with the Secretary of State on February 24, 2015 (Incorporated by reference to the current reporton Form 8-K filed with the Securities and Exchange Commission on February 26, 2015)3.6Amendment to Certificate of Incorporation filed with the Secretary of State on April 16, 2015 (Incorporated by reference to the current report onForm 8-K filed with the Securities and Exchange Commission on April 21, 2015)3.7Amendment to Certificate of Incorporation filed with the Secretary of State on February 12, 2016 (Incorporated by reference to the current reporton Form 8-K filed with the Securities and Exchange Commission on March 1, 2016)3.8Certificate of Designation of Series A Preferred Stock filed with the Secretary of State on January 9, 2015 (Incorporated by reference to the currentreport on Form 8-K filed with the Securities and Exchange Commission on January 13, 2015)3.9Certificate of Designation of Series B Preferred Stock filed with the Secretary of State on January 9, 2015 (Incorporated by reference to the currentreport on Form 8-K filed with the Securities and Exchange Commission on December 2, 2015)3.10Bylaws (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 1,2005).4.1Form of Warrant Agreement between Sunworks United, Inc., Computershare Inc., and Computershare Trust Company, N.A. (Incorporated byreference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 5, 2015).4.2Form of Non-Qualified Stock Option Agreement (Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities andExchange Commission dated August 1, 2005)10.1Nonstatutory Stock Option Agreement with James B. Nelson, dated July 22, 2010 (Incorporated by reference from the Report on Form 8-K filed bythe Company with the Securities and Exchange Commission, dated August 5, 2010)10.2Assignment of Intangible Assets and Assumption of Liabilities by and between Sunworks United, Inc., a Delaware corporation and WidebandDetection Technologies, Inc., a Florida corporation, dated as of June 28, 2011 (Incorporated by reference to the Form 8-K filed with the Securitiesand Exchange Commission, dated June 30, 2011)10.3Patent Assignment by and between Sunworks United, Inc., a Delaware corporation, as assignor and Wideband Detection Technologies, Inc., aFlorida corporation, as assignee (Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated June 30,2011) 39Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents10.4Stock Purchase Agreement by and between Sunworks United, Inc., a Delaware corporation, as seller, and Roland F. Bryan, as buyer, dated as of June30, 2011 (Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated June 30, 2011)10.5Restricted Stock Grant Agreement, dated September 23, 2013, by and between Sunworks United, Inc., a Delaware corporation, as Grantor, and JamesB. Nelson, as Grantee (Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated September 26, 2013)10.6Stock Purchase Agreement by and among Solar United Network, Inc., Emil Beitpolous, Abe Emard, Richard Emard, Mikhail Podnebesnyy, andSunworks United, Inc., dated October 31, 2013 (Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, datedNovember 6, 2013)10.7Addendum to Stock Purchase Agreement by and among Solar United Network, Inc., Emil Beitpolous, Abe Emard, Richard Emard, MikhailPodnebesnyy, and Sunworks United, Inc., dated January 31, 2014 (Incorporated by reference to the Form 8K filed with the Securities and ExchangeCommission, dated January 31, 2014)10.8Amendment to Restricted Stock Grant Agreement, dated May 1, 2014 by and between Sunworks United, Inc. and James B. Nelson (Incorporated byreference to the current report on Form 8-K filed with the Securities and Exchange Commission, dated May 2, 2014)10.9Second Amendment to Restricted Stock Grant Agreement, dated August 26, 2014 by and between Sunworks United, Inc. and James B. Nelson(Incorporated by reference to the current report on Form 8-K filed with the Securities and Exchange Commission, dated August 29, 2014)10.10Form of Restricted Stock Grant Agreement in connection with grants to Abe Emard, Emil Beitpolous and Mikhail Podnebesnyy (Incorporated byreference to the current report on Form 8-K filed with the Securities and Exchange Commission, dated October 3, 2014)10.11Asset Purchase Agreement dated November 3, 2014 between MD Energy, LLC, Daniel Mitchell, Andrea Mitchell and Solar 3D, Inc. (Incorporatedby reference to the quarterly report on Form 10-Q filed on November 10, 2014)10.12Amended and Restated Asset Purchase Agreement dated February 28, 2015 between MD Energy, LLC, Daniel Mitchell, Andrea Mitchell andSunworks United, Inc. (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 3,2015)10.13Employment Agreement dated February 28, 2015 between MD Energy, Inc. and Daniel Mitchell10.14Convertible Promissory Note issued February 28, 2105 (Incorporated by reference to the Company’s Form 8-K filed with the Securities andExchange Commission on March 3, 2015)10.14Restricted Stock Grant Agreement, dated February 6, 2015, by and between Sunworks United, Inc., a Delaware corporation, as Grantor, and TracyWelch, as Grantee (Incorporated by reference to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2015).*10.16Credit Agreement between Sunworks United, Inc. and JP Morgan Chase Bank, N.A. dated December 31, 201516.1Letter from HJ Associates & Consultants (Incorporated by reference to the current report on Form 8-K filed on January 21, 2015)*21.1Subsidiaries*31.1Certification of Principal Executive Officer*31.2Certification of Principal Financial Officer*32.1Section 1350 Certificate of President and Chief Financial Officer 101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase101.LABXBRL Taxonomy Extension Labels Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document____________*Filed herewith. (b) Exhibits. See (a)(3) above. (c) Financial Statement Schedules. See (a)(2) above. 40Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.SUNWORKS, INC.By: /s/ James Nelson Chief Executive Officer & PresidentDate: March 14, 2016Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Signature Title Date /s/ James Nelson Chief Executive Officer, President and Chairman of the Board March 14, 2016James Nelson (Principal Executive Officer) /s/ Tracy Welch Chief Financial Officer March 14, 2016Tracy Welch (Principal Financial and Accounting Officer) /s/ Abe Emard Chief Operating Officer. and Director March 14, 2016Abe Emard /s/ Mark J. Richardson Director March 14, 2016Mark J. Richardson /s/ Frank Hunt Director March 14, 2016Frank Hunt /s/ John D. Van Slooten Director March 14, 2016John D. Van Slooten /s/ Brigham Tomco Director March 14, 2016Brigham Tomco /s/ Shane Mace Director March 14, 2016Shane Mace 41Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.16 Credit Agreement This agreement dated as of December 16, 2015 is between JPMorgan Chase Bank, N.A. (together with its successors and assigns, the "Bank"), whose addressis 1415 L Ste STE 650, Floor 6, Sacramento, CA 95814, and SOLAR3D, INC. (individually, the "Borrower" and if more than one, collectively, the"Borrowers"), whose address is 1010 Winding Creek Rd., Suite 100, Roseville, CA 95678. 1. Credit Facilities. 1.1 Scope. This agreement governs Facility A, and, unless otherwise agreed to in writing by the Bank and the Borrower or prohibited by any Legal Requirement (as hereafter defined), governs the Credit Facilities as defined below. Advances under any Credit Facilities shall be subject to theprocedures established from time to time by the Bank. Any procedures agreed to by the Bank with respect to obtaining advances, includingautomatic loan sweeps, shall not vary the terms or conditions of this agreement or the other Related Documents regarding the Credit Facilities. 1.2 Facility A (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $2,500,000.00 in theaggregate at any one time outstanding ("Facility A"). Credit under Facility A shall be repayable as set forth in a Line of Credit Note executedconcurrently with this agreement, and any renewals, modifications, extensions, rearrangements, restatements thereof and replacements orsubstitutions therefor. 1.3 Letter of Credit Sub-Limit. At any time the Borrower is entitled to an advance under Facility A, the Bank agrees to issue letters of credit (allletters of credit issued for the account of the Borrower which are outstanding on the date of the Line of Credit Note and any letter of creditissued under this agreement, together with any and all amendments, modifications, renewals, extensions, increases, restatements andrearrangements of and substitutions and replacements for, any of the foregoing, a "Letter of Credit" or "Letters of Credit")for the account ofthe Borrower in an amount not in excess of the maximum advance that it would then be entitled to obtain under Facility A, provided that (a) theaggregate maximum amount which is drawn and remains unreimbursed under all Letters of Credit plus the aggregate maximum availableamount which may be drawn under all Letters of Credit which are outstanding at any time (the "L/C Obligations"), shall not exceed$2,500,000.00, (b) the issuance of any Letter of Credit with an expiration date beyond the maturity date of the Line of Credit Note shall besubject to the approval of the Bank, (c) any Letter of Credit shall be a standby letter of credit and the form of the requested Letter of Credit shallbe satisfactory to the Bank, and (d) the Borrower shall have executed an application and reimbursement agreement for any Letter of Credit in aform satisfactory to the Bank. While any Letter of Credit is outstanding, the maximum amount of advances that may be outstanding under theLine of Credit Note shall be automatically reduced by the L/C Obligations. The Borrower shall pay the Bank a fee for each standby letter ofcredit that is issued, calculated at the rate of 1.00% per annum (based on a year deemed to be comprised of 360 days, unless the calculationwould result in a usurious interest rate, in which case interest will be calculated on the basis of a 365 or 366 day year, as the case may be) of theoriginal maximum amount available of such standby Letter of Credit, with the fee being calculated on the basis of a 360-day year and the actualnumber of days in the period during which the standby Letter of Credit will be outstanding; provided, however, that such fee shall not be lessthan the Bank's standard issuance fee for each Letter of Credit. No credit shall be given for fees paid due to early termination of any Letter ofCredit. The Borrower shall also pay the Bank's standard transaction fees with respect to any transactions occurring on account of any Letter ofCredit. Each fee shall be payable when the related letter of credit is issued, and transaction fees shall be payable upon completion of thetransaction as to which they are charged. All fees may be debited by the Bank to any deposit account of the Borrower with the Bank withoutfurther authority and, in any event, shall be paid by the Borrower within ten (10) days following billing. The Bank is authorized, but notobligated to make an advance under the Line of Credit Note without notice to the Borrower, to make payment on a drawing under any Letter ofCredit. References in this agreement to the principal amount outstanding under the Credit Facilities shall include L/C Obligations. 1.4 Borrowing Base. The aggregate principal amount of advances outstanding at any one time under the Line of Credit Note (and any and allrenewals, modifications, extensions, rearrangements, restatements thereof and replacements or substitutions therefor) evidencing Facility A plusL/C Obligations (the "Aggregate Outstanding Amount") shall not exceed the Borrowing Base or the maximum principal amount thenavailable under Facility A, whichever is less (the "Maximum Available Amount"). If at any time the Aggregate Outstanding Amount exceedsthe Maximum Available Amount, the Borrower shall immediately pay the Bank an amount equal to such excess. If the Aggregate OutstandingAmount still exceeds the Maximum Available Amount after the Line of Credit Note balance is reduced to zero (that is, L/C Obligations exceedthe Maximum Available Amount), the Borrower shall provide cash collateral to the Bank for the L/C Obligations in an amount sufficient toeliminate the excess. "Borrowing Base" means the value of the account balance held in Account No. 3356735208 which account is held at theBank and in which the Bank has a first priority continuing perfected Lien.Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2. Definitions and Interpretations. 2.1 Definitions. As used in this agreement, the following terms have the following respective meanings: A. "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or leased or servicesrendered. B. "Account Debtor" means the Person obligated on an Account. C. "Affiliate" means any Person which, directly or indirectly Controls or is Controlled by or under common Control with, another Person, andany director or officer thereof. The Bank is under no circumstances to be deemed an Affiliate of the Borrower or any of its Subsidiaries. D. "Anti-Corruption Laws" means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from timeto time concerning or relating to bribery or corruption. E. "Authorizing Documents" means certificates of authority to transact business, certificates of good standing, borrowing resolutions,appointments, officer's certificates, certificates of incumbency, and other documents which empower and authorize or evidence the power andauthority of all Persons (other than the Bank) executing any Related Document or their representatives to execute and deliver the RelatedDocuments and perform the Person's obligations thereunder. F. "Collateral" means all Property, now or in the future subject to any Lien in favor of the Bank, securing or intending to secure, any of theLiabilities. G. "Control" as used with respect to any Person, means the power to direct or cause the direction of, the management and policies of thatPerson, directly or indirectly, whether through the ownership of Equity Interests, by contract, or otherwise. "Controlling" and "Controlled" havemeanings correlative thereto. H. "Credit Facilities" means all extensions of credit from the Bank to the Borrower, whether now existing or hereafter arising, including butnot limited to those described in Section 1, if any, and those extended contemporaneously with this agreement. I. "Distributions" means all dividends and other distributions made to any Equity Owners, other than salary, bonuses, and othercompensation for services expended in the current accounting period. J. "Eligible Accounts" means, at any time, all of the Borrower's Accounts in which the Bank has a first priority continuing perfected Lien andwhich are earned and invoiced within thirty (30) days of being earned and which contain selling terms and conditions satisfactory to the Bank,are payable on ordinary trade terms, and are not evidenced by a promissory note, other instrument or chattel paper. The net amount of anyEligible Account against which the Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwiseagreed to by the Bank in writing, Eligible Accounts do not include Accounts: (1) which are not owned by the Borrower free and clear of allLiens, constructive trust, statutory priorities not in favor of the Bank, and claims of Persons other than the Bank; (2) with respect to which theAccount Debtor is an Affiliate of the Borrower or otherwise affiliated with or related to the Borrower, including without limitation, anyemployee, officer, director, Equity Owner or agent of the Borrower; (3) with respect to which goods are placed on consignment, guaranteed sale,bill-and-hold, sale-and-return, sale on approval, cash-an-delivery or other terms by reason of which the payment by the Account Debtor may beconditional; (4) with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are otherwiseEligible Accounts and are supported by insurance, bonds or other assurances satisfactory to the Bank; (5) subject to the U.S. Office of ForeignAsset Control Special Designated Nationals and Blocked Person's List, or with respect to which the Account Debtor is otherwise a Person withwhom the Borrower or the Bank is prohibited from doing business by any applicable Legal Requirement; (6) which are not payable in U.S.Dollars; (7) with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by theAccount Debtor to the Borrower ; (8) which are subject to dispute, counterclaim , deduction, withholding, defense, or setoff; (9) with respect towhich the goods have not been shipped or delivered , or the services have not been rendered, to the Account Debtor, or which otherwiseconstitute pre-billed Accounts; (10) which constitute retainage, or are bonded Accounts;(11) with respect to which the Bank determines thecreditworthiness, financial or business condition of the Account Debtor to be unsatisfactory; (12) of any Account Debtor who is the subject ofany state or federal bankruptcy, insolvency, or debtor-in-relief acts, or who has had appointed a trustee, custodian, or receiver for the assets ofsuch Account Debtor, or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts(including its payrolls) as such debts become due; (13) with respect to which the Account Debtor is the United States government or anydepartment or agency of the United States; (14) otherwise determined to be ineligible by the Bank and (15) which have not been paid in fullwithin ninety (90) days from the invoice date. In no event will the balance of any Account of any single Account Debtor be eligible wheneverthe portion of the Accounts of such Account Debtor which have not been paid within ninety (90) days from the invoice date is in excess of25%of the total amount outstanding on all Accounts of such Account Debtor. 2Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. K. "Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficialinterests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof topurchase or acquire any such equity interest. L. "Equity Owner" means a shareholder, partner, member, holder of a beneficial interest in a trust or other owner of any Equity Interests. M. "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America, consistently applied. N. "Legal Requirement" means any law, ordinance, decree, requirement, order, judgment, rule, Sanctions, regulation (or interpretation of anyof the foregoing) of any foreign governmental authority, the United States of America, any state thereof, any political subdivision of any of theforegoing or any agency, department, commission, board, bureau , court or other tribunal having jurisdiction over the Bank, any Pledgor or anyObligor or any of its Subsidiaries or their respective Properties or any agreement by which any of them is bound. O. "Liabilities" means all indebtedness, liabilities and obligations of every kind and character of the Borrower to the Bank, whether theobligations, indebtedness and liabilities are individual, joint and several, contingent or otherwise, now or hereafter existing, including, withoutlimitation, all liabilities, interest, costs and fees, arising under or from any note, open account, overdraft, credit card, lease, Rate ManagementTransaction, letter of credit application, endorsement, surety agreement, guaranty, acceptance, foreign exchange contract or depository servicecontract, whether payable to the Bank or to a third party and subsequently acquired by the Bank, any monetary obligations (including interest)incurred or accrued during the pendency of any bankruptcy. insolvency, receivership or other similar proceedings, regardless of whetherallowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations , rearrangements, restatements ,replacements or substitutions of any of the foregoing. P. "Lien" means any mortgage, deed of trust, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restrictionof any kind. Q. "Notes" means all promissory notes, instruments and/or contracts now or hereafter evidencing the Credit Facilities. R. "Obligor" means any Borrower, guarantor, surety, co-signer, endorser, general partner or other Person who may now or in the future beobligated to pay any of the Liabilities. S. "Organizational Documents" means, with respect to any Person , certificates of existence or formation, documents establishing orgoverning the Person or evidencing or certifying that the Person is duly organized and validly existing in accordance with all applicable LegalRequirements, including all amendments , restatements, supplements or modifications to such certificates and documents as of the date of theRelated Document referring to the Organizational Document and any and all future modifications thereto approved by the Bank. T. "Permitted Investments" means (1) readily marketable direct obligations of the United States of America or any agency thereof withmaturities of one year or less from the date of acquisition; (2) fully insured (if issued by a bank other than the Bank) certificates of deposit withmaturities of one year or less from the date of acquisition issued by any commercial bank operating in the United States of America havingcapital and surplus in excess of $500,000,000.00; and (3) commercial paper of a domestic issuer if at the time of purchase such paper is rated inone of the two highest rating categories of Standard and Poor's Corporation or Moody's Investors Service. U. "Person" means any individual, corporation, partnership, limited liability company, joint venture , joint stock association, association,bank, business trust, trust, unincorporated organization, any foreign governmental authority, the United States of America, any state of theUnited States and any political subdivision of any of the foregoing or any other form of entity. 3Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. V. "Pledgor" means any Person providing Collateral. W. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. X. "Rate Management Transaction" means any transaction (including an agreement with respect thereto) that is a rate swap, basis swap,forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interestrate option, foreign exchange transaction, cap transaction , floor transaction, collar transaction, forward transaction, currency swap transaction,cross-currency rate swap transaction, currency option , derivative transaction or any other similar transaction (including any option with respectto any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices,equity prices or other financial measures. Y. "Related Documents" means this agreement, the Notes, Letters of Credit, applications for letters of credit, all loan agreements, creditagreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, and anyother instrument or document executed in connection with this agreement or with any of the Liabilities. Z. "Sanctions" means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the U.S.government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Departmentof State. AA. "Sanctioned Country" means, at any time, a country or territory which is the subject or target of any Sanctions. BB. "Sanctioned Person" means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Officeof Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, (b) any Person operating, organized or resident ina Sanctioned Country or (c) any Person controlled by any such Person. CC. "Subsidiary" means, as to any particular Person (the "parent"), a Person the accounts of which would be consolidated with those of theparent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of the date ofdetermination, as well as any other Person of which fifty percent (50%) or more of the Equity Interests is at the time of determination directly orindirectly owned, Controlled or held, by the parent or by any Person or Persons Controlled by the parent, either alone or together with theparent. 2.2 Interpretations. Whenever possible, each provision of the Related Documents shall be interpreted in such manner as to be effective and validunder applicable Legal Requirements. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shallcontinue in effect. In the event of any conflict or inconsistency between this agreement and the provisions of any other Related Documents, theprovisions of this agreement shall control. Use of the term "including" does not imply any limitation on (but may expand) the antecedentreference. Any reference to a particular document includes all modifications, supplements, replacements, renewals or extensions of thatdocument, but this rule of construction does not authorize amendment of any document without the Bank's consent. Section headings are forconvenience of reference only and do not affect the interpretation of this agreement. Except as otherwise expressly provided herein, all terms ofan accounting or financial nature shall be construed in accordance with GAAP. Whenever the Bank's determination, consent, approval orsatisfaction is required under this agreement or the other Related Documents or whenever the Bank may at its option take or refrain from takingany action under this agreement or the other Related Documents , the decision as to whether or not the Bank makes the determination, consents,approves, is satisfied or takes or refrains from taking any action, shall be in the sole and exclusive discretion of the Bank, and the Bank'sdecision shall be final and conclusive. 3. Conditions Precedent to Extensions of Credit. 3.1 Conditions Precedent to Initial Extension of Credit under each of the Credit Facilities. Before the first extension of credit governed by thisagreement and any initial advance under any of the Credit Facilities, whether by disbursement of a loan, issuance of a letter of credit, orotherwise, the Borrower shall deliver to the Bank, in form and substance satisfactory to the Bank: 4Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A. Loan Documents. The Notes, and as applicable, the letter of credit applications, reimbursement agreements, the security agreements, thepledge agreements, financing statements, mortgages or deeds of trust, the guaranties, the subordination agreements, and any other documentswhich the Bank may reasonably require to give effect to the transactions described in this agreement or the other Related Documents; B. Organizational and Authorizing Documents. The Organizational Documents and Authorizing Documents of the Borrower and any otherPersons (other than the Bank) executing the Related Documents in form and substance satisfactory to the Bank that at a minimum: (i) documentthe due organization, valid existence and good standing of the Borrower and every other Person (other than the Bank) that is a party to thisagreement or any other Related Document; (ii) evidence that each Person (other than the Bank) which is a party to this agreement or any otherRelated Document has the power and authority to enter into the transactions described therein; and (iii) evidence that the Person signing onbehalf of each Person that is a party to the Related Documents (other than the Bank) is duly authorized to do so; and C. Liens. The termination, assignment or subordination, as determined by the Bank, of all Liens on the Collateral in favor of any securedparty (other than the Bank). 3.2 Conditions Precedent to Each Extension of Credit. Before any extension of credit governed by this agreement, whether by disbursement of aloan, issuance of a letter of credit or otherwise, the following conditions must be satisfied: A. Representations. The representations of the Borrower and any other parties, other than the Bank, in the Related Documents are true on andas of the date of the request for and funding of the extension of credit; B. No Event of Default. No default, event of default or event that would constitute a default or event of default but for the giving of notice,the lapse of time or both, has occurred in any provision of this agreement, the Notes or any other Related Documents and is continuing or wouldresult from the extension of credit; C. Additional Approvals, Opinions, and Documents. The Bank has received any other approvals, opinions and documents as it mayreasonably request; and D. No Prohibition or Onerous Conditions. The making of the extension of credit is not prohibited by and does not subject the Bank, anyObligor, or any Subsidiary of the Borrower to any penalty or onerous condition under, any Legal Requirement. 4. Affirmative Covenants. The Borrower agrees to do, and cause each of its Subsidiaries to do, each of the following: 4.1 Insurance. Maintain insurance with financially sound and reputable insurers, with such insurance and insurers to be satisfactory to the Bank,covering its Property and business against those casualties and contingencies and in the types and amounts as are in accordance with soundbusiness and industry practices, and furnish to the Bank, upon request of the Bank, reports on each existing insurance policy showing suchinformation as the Bank may reasonably request. 4.2 Existence. Maintain its existence and business operations as presently in effect in accordance with all applicable Legal Requirements, pay itsdebts and obligations when due under normal terms, and pay on or before their due date, all taxes, assessments, fees and other governmentalmonetary obligations, except as they may be contested in good faith if they have been properly reflected on its books and, at the Bank's request,adequate funds or security has been pledged or reserved to insure payment. 4.3 Financial Records. Maintain proper books and records of account, in accordance with GAAP, and consistent with financial statementspreviously submitted to the Bank. 4.4 Inspection. Permit the Bank, its agents and designees to: (a) inspect and photograph its Property, to examine and copy files, books and records ,and to discuss its business, operations, prospects, assets, affairs and financial condition with the Borrower's or its Subsidiaries' officers andaccountants, at times and intervals as the Bank reasonably determines; (b) perform audits or other inspections of the Collateral, including therecords and documents related to the Collateral ; and (c) confirm with any Person any obligations and liabilities of the Person to the Borrower orits Subsidiaries .The Borrower will, and will cause its Subsidiaries to cooperate with any inspection or audit. The Borrower will pay the Bank thereasonable costs and expenses of any audit or inspection of the Collateral (including fees and expenses charged internally by the Bank for assetreviews) promptly after receiving the invoice. 5Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.5 Financial Reports. Furnish to the Bank whatever information, statements, books and records the Bank may from time to time reasonablyrequest, including at a minimum: A. Within forty-five (45) days after each quarterly period, the consolidated financial statements of the Borrower and its Subsidiaries preparedand presented in accordance with GAAP, including a balance sheet as of the end of that period, and income statement for that period, and, ifrequested at any time by the Bank, statements of cash flow and retained earnings for that period, all certified as correct by one of its authorizedagents. B. Within ninety (90) days after and as of the end of each of its fiscal years, the consolidated financial statements of the Borrower and itsSubsidiaries prepared and presented in accordance with GAAP, including a balance sheet and statements of income, cash flow and retainedearnings, such financial statements to be audited by an independent certified public accountant of recognized standing satisfactory to the Bank. C. Compliance Certificates. Provide the Bank, together with each interim financial statement and fiscal year end financial statementprovided by the Borrower to the Bank pursuant to the requirements of this agreement and at such other times as the Bank may request, with aCompliance Certificate in form satisfactory to the Bank, certified and executed by Borrower's chief financial officer, or other officer or anindividual satisfactory to the Bank. In the event of a conflict between this agreement and the Compliance Certificate, the terms of thisagreement shall control. 4.6 Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in writing of: (1) all existing and all threatened litigation, claims,investigations, administrative proceedings and similar actions or changes in Legal Requirements affecting it which could materially affect itsbusiness, assets, affairs, prospects or financial condition; (2) the occurrence of any event which gives rise to the Bank's option to terminate theCredit Facilities; (3) the institution of steps by it to withdraw from, or the institution of any steps to terminate, any employee benefit plan as towhich it may have liability; (4) any reportable event or any prohibited transaction in connection with any employee benefit plan; (5) anyadditions to or changes in the locations of its businesses; and (6) any alleged breach by the Bank of any provision of this agreement or of anyother Related Document. 4.7 Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between it and any otherPerson. 4.8 Title to Assets and Property. Maintain good and marketable title to all of its Properties, and defend them against all claims and demands of allPersons at any time claiming any interest in them. 4.9 Additional Assurances. Promptly make, execute and deliver any and all agreements, documents, instruments and other records that the Bankmay request to evidence any of the Credit Facilities, cure any defect in the execution and delivery of any of the Related Documents, perfect anyLien, comply with any Legal Requirement applicable to the Bank or the Credit Facilities or describe more fully particular aspects of theagreements set forth or intended to be set forth in any of the Related Documents. 4.10 Employee Benefit Plans. Maintain each employee benefit plan as to which it may have any liability, in compliance with all LegalRequirements. 4.11 Banking Relationship. Establish and maintain its primary banking depository and disbursement relationship with the Bank. 4.12 Compliance with Anti-Corruption Laws and Sanctions. Maintain in effect and enforce policies and procedures designed to ensure complianceby the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicableSanctions.5. Negative Covenants. 5.1 Unless otherwise noted, the financial requirements set forth in this section will be computed in accordance with GAAP applied on a basisconsistent with financial statements previously submitted by the Borrower to the Bank. 5.2 Without the written consent of the Bank, the Borrower will not and no Subsidiary of the Borrower will: A. Sale of Equity Interests. Issue, sell or otherwise dispose of its Equity Interests. B. Debt. Incur, contract for, assume, or permit to remain outstanding, indebtedness for borrowed money, installment obligations, orobligations under capital leases or operating leases, other than (I) unsecured trade debt incurred in the ordinary course of business, (2)indebtedness owing to the Bank, (3) indebtedness reflected in its latest financial statement furnished to the Bank prior to execution of thisagreement and that is not to be paid with proceeds of borrowings under the Credit Facilities, and (4) indebtedness outstanding as of the datehereof that has been disclosed to the Bank in writing and that is not to be paid with proceeds of borrowings under the Credit Facilities. 6Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. C. Guaranties. Guarantee or otherwise become or remain secondarily liable on the undertaking of another, except for endorsement of drafts fordeposit and collection in the ordinary course of business. D. Liens. Create or permit to exist any Lien on any of its Property except: existing Liens known to and approved by the Bank; Liens to theBank; Liens incurred in the ordinary course of business securing current non- delinquent liabilities for taxes, worker's compensation,unemployment insurance, social security and pension liabilities. E. Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, for: (l) any personal, family orhousehold purpose; or (2) the purpose of "purchasing or carrying any margin stock" within the meaning of Federal Reserve Board Regulation U.At the Bank's request, it will furnish a completed Federal Reserve Board Form U-1. Furthermore, the Borrower will not and no Subsidiary of theBorrower will request any Credit Facility or use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, by the Borroweror any of its Subsidiaries or its or their respective directors, officers, employees and agents: (I) in furtherance of an offer, payment, promise topay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws; (2)for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in anySanctioned Country, to the extent such activities, businesses or transaction would be prohibited by Sanctions if conducted by a corporationincorporated in the United States; or (3) in any manner that would result in the violation of any Sanctions applicable to any party hereto. F. Continuity of Operations. (I) Engage in any business activities substantially different from those in which it is presently engaged; (2) ceaseoperations, liquidate, merge, transfer, acquire or consolidate with any other Person, change its name, dissolve, or sell any assets out of theordinary course of business; (3) enter into any arrangement with any Person providing for the leasing by it of Property which has been sold ortransferred by it to such Person; (4) change its business organization, the jurisdiction under which its business organization is formed ororganized, or its chief executive office, or any places of its businesses; or (5) if the Borrower is an individual, change the name on his/her driver'slicense or state issued identification card, as applicable, without notifying the Bank within thirty (30) days of the change, or change the state ofhis/her principal residence, without notifying the Bank within thirty (30) days of the change. G. Limitation on Negative Pledge Clauses. Enter into any agreement with any Person other than the Bank which prohibits or limits its abilityto create or permit to exist any Lien on any of its Property, whether now owned or hereafter acquired. H. Conflicting Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance ofits obligations under this agreement or any of the other Related Documents. I. Transfer of Ownership. Permit any pledge of any Equity Interest in it or any sale or other transfer of any Equity Interest in it. J. Limitation on Loans, Advances to and Investments in Others and Receivables from Others. Purchase, hold or acquire any EquityInterest or evidence of indebtedness of, make or permit to exist any loans or advances to, permit to exist any receivable from, or make or permitto exist any investment or acquire any interest whatsoever in, any Person, except: (1) extensions of trade credit to customers in the ordinarycourse of business on ordinary terms; (2) Permitted Investments; and (3) loans, advances, investments and receivables existing as of the date ofthis agreement that have been disclosed to and approved by the Bank in writing and that are not to be paid with proceeds of borrowings underthe Credit Facilities. K. Organizational Documents. Alter, amend or modify any of its Organizational Documents. L. Government Regulation.(I) Be or become subject at any time to any Legal Requirement or list of any government agency (including,without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits the Bank from making any advance or extension ofcredit to it or from otherwise conducting business with it, or (2) fail to provide documentary and other evidence of its identity as may berequested by the Bank at any time to enable the Bank to verify its identity or to comply with any applicable Legal Requirement, including,without limitation, Section 326 of the USA Patriot Act of2001, 31 U.S.C. Section 5318. 7Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5.3 Financial Covenants. Without the written consent of the Bank, the Borrower will not: Intentionally omitted. 6. Representations.6.1 Representations and Warranties by the Borrower. To induce the Bank to enter into this agreement and to extend credit or other financialaccommodations under the Credit Facilities, the Borrower represents and warrants as of the date of this agreement and as of the date of eachrequest for credit under the Credit Facilities that each of the following statements is and shall remain true and correct throughout the term of thisagreement and until all Credit Facilities and all Liabilities under the Notes and other Related Documents are paid in full: (a) its principalresidence or chief executive office is at the address shown above, (b) its name as it appears in this agreement is its exact name as it appears in itsmost recently filed public organic record and other Organizational Documents, and if the Borrower is an individual, its name as it appears in thisagreement is its exact name as is indicated on his/her most recently issued, valid driver's license or identification card issued by such Borrower'sprincipal state of residence stated above, (c) the execution and delivery of this agreement and the other Related Documents to which it is aparty, and the performance of the obligations they impose, do not violate any Legal Requirement, conflict with any agreement by which it isbound, or require the consent or approval of any other Person, (d) this agreement and the other Related Documents have been duly authorized,executed and delivered by all parties (other than the Bank) and are valid and binding agreements of those Persons, enforceable according totheir terms, except as may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and bygeneral principles of equity, (e) all balance sheets, profit and loss statements, and other financial statements and other information furnished tothe Bank in connection with the Liabilities are accurate and fairly reflect the financial condition of the Persons to which they apply on theireffective dates, including contingent liabilities of every type, which financial condition has not changed materially and adversely since thosedates, (f) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) is pending orthreatened against it, and no other event has occurred which may in any one case or in the aggregate materially adversely affect it or any of itsSubsidiaries' financial condition, properties, business, affairs or operations, other than litigation, claims, or other events, if any, that have beendisclosed to and acknowledged by the Bank in writing, (g) all of its tax returns and reports that are or were required to be filed, have been filed,and all taxes, assessments and other governmental charges have been paid in full, except those presently being contested by it in good faith andfor which adequate reserves have been provided, (h) it is not an "investment company" or a company "controlled" by an "investment company",within the meaning of the Investment Company Act of 1940, as amended, (i) there are no defenses or counterclaims, offsets or adverse claims,demands or actions of any kind, personal or otherwise, that it could assert with respect to this agreement or the Credit Facilities, (j) it owns, or islicensed to use, all trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business ascurrently conducted, (k) the execution and delivery of this agreement and the Notes and the performance of the obligations they impose, if theBorrower is other than a natural Person (i) are within its powers, (ii) have been duly authorized by all necessary action of its governing body,and (iii) do not contravene the terms of its Organizational Documents or other agreement or document governing its affairs; and (1) with respectto the Borrowing Base, (i) each asset represented by it to be eligible for Borrowing Base purposes of this agreement conforms to the eligibilitydefinitions set forth in this agreement (ii) all asset values delivered to the Bank will be true and correct, subject to immaterial variance ; and bedetermined on a consistent accounting basis; (iii) except as agreed to the contrary by the Bank in writing, each asset is now and at all timeshereafter will be in its physical possession and shall not be held by others on consignment, sale or approval, or sale or return; (iv) except asreflected in schedules delivered to the Bank, each asset is now and at all times hereafter will be of good and merchantable quality, free fromdefects; and (v) each asset is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar Person without theBank's prior written consent, and in such event, it will concurrently at the time of bailment cause any such bailee, warehouseman, or similarPerson to issue and deliver to the Bank, warehouseman receipts in the Bank's name evidencing the storage of the assets. 6.2 Representations and Warranties Regarding Anti-Corruption Laws and Sanctions. The Borrower has implemented and maintains in effectpolicies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees andagents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and employees andto the knowledge of the Borrower its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all materialrespects. None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower or such Subsidiary any of their respective directors,officers or employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity inconnection with or benefit from the credit facility established hereby, is a Sanctioned Person. No advance, letter of credit, use of proceeds orother transaction contemplated by the Credit Facilities will violate Anti-Corruption Laws or applicable Sanctions. 8Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 7. Default/Remedies. 7.1 Events of Default/Acceleration. If any of the following events occurs, the Notes shall become due immediately, without notice, at the Bank'soption: A. Any Obligor fails to pay when due any of the Liabilities or any other debt to any Person, or any amount payable with respect to any of theLiabilities, or under any Note, any other Related Document, or any agreement or instrument evidencing other debt to any Person. B. Any Obligor or any Pledgor: (i) fails to observe or perform or otherwise violates any other term, covenant, condition or agreement of any ofthe Related Documents; (ii) makes any materially incorrect or misleading representation, warranty, or certificate to the Bank; (iii) makes anymaterially incorrect or misleading representation in any financial statement or other information delivered to the Bank; or (iv) defaults under theterms of any agreement or instrument relating to any debt for borrowed money (other than the debt evidenced by the Related Documents) andthe effect of such default will allow the creditor to declare the debt due before its stated maturity. C. In the event (i) there is a default under the terms of any Related Document, (ii) any Obligor terminates or revokes or purports to terminate orrevoke its guaranty or any Obligor's guaranty becomes unenforceable in whole or in part, (iii) any Obligor fails to perform promptly under itsguaranty, or (iv) any Obligor fails to comply with, or perform under any agreement, now or hereafter in effect, between the Obligor and the Bank,or any Affiliate of the Bank or their respective successors and assigns. D. There is any loss, theft, damage, or destruction of any Collateral not covered by insurance. E. Any event occurs that would permit the Pension Benefit Guaranty Corporation to terminate any employee benefit plan of any Obligor orany Subsidiary of any Obligor. F. Any Obligor or any of its Subsidiaries or any Pledgor: (i) becomes insolvent or unable to pay its debts as they become due; (ii) makes anassignment for the benefit of creditors; (iii) consents to the appointment of a custodian, receiver, or trustee for itself or for a substantial part of itsProperty; (iv) commences any proceeding under any bankruptcy, reorganization, liquidation, insolvency or similar laws; (v) conceals orremoves any of its Property, with intent to hinder, delay or defraud any of its creditors; (vi) makes or permits a transfer of any of its Property,which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (vii) makes a transfer of any of its Property to or for thebenefit of a creditor at a time when other creditors similarly situated have not been paid. G. A custodian, receiver, or trustee is appointed for any Obligor or any of its Subsidiaries or any Pledgor or for a substantial part of theirrespective Property. H. Any Obligor or any of its Subsidiaries, without the Bank's written consent: (i) liquidates or is dissolved; (ii) merges or consolidates withany other Person; (iii) leases, sells or otherwise conveys a material part of its assets or business outside the ordinary course of its business; (iv)leases, purchases, or otherwise acquires a material part of the assets of any other Person, except in the ordinary course of its business; or (v)agrees to do any of the foregoing; provided, however, that any Subsidiary of an Obligor may merge or consolidate with any other Subsidiary ofthat Obligor, or with the Obligor, so long as the Obligor is the survivor. I. Proceedings are commenced under any bankruptcy, reorganization, liquidation, or similar laws against any Obligor or any of itsSubsidiaries or any Pledgor and remain undismissed for thirty (30) days after commencement; or any Obligor or any of its Subsidiaries or anyPledgor consents to the commencement of those proceedings. J. Any judgment is entered against any Obligor or any of its Subsidiaries, or any attachment, seizure, sequestration, levy, or garnishment isissued against any Property of any Obligor or any of its Subsidiaries or of any Pledgor or any Collateral. K. Any individual Obligor or Pledgor dies or a guardian or conservator is appointed for any individual Obligor or Pledgor or all or any portionof their respective Property, or the Collateral. L. Any material adverse change occurs in: (i) the reputation, Property, financial condition, business, assets, affairs, prospects, liabilities, oroperations of any Obligor or any of its Subsidiaries; (ii) any Obligor's or Pledgor's ability to perform its obligations under the RelatedDocuments; or (iii) the Collateral. 9Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.7.2 Remedies. At any time after the occurrence of a default, the Bank may do one or more of the following: (a) cease permitting the Borrower toincur any Liabilities; (b) terminate any commitment of the Bank evidenced by any of the Notes; (c) declare any of the Notes to be immediatelydue and payable, without notice of acceleration, presentment and demand or protest or notice of any kind, all of which are hereby expresslywaived; (d) exercise all rights of setoff that the Bank may have contractually, by law, in equity or otherwise; and (e) exercise any and all otherrights pursuant to any of the Related Documents, at law, in equity or otherwise. A. Generally. The rights of the Bank under this agreement and the other Related Documents are in addition to other rights (including withoutlimitation, other rights of setoff) the Bank may have contractually, by law, in equity or otherwise, all of which are cumulative and herebyretained by the Bank. Each Obligor agrees to stand still with regard to the Bank's enforcement of its rights, including taking no action to delay,impede or otherwise interfere with the Bank's rights to realize on any Collateral. B. Bank's Right of Setoff. The Borrower grants to the Bank a security interest in the Deposits, and the Bank is authorized to setoff and apply,all Deposits, Securities and Other Property, and Bank Debt against any and all Liabilities. This right of setoff may be exercised at any time fromtime to time after the occurrence of any default, without prior notice to or demand on the Borrower and regardless of whether any Liabilities arecontingent, unmatured or unliquidated. In this paragraph: (a) the term "Deposits" means any and all accounts and deposits of the Borrower(whether general, special, time, demand, provisional or final) at any time held by the Bank (including all Deposits held jointly with another, butexcluding any IRA or Keogh Deposits, or any trust Deposits in which a security interest would be prohibited by any Legal Requirement); (b) theterm "Securities and Other Property" means any and all securities and other personal Property of the Borrower in the custody, possession orcontrol of the Bank, JPMorgan Chase & Co. or their respective Subsidiaries and Affiliates (other than Property held by the Bank in a fiduciarycapacity); and (c) the term "Bank Debt" means all indebtedness at any time owing by the Bank, to or for the credit or account of the Borrowerand any claim of the Borrower (whether individual, joint and several or otherwise) against the Bank now or hereafter existing. 8. Miscellaneous.8.1 Notice. Any notices and demands under or related to this agreement shall be in writing and delivered to the intended party at its address statedin this agreement, and if to the Bank, at its main office if no other address of the Bank is specified in this agreement, by one of the followingmeans: (a) by hand; (b) by a nationally recognized overnight courier service; or (c) by certified mail, postage prepaid, with return receiptrequested. Notice shall be deemed given: (a) upon receipt if delivered by hand; (b) on the Delivery Day after the day of deposit with a nationallyrecognized courier service; or (c) on the third Delivery Day after the notice is deposited in the mail. "Delivery Day" means a day other than aSaturday, a Sunday or any other day on which national banking associations are authorized to be closed. Any party may change its address forpurposes of the receipt of notices and demands by giving notice of the change in the manner provided in this provision. 8.2 Statements. The Bank may from time to time provide the Borrower with account statements or invoices with respect to any of the Liabilities("Statements"). The Bank is under no duty or obligation to provide Statements, which, if provided, will be solely for the Borrower'sconvenience. Statements may contain estimates of the amounts owed during the relevant billing period, whether of principal, interest, fees orother Liabilities. If the Borrower pays the full amount indicated on a Statement on or before the due date indicated on such Statement, theBorrower shall not be in default of payment with respect to the billing period indicated on such Statement; provided, that acceptance by theBank of any payment that is less than the total amount actually due at that time (including but not limited to any past due amounts) shall notconstitute a waiver of the Bank's right to receive payment in full at another time. 8.3 No Waiver. No delay on the part of the Bank in the exercise of any right or remedy waives that right or remedy. No single or partial exercise bythe Bank of any right or remedy precludes any other future exercise of it or the exercise of any other right or remedy. The making of an advanceduring the existence of any default or subsequent to the occurrence of a default or when all conditions precedent have not been met shall notconstitute a waiver of the default or condition precedent. No waiver or indulgence by the Bank of any default is effective unless it is in writingand signed by the Bank, nor shall a waiver on one occasion bar or waive that right on any future occasion.8.4 Integration; Severability. This agreement, the Notes, and the other Related Documents embody the entire agreement and understandingbetween the Borrower and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more ofthe obligations of the Borrower under this agreement, the Notes, or the other Related Documents or any provision thereof is held to be invalid,illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrower and theremaining provisions shall not in any way be affected or impaired; and the invalidity, illegality or unenforceability in one jurisdiction shall notaffect the validity, legality or enforceability of such obligations or provisions in any other jurisdiction. 10Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8.5 Joint and Several Liability. Each party executing this agreement as the Borrower is individually, jointly and severally liable under thisagreement. 8.6 Governing Law and Venue. This agreement shall be governed by and construed in accordance with the laws of the State of California (withoutgiving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under thisagreement may be brought by the Bank in any state or federal court located in the State of California, as the Bank in its sole discretion mayelect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generallyand unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of California is not aconvenient forum or the proper venue for any such suit, action or proceeding. 8.7 Survival of Representations and Warranties. The Borrower understands and agrees that in extending the Credit Facilities, the Bank is relyingon all representations, warranties, and covenants made by the Borrower in this agreement or in any certificate or other instrument delivered bythe Borrower to the Bank under this agreement or in any of the other Related Documents. The Borrower further agrees that regardless of anyinvestigation made by the Bank, all such representations, warranties and covenants will survive the making of the Credit Facilities and deliveryto the Bank of this agreement, shall be continuing in nature, and shall remain in full force and effect until such time as the Liabilities shall bepaid in full. 8.8 Non-Liability of the Bank. The relationship between the Borrower on one hand and the Bank on the other hand shall be solely that of borrowerand lender. The Bank shall have no fiduciary responsibilities to the Borrower. The Bank undertakes no responsibility to the Borrower to reviewor inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 8.9 Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold the Bank, its parent companies, Subsidiaries, Affiliates, theirrespective successors and assigns and each of their respective shareholders, directors, officers, employees and agents (collectively, the"Indemnified Persons")harmless from any and against any and all loss, liability, obligation, damage, penalty, judgment, claim, deficiency,expense, interest, penalties , attorneys' fees (including the fees and expenses of any attorneys engaged by the Indemnified Person) and amountspaid in settlement ("Claims") to which any Indemnified Person may become subject arising out of or relating to the Credit Facilities, theLiabilities under this agreement or any other Related Documents or the Collateral, except to the limited extent that the Claims are proximatelycaused by the Indemnified Person's gross negligence or willful misconduct. The indemnification provided for in this paragraph shall survive thetermination of this agreement and shall not be affected by the presence, absence or amount of or the payment or nonpayment of any claim under,any insurance. 8.10 Counterparts. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but allsuch counterparts, taken together, shall constitute one and the same agreement. 8.11 Advice of Counsel. The Borrower acknowledges that it has been advised by counsel, or had the opportunity to be advised by counsel, in thenegotiation, execution and delivery of this agreement and any other Related Documents. 8.12 Recovery of Additional Costs. If the imposition of or any change in any Legal Requirement, or the interpretation or application of any thereofby any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify, ormake applicable any taxes (except federal, state, or local income or franchise taxes imposed on the Bank), reserve requirements, liquidityrequirements, capital adequacy requirements , Federal Deposit Insurance Corporation (FDIC) deposit insurance premiums or assessments, orother obligations which would (A) increase the cost to the Bank for extending, maintaining or funding the Credit Facilities, (B) reduce theamounts payable to the Bank under the Credit Facilities, or (C) reduce the rate of return on the Bank's capital as a consequence of the Bank'sobligations with respect to the Credit Facilities, then the Borrower agrees to pay the Bank such additional amounts as will compensate the Banktherefor, within five (5) days after the Bank's written demand for such payment. The Bank's demand shall be accompanied by an explanation ofsuch imposition or charge and a calculation in reasonable detail of the additional amounts payable by the Borrower, which explanation andcalculations shall be conclusive in the absence of manifest error. 8.13 Expenses. To the extent not prohibited by applicable Legal Requirements and whether or not the transactions contemplated by this agreementare consummated , the Borrower is liable to the Bank and agrees to pay on demand all reasonable costs and expenses of every kind incurred (orcharged by internal allocation) in connection with the negotiation, preparation , execution, filing, recording, amendment , modification,supplementing and waiver of this agreement and the Related Documents, the making, servicing and collection of the Credit Facilities and therealization on any Collateral and any other amounts owed under this agreement or the Related Documents, including without limitationreasonable attorneys' fees (including the fees of in-house counsel for the Bank that are employees of the Bank or its Affiliates) and court costs.These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvencyor other similar proceeding involving any Obligor, Pledgor, or Property of any Obligor, Pledgor, or Collateral. The obligations of the Borrowerunder this section shall survive the termination of this agreement. Notwithstanding anything to the contrary set forth in this agreement or theother Related Documents, the Bank's right to recover attorneys' fees and other legal expenses hereunder is subject to California Civil CodeSection 1717, including any revision or replacement of such statute or rule hereafter enacted. 11Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8.14 Reinstatement. The Borrower agrees that to the extent any payment or transfer is received by the Bank in connection with the Liabilities, andall or any part of the payment or transfer is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaidor transferred by the Bank or paid or transferred over to a trustee, receiver or any other entity, whether under any proceeding or otherwise (any ofthose payments or transfers is hereinafter referred to as a "Preferential Payment"), then this agreement and the Notes shall continue to beeffective or shall be reinstated, as the case may be, even if all those Liabilities have been paid in full and whether or not the Bank is inpossession of the Notes and whether any of the Notes has been marked, paid, released or cancelled, or returned to the Borrower and, to the extentof the payment, repayment or other transfer by the Bank, the Liabilities or part intended to be satisfied by the Preferential Payment shall berevived and continued in full force and effect as if the Preferential Payment had not been made. The obligations of the Borrower under thissection shall survive the termination of this agreement. 8.15 Assignments. The Borrower agrees that the Bank and its Affiliates may at any time work together and share any information about the Borrowerand its Affiliates and their relationships with the Bank or any of its Affiliates or their successors, with and among the Bank or any of its Affiliatesor their successors, or any purchaser or potential purchaser of any of the Notes or the other Liabilities, or any representative of any of the partiesdescribed in this sentence. The Borrower agrees that the Bank may at any time sell, assign or transfer one or more interests or participations in allor any part of its rights and obligations in the Notes to one or more purchasers whether or not related to the Bank. 8.16 Waivers. To the maximum extent not prohibited by applicable Legal Requirements, each Obligor waives (a) any right to receive notice of thefollowing matters before the Bank enforces any of its rights: (i) any demand, diligence, presentment, dishonor and protest, or (ii) any action thatthe Bank takes regarding any Person, any Collateral, or any of the Liabilities, that it might be entitled to by law or under any other agreement;(b) any right to require the Bank to proceed against the Borrower, any other Obligor or any Collateral, or pursue any remedy in the Bank's powerto pursue; (c) any defense based on any claim that any Obligor's obligations exceed or are more burdensome than those of the Borrower; (d) thebenefit of any statute of limitations affecting liability of any Obligor or the enforcement hereof; (e) any defense arising by reason of anydisability or other defense of the Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligationof the Borrower for the Liabilities; and (f) any defense based on or arising out of any defense that the Borrower may have to the payment orperformance of the Liabilities or any portion thereof. Each Obligor consents to any extension or postponement of time of its payment withoutlimit as to the number or period, to any substitution, exchange or release of all or any part of any Collateral, to the addition of any other party,and to the release or discharge of, or suspension of any rights and remedies against, any Obligor. The Bank may waive or delay enforcing any ofits rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of anyprovision of the Notes is effective unless it is in writing and signed by the Person against whom it is being enforced. 8.17 Time is of the Essence. Time is of the essence under this agreement and in the performance of every term, covenant and obligation containedherein.8.18 Confidentiality. The Bank agrees that it will treat information provided by the Borrower or its representatives to the Bank (the "Information")as confidential; provided, however, that the Bank may disclose the Information (a) to its Affiliates and its and its Affiliates' directors, employees,officers, auditors, consultants, agents, counsel and advisors (such Affiliates and such Persons collectively, "Representatives"), it beingunderstood that its Representatives shall be informed by the Bank of the confidential nature of such Information and be instructed to complywith the terms of this section to the same extent as is required of the Bank hereunder; (b) in response to a subpoena or other legal process, or asmay otherwise be required by law, order or regulation, or upon the request or demand of any governmental or regulatory agency or authorityhaving jurisdiction over the Bank or its Representatives or to defend or prosecute a claim brought against or by the Bank and/or itsRepresentatives; (c) to actual and prospective assignees, actual and prospective participants, and actual and prospective swap counterparties,provided that all such participants, assignees or swap counterparties execute an agreement with the Bank containing provisions substantiallythe same as those contained in this section; (d) to holders of Equity Interests in the Borrower, other than holders of any Equity Interest in apublicly traded company; (e) to any Obligor; and (f) with the Borrower's consent. The restrictions contained in this section shall not apply toInformation which (a) is or becomes generally available to the public other than as a result of a disclosure by the Bank or its Representatives inbreach of this section, or (b) becomes available to the Bank or its Representatives from a source, other than the Borrower or one of its agents,who is not known to the Bank or its Representatives to be bound by any obligations of confidentiality to the Borrower, or (c) was known to theBank or its Representatives prior to its disclosure to the Bank or its Representatives by the Borrower or one of its agents or was independentlydeveloped by the Bank or its Representatives, or (d) was or is, after the date hereof, disclosed (or required to be disclosed) by the Borrower to theBank or any of its Representatives under or in connection with any existing financing relationship between the Borrower and the Bank or any ofits Representatives, the disclosure of which shall be governed by the agreements executed in connection with such financing relationship. AnyPerson required to maintain the confidentiality of the Information as provided in this section shall be considered to have complied with itsobligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Personwould accord to its own confidential information. 12Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 9. USA PATRIOT ACT NOTIFICATION. The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of2001, 31 U.S.C. Section 5318:IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorismand money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each Personthat opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial servicesproduct. What this means for the Borrower: When the Borrower opens an account, if it is an individual the Bank will ask for its name, taxpayeridentification number, residential address, date of birth, and other information that will allow the Bank to identify it, and, if it is not an individual theBank will ask for its name, taxpayer identification number, business address, and other information that will allow the Bank to identify it. The Bankmay also ask, if the Borrower is an individual, to see its driver's license or other identifying documents, and if it is not an individual, to see itsOrganizational Documents or other identifying documents. 10. WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THEUNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL,EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 11. JURY WAIVER AND JUDICIAL REFERENCE PROVISION. TO THE MAXIMUM EXTENT NOT PROHIBITED BY APPLICABLE LAW,THE BORROWER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY ANDUNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ONCONTRACT, TORT, OR OTHERWISE) BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TOTHIS AGREEMENT OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TOPROVIDE THE FINANCING DESCRIBED HEREIN. IN THE EVENT ANY LEGAL PROCEEDING IS FILED IN A COURT OF THE STATE OF CALIFORNIA (THE "COURT") BY OR AGAINSTTHE BORROWER OR THE BANK IN CONNECTION WITH ANY CONTROVERSY, DISPUTE OR CLAIM DIRECTLY OR INDIRECTLYARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASEDON CONTRACT, TORT OR ANY OTHER THEORY) (EACH, A "CLAIM") AND THE WAIVER SET FORTH IN THE PRECEDINGPARAGRAPH IS NOT ENFORCEABLE IN SUCH ACTION OR PROCEEDING, THE BORROWER AND THE BANK (BY ITS ACCEPTANCEHEREOF) AGREE AS FOLLOWS: (1) WITH THE EXCEPTION OF THE MATTERS SPECIFIED IN PARAGRAPH (2) BELOW, ANY CLAIM WILL BE DETERMINED BY AGENERAL REFERENCE PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF CALIFORNIA CODE OF CIVIL PROCEDURESECTIONS 638 THROUGH 645.2, INCLUDING ANY REVISION OR REPLACEMENT OF SUCH STATUTES OR RULES HEREAFTERENACTED. THE BORROWER AND THE BANK INTEND THIS GENERAL REFERENCE AGREEMENT TO BE SPECIFICALLYENFORCEABLE IN ACCORDANCE WITH CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638, INCLUDING ANY REVISION ORREPLACEMENT OF SUCH STATUTE OR RULE HEREAFTER ENACTED. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENTAND THE OTHER RELATED DOCUMENTS, VENUE FOR THE REFERENCE PROCEEDING WILL BE IN THE STATE OR FEDERALCOURT IN THE COUNTY OR DISTRICT WHERE VENUE IS OTHERWISE APPROPRIATE UNDER APPLICABLE LAW. 13Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (2) THE FOLLOWING MATTERS SHALL NOT BE SUBJECT TO A GENERAL REFERENCE PROCEEDING: (A) NON-JUDICIALFORECLOSURE OF ANY SECURITY INTERESTS IN REAL OR PERSONAL PROPERTY; (B) EXERCISE OF SELF-HELP REMEDIES(INCLUDING, WITHOUT LIMITATION, SET-OFF); (C) APPOINTMENT OF A RECEIVER; AND (D) TEMPORARY, PROVISIONAL ORANCILLARY REMEDIES (INCLUDING, WITHOUT LIMITATION, WRITS OF ATTACHMENT, WRITS OF POSSESSION, TEMPORARYRESTRAINING ORDERS OR PRELIMINARY INJUNCTIONS). THIS AGREEMENT DOES NOT LIMIT THE RIGHT OF THE BORROWEROR THE BANK TO EXERCISE OR OPPOSE ANY OF THE RIGHTS AND REMEDIES DESCRIBED IN CLAUSES (A) - (D) AND ANY SUCHEXERCISE OR OPPOSITION DOES NOT WAIVE THE RIGHT OF THE BORROWER OR THE BANK TO A REFERENCE PROCEEDINGPURSUANT TO THIS AGREEMENT. (3) UPON THE WRITTEN REQUEST OF THE BORROWER OR THE BANK, THE BORROWER AND THE BANK SHALL SELECT ASINGLE REFEREE, WHO SHALL BE A RETIRED JUDGE OR JUSTICE. IF THE BORROWER AND THE BANK DO NOT AGREE UPON AREFEREE WITHIN TEN (10) DAYS OF SUCH WRITTEN REQUEST, THEN, THE BORROWER OR THE BANK, MAY REQUEST THECOURT TO APPOINT A REFEREE PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 640(B), INCLUDING ANYREVISION OR REPLACEMENT OF SUCH STATUTE OR RULE HEREAFTER ENACTED. (4) ALL PROCEEDINGS AND HEARINGS CONDUCTED BEFORE THE REFEREE, EXCEPT FOR TRIAL, SHALL BE CONDUCTEDWITHOUT A COURT REPORTER, EXCEPT WHEN THE BORROWER OR THE BANK SO REQUESTS, A COURT REPORTER WILL BEUSED AND THE REFEREE WILL BE PROVIDED A COURTESY COPY OF THE TRANSCRIPT. THE PARTY MAKING SUCH REQUESTSHALL HAVE THE OBLIGATION TO ARRANGE FOR AND PAY COSTS OF THE COURT REPORTER, PROVIDED THAT SUCH COSTS,ALONG WITH THE REFEREE'S FEES, SHALL ULTIMATELY BE BORNE BY THE PARTY WHO DOES NOT PREVAIL, ASDETERMINED BY THE REFEREE. (5) THE REFEREE MAY REQUIRE ONE OR MORE PREHEARING CONFERENCES. THE BORROWER AND THE BANK SHALL BEENTITLED TO DISCOVERY, AND THE REFEREE SHALL OVERSEE DISCOVERY IN ACCORDANCE WITH THE RULES OFDISCOVERY, AND MAY ENFORCE ALL DISCOVERY ORDERS IN THE SAME MANNER AS ANY TRIAL COURT JUDGE INPROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA. THE REFEREE SHALL APPLY THE RULES OF EVIDENCE APPLICABLETO PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA AND SHALL DETERMINE ALL ISSUES IN ACCORDANCE WITHAPPLICABLE STATE AND FEDERAL LAW. THE REFEREE SHALL BE EMPOWERED TO ENTER EQUITABLE AS WELL AS LEGALRELIEF AND RULE ON ANY MOTION WHICH WOULD BE AUTHORIZED IN A TRIAL, INCLUDING, WITHOUT LIMITATION,MOTIONS FOR DEFAULT JUDGMENT OR SUMMARY JUDGMENT. THE REFEREE SHALL REPORT THE REFEREE'S DECISION,WHICH REPORT SHALL ALSO INCLUDE FINDINGS OF FACT AND CONCLUSIONS OF LAW.(6) THE BORROWER AND THE BANK RECOGNIZE AND AGREE THAT ALL CLAIMS RESOLVED IN A GENERAL REFERENCEPROCEEDING PURSUANT HERETO WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. [SIGNATURE LINE MOVED TO NEXT PAGE] 14Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Address(es) for Notices: Borrower:1010 Winding Circle Rd., Suite 100 SOLAR3D, INCRoseville, CA 95678 Attn: CFO By: /s/ Tracy M. Welch Tracy M. Welch CFO Printed Name Title Date signed: 12/31/15 Address(es) for Notices: Bank:1415 L Ste STE 650, Floor 6 JPMorgan Chase Bank, N.A.Sacramento, CA 95814 Attn: By: /s/ Erik J. Langeland Erik J Langeland Managing Director Printed Name Title Date signed: 12/31/15 15Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21.1LIST OF SUBSIDIARIESNAME OF SUBSIDIARYSTATE OF INCORPORATIONSunworks United, Inc.MDE Energy, Inc.Elite Solar Acquisition Sub., IncCaliforniaCaliforniaCalifornia Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1CERTIFICATIONI, James Nelson, certify that:1. I have reviewed this Annual Report on Form 10-K of Sunworks, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) forthe registrant and we have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared;b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affectthe registrant’s internal control over the financial reporting; and5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlsover financial reporting. /s/ James Nelson Chief Executive Officer & President(Principal Executive Officer)Date: March 14, 2016Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2CERTIFICATIONI, Tracy Welch, certify that:1. I have reviewed this Annual Report on Form 10-K of Sunworks, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) forthe registrant and we have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared;b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affectthe registrant’s internal control over the financial reporting; and5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlsover financial reporting. /s/ Tracy Welch Chief Financial Officer(Principal Financial and Accounting Officer)Date: March 14, 2016 Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1CertificationPursuant To Section 906 of the Sarbanes-Oxley Act Of 2002(Subsections (A) And (B) Of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of theundersigned officers of Sunworks, Inc., (the “Company”), does hereby certify, to such officer’s knowledge, that:The Annual Report on Form 10-K for the fiscal year ended December31, 2015 (the “Form 10-K”) of the Company fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. /s/ James Nelson Chief Executive OfficerDated: March 14, 2016 /s/ Tracy Welch Chief Financial OfficerDated: March 14, 2016Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: Sunworks, Inc., 10-K, March 14, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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