sunl-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to________________

Commission File Number:

001-39739

Sunlight Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-2599566

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

101 North Tryon Street, Suite 1000, Charlotte, NC

28246

(Address of principal executive offices)

(Zip Code)

(888) 315-0822

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class:

Trading Symbol(s):

Name of each exchange on which registered:

Class A Common Stock, par value $0.0001 per share

SUNL

New York Stock Exchange

Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share

SUNL.WS

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒

Smaller reporting company ☒ Emerging growth company ☒

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2021, 84,815,297 shares of Class A Common stock, $0.0001 par value, and 47,595,455 shares of Class C common stock, par value $0.0001 per share, were outstanding.

EXPLANATORY NOTE

Sunlight Financial Holdings Inc. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) on Form 10-Q/A to amend its Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed with the Securities and Exchange Commission on November 15, 2021 (the “Original 10-Q”), for the purpose of filing exhibits listed in, but inadvertently omitted from, the Original 10-Q.

The Amendment does not reflect events occurring after the date of the filing of the Original 10-Q or modify or update any of the other disclosures contained therein in any way.

SUNLIGHT FINANCIAL HOLDINGS INC.

FORM 10-Q

INDEX


			PAGE
Part I. Financial Information
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets			1
Unaudited Condensed Consolidated Statements of Operations			2
Unaudited Condensed Consolidated Statements of Changes in Equity			3
Unaudited Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Note 1 - Organization and Business			6
Note 2 - Summary of Significant Accounting Policies			6
Note 3 - Financing Receivables			21
Note 4 - Derivatives			24
Note 5 - Debt Obligations			25
Note 6 - Equity and Earnings per Share			26
Note 7 - Fair Value Measurement			34
Note 8 - Taxes			37
Note 9 - Transactions with Affiliates and Affiliated Entities			37
Note 10 - Commitments and Contingencies			39
Note 11 - Subsequent Events			40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			69
Item 4. Controls and Procedures			69

Part II. Other Information
Item 1. Legal Proceedings			69
Item 1A. Risk Factors			69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			94
Item 3. Defaults Upon Senior Securities			94
Item 4. Mine Safety Disclosures			94
Item 5. Other Information			94
Item 6. Exhibits			95
Signatures			96

iii

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNLIGHT FINANCIAL HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	Successor		Predecessor
	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Cash and cash equivalents	$	72,786	$	49,583
Restricted cash	2,259		3,122
Advances (net of allowance for credit losses of $— and $121)	71,310		35,280
Financing receivables (net of allowance for credit losses of $— and $125)	4,789		5,333
Goodwill	670,014		—
Intangible assets, net	387,887		4,533
Property and equipment, net	1,172		1,192

Due from affiliates	367		—
Other assets	21,942		7,030

Total assets	$	1,232,526	$	106,073

Liabilities, Temporary Equity, and Members' Equity

Liabilities
Accounts payable and accrued expenses	$	20,228	$	15,782
Funding commitments	20,987		18,386
Debt	20,613		14,625
Distributions payable	—		7,522

Deferred tax liabilities	36,081		—
Due to affiliates	817		—
Warrants, at fair value	31,474		5,643
Other liabilities	681		1,502

Total liabilities	130,881		63,460

Commitments and Contingencies (Note 10)

Temporary Equity (Predecessor)
Preferred class A-3 unit members' capital; 376,395 units authorized, issued, and outstanding as of December 31, 2020	—		260,428
Preferred class A-2 unit members' capital; 225,972 units authorized, issued, and outstanding as of December 31, 2020	—		154,286
Preferred class A-1 unit members' capital; 296,302 units authorized, issued, and outstanding as of December 31, 2020	—		202,045
Common unit members' capital; 78,717 units authorized, issued, and outstanding as of December 31, 2020	—		47,757

Stockholders' Equity
Other ownership interests' capital (Predecessor)	—		1,439
Preferred stock (Successor); $0.0001 par value; 35,000,000 shares authorized; none issued and outstanding as of September 30, 2021	—		—
Class A common stock (Successor); $0.0001 par value; 420,000,000 shares authorized; 86,373,596 issued; and 84,821,189 outstanding as of September 30, 2021	9		—
Class B common stock (Successor); $0.0001 par value; 20,000,000 shares authorized; none issued and outstanding as of September 30, 2021	—		—
Class C common stock (Successor); $0.0001 par value; 65,000,000 shares authorized; 47,595,455 issued and outstanding as of September 30, 2021	—		—
Additional paid-in capital	724,941		—
Accumulated deficit	(37,789)		(623,342)
Total capital	687,161		(621,903)
Treasury stock, at cost; 1,552,407 Class A shares as of September 30, 2021	(15,447)		—

Total stockholders' equity	671,714		(621,903)
Noncontrolling interests in consolidated subsidiaries	429,931		—
Total equity	1,101,645		(621,903)
Total liabilities, temporary equity, and stockholders' equity	$	1,232,526	$	106,073

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands except per share amounts)


	Successor		Predecessor
	For the Period July 10, 2021 to September 30, 2021		For the Period July 1, 2021 to July 9, 2021		For the Three Months Ended September 30, 2020		For the Period January 1, 2021 to July 9, 2021		For the Nine Months Ended September 30, 2020


Revenue	$	26,520	$	2,074	$	17,247	$	53,064	$	40,519
Costs and Expenses
Cost of revenues (exclusive of items shown separately below)	4,841		365		3,468		10,556		8,715
Compensation and benefits	32,782		1,042		6,748		17,162		19,471
Selling, general, and administrative	3,330		330		904		3,450		2,726
Property and technology	1,502		162		1,105		2,790		3,153
Depreciation and amortization	20,541		78		812		1,688		2,430
Provision for losses	254		—		310		1,172		788
Management fees to affiliate	—		4		100		204		300
	63,250		1,981		13,447		37,022		37,583
Operating income (loss)	(36,730)		93		3,800		16,042		2,936
Other Income (Expense), Net
Interest income	77		9		94		262		370
Interest expense	(291)		(32)		(264)		(604)		(592)
Change in fair value of warrant liabilities	10,116		(1,439)		(95)		(5,504)		(66)
Change in fair value of contract derivatives, net	489		125		391		(662)		846
Realized gains on contract derivatives, net	1,377		6		170		2,992		291

Other income (expense)	(60)		(5)		(24)		616		(414)
Business combination expenses	(1,093)		(529)		—		(7,011)		—
	10,615		(1,865)		272		(9,911)		435
Net Income (Loss) Before Income Taxes	(26,115)		(1,772)		4,072		6,131		3,371
Income tax benefit (expense)	5,684		—		—		—		—
Net Income (Loss)	(20,431)		(1,772)		4,072		6,131		3,371
Noncontrolling interests in loss of consolidated subsidiaries	9,108		—		—		—		—
Net Income (Loss) Attributable to Class A Shareholders	$	(11,323)	$	(1,772)	$	4,072	$	6,131	$	3,371

Loss Per Class A Share
Net loss per Class A share
Basic	$	(0.13)
Diluted	$	(0.15)
Weighted average number of Class A shares outstanding
Basic	84,833,808
Diluted	131,088,438

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(dollars in thousands)


	Successor
	Shares		Preferred Stock	Common Stock						Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Class A	Class C		Class A		Class B		Class C
July 10, 2021	86,373,596	47,595,455	—	$	9	$	—	$	—	$	720,840	$	(26,466)	$	—	$	694,383	$	427,010	$	1,121,393
Equity-based compensation	—	—	—	—		—		—		4,101		—		—		4,101		12,029		16,130
Shares withheld related to net share settlement of equity awards	—	—	—	—		—		—		—		—		(15,447)		(15,447)		—		(15,447)
Net loss	—	—	—	—		—		—		—		(11,323)		—		(11,323)		(9,108)		(20,431)

September 30, 2021	86,373,596	47,595,455	—	$	9	$	—	$	—	$	724,941	$	(37,789)	$	(15,447)	$	671,714	$	429,931	$	1,101,645

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(dollars in thousands)


	Predecessor
	Units				Temporary Equity								Units	Members' Equity
	Class A-3 Units	Class A-2 Units	Class A-1 Units	Common Units	Class A-3 Units		Class A-2 Units		Class A-1 Units		Common Units		Other Ownership Interests	Other Ownership Interests		Accumulated Deficit		Total Members' Equity
June 30, 2021	403,946	242,512	317,989	78,717	$	338,620	$	213,218	$	279,554	$	68,296	56,461	$	1,457	$	(850,611)	$	(849,154)
Preferred distributions, paid in-kind	1,444	867	1,137	—	1,209		778		1,020		—		—	—		(3,007)		(3,007)
Change in temporary equity redemption value	—	—	—	—	3,995		4,273		5,627		2,300		—	—		(16,195)		(16,195)
Equity-based compensation	—	—	—	—	—		—		—		—		—	—		—		—
Net loss	—	—	—	—	—		—		—		—		—	—		(1,772)		(1,772)
July 9, 2021	405,390	243,379	319,126	78,717	$	343,824	$	218,269	$	286,201	$	70,596	56,461	$	1,457	$	(871,585)	$	(870,128)

June 30, 2020	350,389	210,358	275,828	78,717	$	75,497	$	16,138	$	19,884	$	2,385	49,552	$	1,410	$	(76,533)	$	(75,123)
Preferred distributions, paid in-kind	12,771	7,667	10,053	—	2,937		838		1,048		—		—	—		(4,823)		(4,823)
Change in temporary equity redemption value	—	—	—	—	5,081		6,845		8,858		1,520		—	—		(22,304)		(22,304)
Equity-based compensation	—	—	—	—	—		—		—		—		1,746	20		—		20
Net income	—	—	—	—	—		—		—		—		—	—		4,072		4,072
September 30, 2020	363,160	218,025	285,881	78,717	$	83,515	$	23,821	$	29,790	$	3,905	51,298	$	1,430	$	(99,588)	$	(98,158)

December 31, 2020	376,395	225,972	296,302	78,717	$	260,428	$	154,286	$	202,045	$	47,757	53,105	$	1,439	$	(623,342)	$	(621,903)
Preferred distributions, paid in-kind	28,995	17,407	22,824	—	24,061		14,994		19,654		—		—	—		(58,709)		(58,709)
Change in temporary equity redemption value	—	—	—	—	59,335		48,989		64,502		22,839		—	—		(195,665)		(195,665)
Equity-based compensation	—	—	—	—	—		—		—		—		3,356	18		—		18
Net income	—	—	—	—	—		—		—		—		—	—		6,131		6,131
July 9, 2021	405,390	243,379	319,126	78,717	$	343,824	$	218,269	$	286,201	$	70,596	56,461	$	1,457	$	(871,585)	$	(870,128)

December 31, 2019	326,428	195,973	256,966	78,717	$	76,519	$	21,867	$	27,042	$	3,362	43,765	$	1,313	$	(90,718)	$	(89,405)
Preferred distributions, paid in-kind	36,732	22,052	28,915	—	7,652		1,924		2,386		—		—	—		(11,962)		(11,962)
Change in temporary equity redemption value	—	—	—	—	(656)		30		362		543		—	—		(279)		(279)
Equity-based compensation	—	—	—	—	—		—		—		—		7,533	117		—		117
Net income	—	—	—	—	—		—		—		—		—	—		3,371		3,371
September 30, 2020	363,160	218,025	285,881	78,717	$	83,515	$	23,821	$	29,790	$	3,905	51,298	$	1,430	$	(99,588)	$	(98,158)

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)


	Successor		Predecessor
	For the Period July 10, 2021 to September 30, 2021		For the Period January 1, 2021 to July 9, 2021		For the Nine Months Ended September 30, 2020


Cash Flows From Operating Activities
Net income (loss)	$	(20,431)	$	6,131	$	3,371
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	20,541		1,782		2,534
Provision for losses	254		1,172		788
Change in fair value of warrant liabilities	(10,116)		5,504		66
Change in fair value of contract derivatives, net	(489)		662		(846)
Other expense (income)	60		(616)		414
Share-based payment arrangements	24,821		18		112
Deferred income tax expense (benefit)	(5,684)		—		—
Increase (decrease) in operating capital:
Increase in advances	(28,690)		(7,314)		(12,913)

Decrease (increase) in due from affiliates	1,481		(1,839)		—
Decrease (increase) in other assets	(16,444)		2,129		(544)
Increase (decrease) in accounts payable and accrued expenses	(12,617)		2,327		2,329
Increase (decrease) in funding commitments	(498)		3,100		(7,594)
Increase in due to affiliates	—		761		—
Increase (decrease) in other liabilities	(109)		539		(64)
Net cash provided by (used in) operating activities	(47,921)		14,356		(12,347)

Cash Flows From Investing Activities
Return of investments in loan pool participation and loan principal repayments	351		832		971

Payments to acquire loans and participations in loan pools	(254)		(1,170)		(2,128)
Payments to acquire property and equipment	(871)		(1,066)		(2,533)
Payments to acquire Sunlight Financial LLC, net of cash acquired	(304,570)		—		—

Net cash used in investing activities	(305,344)		(1,404)		(3,690)

Cash Flows From Financing Activities
Proceeds from borrowings under line of credit	—		20,746		8,713
Repayments of borrowings under line of credit	—		(14,758)		(5,899)

Proceeds from issuance of private placement	250,000		—		—

Payments of stock issuance costs	(19,618)