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SPI Energy Co., Ltd. - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

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 number: 0-30351

 

SPI ENERGY CO., LTD.

(Exact Name of Registrant as Specified in Its Charter)

 

Cayman Islands   20-4956638

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

4803 Urbani Ave., Mc Clellan Park, CA   95652
(Address of Principal Executive Offices)   (Zip Code)

 

(408) 919-8000

(Registrant's Telephone Number, Including Area Code)

 

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

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
Ordinary Shares, par value $0.0001 per share   SPI   NASDAQ Global Select Market

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 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 August 18, 2023, 30,856,406 ordinary shares, par value $0.0001 per share, were issued and outstanding.

 

 

   

 

 

TABLE OF CONTENTS

 

    Page
Part I. Financial Information 3
  Item 1. Interim Financial Statements 3
  Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 3
  Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 4
  Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022 5
  Unaudited Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2023 and 2022 6
  Unaudited Condensed Consolidated Statements of Cash Flows for the Six months Ended June 30, 2023 and 2022 7
  Notes to Unaudited Condensed Consolidated Financial Statements 8
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
  Item 4. Controls and Procedures 31
Part II. Other Information 33
  Item 1. Legal Proceedings 33
  Item 1A. Risk Factors 34
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
  Item 3. Defaults Upon Senior Securities 34
  Item 4. Mine Safety Disclosures 34
  Item 5. Other Information 34
  Item 6. Exhibits 34
Signatures 35

 

 

 

 

 

 

 

 

 

 2 

 

PART I

 

Item 1. Financial Statements

 

SPI ENERGY CO., LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

           
         
  

June 30,

2023

  

December 31,

2022

 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $4,516   $3,533 
Restricted cash   1,374    6,743 
Accounts receivable, net   24,553    22,691 
Contract asset   469    1,403 
Inventories   35,288    28,987 
Project assets held for sale   6,135    10,634 
Prepaid expenses and other current assets, net   9,395    7,633 
Amount due from related parties   407    332 
Total current assets   82,137    81,956 
Intangible assets, net   2,148    2,587 
Goodwill   4,896    4,896 
Restricted cash, noncurrent       711 
Other receivable, noncurrent   423    234 
Property and equipment, net   41,964    41,556 
Project assets, noncurrent   15,507    14,918 
Investment in an affiliate   69,606    69,606 
Net investment in leases   217     
Operating lease right-of-use assets   12,714    14,152 
Deferred tax assets, net   927    479 
Total assets  $230,539   $231,095 
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable  $38,091   $30,405 
Accrued liabilities   14,608    15,972 
Income taxes payable   3,777    3,511 
Advance from customers   7,905    8,634 
Deferred income   649    503 
Short-term borrowings and current portion of long-term borrowings   7,520    10,064 
Amount due to an affiliate   10,567    10,548 
Convertible bonds, current   45,250    42,676 
Derivative liability   4,289    3,406 
Accrued warranty reserve   849    754 
Operating lease liabilities, current   1,589    1,607 
Consideration payable   63,726    61,617 
Total current liabilities   198,820    189,697 
Long-term borrowings, excluding current portion   6,692    6,597 
Convertible bonds, noncurrent   1,170     
Deferred tax liabilities, net   2,596    2,673 
Operating lease liabilities, non-current   13,053    14,256 
Total liabilities   222,331    213,223 
Equity:          
Ordinary shares, par $0.0001, 500,000,000 shares authorized, 30,292,960 and 30,292,960 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively   3    3 
Additional paid in capital   720,718    719,697 
Accumulated other comprehensive loss   (35,534)   (36,697)
Accumulated deficit   (682,691)   (670,811)
Total equity attributable to the shareholders of SPI Energy Co., Ltd.   2,496    12,192 
Noncontrolling interests   5,712    5,680 
Total equity   8,208    17,872 
Total liabilities and equity  $230,539   $231,095 

 

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

 

 3 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)

 

                     
                 
   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2023   2022   2023   2022 
                 
Net revenues  $58,850   $48,584   $106,773   $87,119 
Cost of revenue   53,612    44,712    97,039    80,538 
Gross profit   5,238    3,872    9,734    6,581 
Operating expenses:                    
General and administrative   6,287    7,625    16,814    16,753 
Sales, marketing and customer service   1,186    1,368    2,386    2,611 
Provision (reversal) for credit losses   832    474    869    (209)
Total operating expenses   8,305    9,467    20,069    19,155 
Operating loss   (3,067)   (5,595)   (10,335)   (12,574)
                     
Other (expense) income:                    
Interest expense, net   (2,375)   (1,637)   (4,364)   (3,038)
Change in fair value of derivative liability   (361)       (589)    
Net foreign exchange (loss) gain   (245)   2,262    (1,088)   3,324 
Others   4,093    3,207    5,056    3,995 
Total other (expense) income, net   1,112    3,832    (985)   4,281 
Net loss before income taxes   (1,955)   (1,763)   (11,320)   (8,293)
Income tax expense   686    455    1,070    711 
Net loss  $(2,641)  $(2,218)  $(12,390)  $(9,004)
Less: Net (loss) income attributable to noncontrolling interests   (169)   95    (510)   154 
Net loss attributable to shareholders of SPI Energy Co., Ltd.  $(2,472)  $(2,313)  $(11,880)  $(9,158)
Net loss per ordinary share:                    
Basic and Diluted  $(0.08)  $(0.08)  $(0.39)  $(0.34)
Weighted average shares outstanding                    
Basic and Diluted   30,292,960    27,428,544    30,292,960    26,604,944 

 

 

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

 

 

 

 4 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

                 
   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2023   2022   2023   2022 
Net loss  $(2,641)  $(2,218)  $(12,390)  $(9,004)
Other comprehensive income (loss), net of tax of nil:                    
Foreign currency translation adjustments   (128)   (2,427)   478    (2,362)
Total comprehensive loss   (2,769)   (4,645)   (11,912)   (11,366)
Comprehensive income (loss) attributable to noncontrolling interests   (171)   69    (1,195)   (535)
Comprehensive loss attributable to shareholder of SPI Energy Co., Ltd.  $(2,598)  $(4,714)  $(10,717)  $(10,831)

 

 

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

 

 

 

 

 5 

 

 

SPIENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except for share and per share data)

 

                                 
   Ordinary Shares   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Equity Attributable to Shareholders of SPI Energy   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Co., Ltd.   Interests   Equity 
Balances at December 31, 2022   30,292,960   $3   $719,697   $(670,811)  $(36,697)  $12,192   $5,680   $17,872 
Net loss               (9,408)       (9,408)   (341)   (9,749)
Foreign currency translation adjustments                   1,289    1,289    (683)   606 
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix                           1,155    1,155 
Share-based compensation expense           617            617        617 
Balances at March 31, 2023   30,292,960   $3   $720,314   $(680,219)  $(35,408)  $4,690   $5,811   $10,501 
Net loss                  (2,472)        (2,472)   (169)   (2,641)
Foreign currency translation adjustments                      (126)   (126)   (2)   (128)
Issuance of common stock of Phoenix for standby equity purchase agreement of Phoenix   -                              72    72 
Share-based compensation expense             404              404         404 
Balances at June 30, 2023   30,292,960   $3   $720,718   $(682,691)  $(35,534)  $2,496   $5,712   $8,208 

 

 

   Ordinary Shares   Additional Paid-In   Accumulated   Accumulated Other Comprehensive   Equity Attributable to Shareholders of SPI Energy   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Co., Ltd.   Interests   Equity 
Balances at December 31, 2021   25,352,060   $3   $695,073   $(637,390)  $(35,257)  $22,429   $3,521   $25,950 
Net loss              $(6,845)      $(6,845)   59    (6,786)
Foreign currency translation adjustments                   728    728    (663)   65 
Issuance of restricted share units to employees   229,888        623            623        623 
Settlement of convertible debt with ordinary shares   752,393        1,750            1,750        1,750 
Issuance of ordinary shares for settlement of consideration related to Acquisition of Phoenix   42,442                             
Share-based compensation expense           595            595        595 
Balances at March 31, 2022   26,376,783   $3   $698,041   $(644,235)  $(34,529)  $19,280   $2,917   $22,197 
Net loss              $(2,313)      $(2,313)   95    (2,218)
Foreign currency translation adjustments                   (2,401)   (2,401)   (26)   (2,427)
Settlement of convertible debt with ordinary shares   1,615,784        5,337            5,337        5,337 
Issuance of ordinary shares of Phoenix in its IPO           11,344            11,344    2,094    13,438 
Share-based compensation expense           340            340        340 
Balances at June 30, 2022   27,992,567   $3   $715,062   $(646,548)  $(36,930)  $31,587   $5,080   $36,667 

 

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

  

 

 6 

 

 

SPI ENERGY CO., LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

         
  

For the Six Months

Ended June 30,

 
   2023   2022 
Cash flows from operating activities:          
Net cash used in operating activities  $(5,484)  $(11,539)
           
Cash flows from investing activities:          
Purchase of property and equipment   (1,994)   (2,022)
Proceeds from disposal of property and equipment       1,635 
Net cash used in investing activities   (1,994)   (387)
           
Cash flows from financing activities:          
Repayment of borrowings   (5,000)   (82,296)
Proceeds from borrowings   2,445    82,714 
Proceeds from issuance of convertible bond   1,464    2,000 
Proceeds from IPO of a subsidiary       13,438 
Proceeds received from standby equity purchase agreement of Phoenix   1,227     
Net cash provided by financing activities   136    15,856 
           
Effect of exchange rate changes on cash   2,245    (522)
           
Increase (decrease) in cash, cash equivalents and restricted cash   (5,097)   3,408 
Cash, cash equivalents and restricted cash at beginning of period   10,987    17,845 
Cash, cash equivalents and restricted cash at end of period  $5,890   $21,253 
           
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets          
Cash and cash equivalents   4,516    13,624 
Restricted cash   1,374    7,629 
Total cash, cash equivalents, and restricted cash  $5,890   $21,253 
           
Supplemental cash flow information:          
Interest paid  $2,295   $1,458 
Income tax paid  $1,347   $ 
Non-cash activities:          
Right of use assets obtained in exchange for operating lease obligations  $   $428 
Inventories transferred to PPE  $163   $ 
Settlement of convertible debt with ordinary shares  $   $7,087 
Derecognition of ROU assets and lease liabilities upon lease termination  $693   $ 
Derivative liabilities recorded as debt discount  $294   $ 

 

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

 

 

 

 

 7 

 

 

SPI ENERGY CO., LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in US$ thousands, except share and per share data)

 

 

 

1. Description of Business and Organization

 

Description of Business

 

SPI Energy Co., Ltd. (“SPI Energy” or the “Company”) and its subsidiaries (collectively the “Group”) is engaged in the provision of photovoltaic (“PV”), roofing and solar energy systems installation, and electric vehicle (“EV”) solutions for business, residential, government and utility customers and investors. The Group is also starting to assemble solar modules for sale in the United States in 2022.

  

Organization

 

The major subsidiaries of the Group as of June 30, 2023 are summarized as below:

       
Major Subsidiaries   Abbreviation   Location
SolarJuice Co., Ltd   SJ Cayman   Cayman
Solar Juice Pty Ltd.   SJ Australia   Australia
Solarjuice American Inc.   SJ US   United States
Sloar4america Technology Inc. (formerly named Solarjuice Technology Inc.)   SJT   United States
Italsolar S.r.l.   SPI Italy   Italy
SPI Solar Japan G.K.   SPI Japan   Japan
Solar Power Inc UK Service Limited   SPI UK   United Kingdom
SPI Solar Inc.   SPI US   United States
Heliostixio S.A.   Heliostixio   Greece
Heliohrisi S.A.   Heliohrisi   Greece
Thermi Sun S.A.   Thermi Sun   Greece
Knight Holding Corporation   Knight   United States
Edisonfuture Inc.   Edisonfuture   United States
Phoenix Motor Inc.   Phoenix   United States
Phoenix Motorcars Leasing LLC   PML   United States

 

On January 1, 2017, the Group deconsolidated one of the major subsidiaries, Sinsin Renewable Investment Limited (“Sinsin”) due to loss of control and recognized the investment in Sinsin at the carrying amount of $69,606. Both the Group and the former shareholders of Sinsin, Sinsin Europe Solar Asset Limited Partnership and Sinsin Solar Capital Limited Partnership (collectively, the “Sinsin Group”), failed to fulfill the obligation under the share sale and purchase agreement of Sinsin, which led to that both parties filed petitions to each other. The petitions directly affected the Group’s ability to effectively control Sinsin and make any direct management decisions or have any direct impact on Sinsin’s polices, operations or assets without the agreement of Sinsin Group. On October 29, 2020, an arbitration decision was made in Malta that the Group will need to pay the unpaid consideration of EUR 38,054, together with interest at 6% accruing from November 20, 2015 on half of the unpaid consideration and from June 30, 2016 on the remaining half of the unpaid consideration to the date of eventual payment. The Group filed an application for appeals but was turned down by the court of Malta on November 12, 2021. The Group furtherly filed an application of retrial and suspension of the enforcement of the awards but was rejected by the court of Malta on March 30, 2022. On November 2, 2022, Sinsin filed an action to confirm these arbitral awards pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (“New York Convention”) as implemented by the Federal Arbitration Act (“FAA”) before U.S. District Court Eastern District of California. On April 27, 2023, Sinsin filed amended petition to add a request for an award of attorneys’ fees incurred in connection with the petition, add detail on the allegedly owed costs and liabilities, and request that the court issue an injunction against asset dissipation pending satisfaction of the requested judgment. The Group has filed opposition to amended petition and motion to confirm arbitral award on May 11, 2023, and currently the case is still under court review. (Note 8(b)).  As of June 30, 2023 and December 31, 2022, investment in Sinsin was $69,606, and there was no impairment for the six months ended June 30, 2023 and 2022. Consideration payable, including accrued interest and litigation fees payable, was $63,726 and $61,617 as of June 30, 2023 and December 31, 2022, respectively. The interest expense accrued on the unpaid consideration was $1,234 and $1,249 for the six months ended June 30, 2023 and 2022, respectively.

 

 

 8 

 

 

On June 10, 2022, Phoenix completed its initial public offering (“IPO”) and Phoenix’s shares have been listed on NASDAQ under the stock code “PEV” (“Phoenix IPO”). Phoenix issued 2,100,000 ordinary shares at $7.5 per share. Net proceeds from the Phoenix IPO after deducting underwriting commissions, share issuance costs and offering expenses approximately amounted to $13,438.

 

 

2. Going concern

 

The Group’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of the business. The Group had recurring losses from operations. The Group has incurred a net loss of $12,390 during the six months ended June 30, 2023, and the cash flow used in operating activities was $5,484. As of June 30, 2023, there is net working capital deficit of $116,683 and accumulated deficit of $682,691. These factors raise substantial doubt as to the Group’s ability to continue as a going concern. The Group intends to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level and other measures including: 1) negotiate with potential buyers on PV solar projects; 2) negotiate for postponing of convertible bond payments; 3) improve the profitability of the business in US; 4) strictly control and reduce business, marketing and advertising expenses; 5) obtain equity financing from certain subsidiaries’ initial public offerings; and 6) seek for certain credit facilities. There is no assurance that the group will be successful in meeting its liquidity and cash flow requirements. The Group’s condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

  

3. Summary of Significant Accounting Policies

 

  (a) Basis of Presentation

 

The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.

 

In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Quarterly results are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

 

  (b) Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Group’s unaudited condensed consolidated financial statements include the allowance for doubtful accounts receivable and other receivable, the impairment of goodwill and long-lived assets, fair value of derivative liability and share based compensation. Changes in facts and circumstances may result in revised estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

 

 

 

 9 

 

 

  (c) Revenue Recognition

 

The Group’s accounting practices under Accounting Standards Codification (“ASC”) No. 606 are as followings:

 

The Group generates revenue from sales of PV components, sales of self-assembled solar modules, roofing and solar energy systems installation, electricity revenue with Power Purchase Agreements (“PPAs”), sales of PV project assets, sales and leasing of EV, and others for the six months ended June 30, 2023 and 2022.

 

Sale of PV components

 

Revenue on sale of PV components includes one performance obligation of delivering the products and the revenue is recognized at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or acceptance of the customer depending on the terms of the underlying contracts.

 

Sales of self-assembled solar modules

 

Revenue on sale of self-assembled solar modules includes one performance obligation of delivering the products and the revenue is recognized at a point in time following the transfer of control of such products to the customer, which typically occurs upon the delivery to the customer.

 

Revenue from roofing and solar energy systems installation

 

Revenue from roofing and solar energy system installation is recognized over time.

 

For revenue from solar energy system installation, the Group’s only performance obligation is to design and install a customized solar energy system, sometimes, reinstall the customer’s existing solar energy system. For revenue from roofing the Group’s only performance obligation is to design and build roof system per customer specifications.

  

The Group’s roofing projects involve the construction of a specific roof systems in accordance with each customer’s selection; the Group’s solar energy system installations involve solar modules being retrofitted to existing consumer roofs using rails, then connected to the utility using an inverter system. For both solar energy system installation and roofing, typically jobs are completed within three months, the specific timing depends on the size of the job and the complexity of the job site, and the contract price includes all material and labor needed, and payments are collected based on specific milestones.

  

The Group provides solar energy systems and roofing installation for various customers, such as homeowners and real estate developers, but the design and installation for each customer differs substantially on the basis of each customer’s needs and the type of shingle or roof that is placed with the solar energy system. The asset consequently has no alternative use to the Group because the customer specific design limits the Group’s practical ability to readily direct the solar energy system to another customer. As such the Group’s performance does not create an asset with an alternative use to the Group. Pursuant to the contract, the customers agree to pay for any costs, expenses and losses incurred by the Group upon termination, and therefore, revenue is recognized over time according to ASC 606-10-25-27(c).

  

For both solar energy system installation and roofing, all costs to obtain and fulfill contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

 

 

 

 

 10 

 

 

The Group recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract, to determine the Group’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. The total estimated cost of the contract constitutes of material cost and labor cost, and are developed based on the size and specific situation of different jobs. Changes in estimates are mainly due to: (i) unforeseen field conditions that impacts the estimated workload, and (ii) change of the unit price of material or labor cost.

 

If the estimated total costs on any contract are greater than the net contract revenues, the Group recognizes the entire estimated loss in the period the loss becomes known.

 

Electricity revenue with PPAs

 

The Group sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, the Group recognizes revenue each period based on the volume of energy delivered to the customer (i.e., the PPAs off-taker) and the price stated in the PPAs. The Group has determined that none of the PPAs contains a lease since (i) the purchaser does not have the rights to operate the PV solar power systems, (ii) the purchaser does not have the rights to control physical access to the PV solar power systems, and (iii) the price that the purchaser pays is at a fixed price per unit of output.

 

Sale of PV project asset

 

The Group’s sales arrangements for PV projects do not contain any forms of continuing involvement that may affect the revenue or profit recognition of the transactions, nor any variable considerations for energy performance guarantees, minimum electricity end subscription commitments. The Group therefore determined its single performance obligation to the customer is the sale of a completed solar project. The Group recognizes revenue for sales of solar projects at a point in time after the solar project has been grid connected and the customer obtains control of the solar project.

 

Revenue from sales and leasing of EV

 

The Group recognizes revenue from sales of EV at a point in time following the transfer of control of such products to the customer, which typically occurs upon the delivery to the customer for EV sales. The Group determined that the government grants related to sales of EV should be considered as part of the transaction price because it is granted to the EV buyer and the buyer remains liable for such amount in the event the grants were not received by the Group or returned due to the buyer violates the government grant terms and conditions.

 

EV leasing revenue includes revenue recognized under lease accounting guidance for direct leasing programs. The Group accounts for these leasing transactions as sales-type or operating leases under ASC 842 Leases, and selling profits are recognized at the commencement date and interest income from the lease is recognized over the lease term for sales-type leases, while revenues are recognized on a straight-line basis over the contractual term for operating leases. 

 

Other revenue

 

Other revenue mainly consists of sales of self-assembled solar modules, sales of component and charging stations, sales of forklifts, engineering and maintenance service, shipping and delivery service, sales of pre-development solar projects and others. Other revenues are recognized at a point in time following the transfer of control of such service or products to the customer, which typically occurs upon shipment of product or acceptance of the customer depending on the terms of the underlying contracts.

 

 

 

 

 11 

 

 

Disaggregation of revenues

 

The following table illustrates the disaggregation of revenue by revenue stream and by geographical location for the three and six months ended June 30, 2023 and 2022:

                            
By revenue stream  For the six months ended June 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $74,027   $   $   $   $   $610   $74,637 
United States       18,739    1,425    147    2,083    7,599    29,993 
Japan                       42    42 
Italy               307            307 
United Kingdom               644            644 
Greece               1,150            1,150 
Total  $74,027   $18,739   $1,425   $2,248   $2,083   $8,251   $106,773 

 

                             
By revenue stream  For the three months ended June 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $39,030   $   $   $   $   $326   $39,356 
United States       9,719    546    107    842    7,039    18,253 
Japan                       24    24 
Italy               150            150 
United Kingdom               400            400 
Greece               667            667 
Total  $39,030   $9,719   $546   $1,324   $842   $7,389   $58,850 

 

 

 

 

 

 12 

 

 

                         
By revenue stream  For the six months ended June 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $59,554   $   $   $   $442   $59,996 
Italy           468            468 
United States   1,303    20,153        1,063    1,853    24,372 
United Kingdom           932            932 
Greece           1,351            1,351 
Total  $60,857   $20,153   $2,751   $1,063   $2,295   $87,119 

 

                         
By revenue stream  For the three months ended June 30, 2022 (Unaudited) 
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Australia  $31,530   $   $   $   $300   $31,830 
Italy           212            212 
United States   1,303    11,364        538    1,712    14,917 
United Kingdom           781            781 
Greece           844            844 
Total  $32,833   $11,364   $1,837   $538   $2,012   $48,584 

 

                            
By timing of revenue recognition  For the six months ended June 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Goods transferred at a point in time  $74,027   $18,739   $   $2,248   $1,868   $8,251   $105,133 
Service transferred over time           1,425                1,425 
On a straight-line basis under ASC 842                   215        215 
Total  $74,027   $18,739   $1,425   $2,248   $2,083   $8,251   $106,773 


 

 

 

 13 

 

 

                             
By timing of revenue recognition  For the three months ended June 30, 2023 (Unaudited) 
   Sales of PV components   Sales of self-assembled solar modules   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Goods transferred at a point in time  $39,030   $9,719   $   $1,324   $717   $7,389   $58,179 
Service transferred over time           546                546 
On a straight-line basis under ASC 842                   125        125 
Total  $39,030   $9,719   $546   $1,324   $842   $7,389   $58,850 

 

                         

By timing of revenue recognition

  For the three months ended June 30, 2022 (Unaudited)
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Goods transferred at a point in time  $60,857   $   $2,751   $788   $2,295   $66,691 
Service transferred over
time
       20,153                20,153 
On a straight-line basis under ASC 842               275        275 
Total  $60,857   $20,153   $2,751   $1,063   $2,295   $87,119 

 

                         

By timing of revenue recognition

  For the three months ended June 30, 2022 (Unaudited)
   Sales of PV components   Revenue from roofing and solar systems installation   Electricity revenue with PPAs   Automotive sales & leasing   Others   Total 
Goods transferred at a point in time  $32,833   $   $1,837   $401   $2,012   $37,083 
Service transferred over
time
       11,364                11,364 
On a straight-line basis under ASC 842               137        137 
Total  $32,833   $11,364   $1,837   $538   $2,012   $48,584 

 

 

 

 14 

 

 

Contract balance

 

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers: 

         
  

June 30,

2023

(Unaudited)

  

December 31,

2022

 
Accounts Receivable  $24,553   $22,691 
Contract assets   469    1,403 
Advance from customers   7,905    8,634 

 

The contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date, primarily for the revenue from roofing and solar energy systems installation in the United States. The contract assets are transferred to receivables when the rights become unconditional after billing is issued.

 

Advance from customers, which represent a contract liability, represent mostly unrecognized amount received for customers. Advance from customers is recognized as (or when) the Group performs under the contract. During the six months ended June 30, 2023 and 2022, the Group recognized $8,634 and $4,924 as revenue that was included in the balance of advance from customers at January 1, 2023 and 2022, respectively.

 

(d) Leases

 

Lessor Accounting

 

During the six months ended June 30, 2023, the Group amended agreements with the customers related to the leased EVs to renew the lease term. Since there was no grant of additional right-of-use assets, the Group did not account for the modified lease agreements as new leases but accounted for the original lease and the modified lease agreements as a combined lease. The Group reviewed the combined lease agreements and considered that (i) the lease term represents for the major part (greater than 75%) of the economic life of the underlying equipment; and (ii) the present value of the sum of lease payments and any residual value guaranteed by the lessee that has not already been included in lease payments equals or exceeds substantially (greater than 90%) all of the fair value of the underlying asset.

 

The modified EV lease agreements are thus accounted for as sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease, and interest income from the lease is recognized over the lease term.

 

 

 

 

 

 15 

 

 

The net investment in leases was $295 as of June 30, 2023. During the six months ended June 30, 2023, gain on sales-type leases was $99.

 

Annual minimum undiscounted lease payments under the Group’s sales-type leases were as follows as of June 30, 2023: 

    
   Sales-type 
In Thousands   (Unaudited) 
Years Ending December 31,     
Remainder of 2023  $74 
2024   43 
2025   43 
2026   11 
2027    
2028 and thereafter    
Total lease receipt payments   171 
Less: Imputed interest   (14)
Total lease receivables (1)   157 
Unguaranteed residual assets   138 
Net investment in leases  $295 
Net investment in leases - Current  $78 
Net investment in leases - Non-current  $217 

________________________________________

(1) Current portion of $78 of total lease receivables was included in prepaid and other current assets on the balance sheet.

 

 

  (e) Recent Accounting Pronouncements

 

Recently adopted accounting pronouncements

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers (“ASC 606”). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. ASU 2021-08 is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Group adopted ASU 2021-08 effective January 1, 2023 and apply the guidance to subsequent acquisitions. The adoption of ASU 2021-08 will only impact the accounting for the Group’s future acquisitions.

 

 

 

 

 16 

 

 

Accounting Pronouncements Issued But Not Yet Adopted

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments were effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. The amendments in this ASU are effective in the same timeframe as ASU 2020-04. In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848, Reference Rate Reform to December 31, 2024. The Group is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

The Group does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the unaudited condensed consolidated balance sheets, statements of operations and cash flows.

  

  

4. Accounts Receivable, Net

  

The accounts receivable, net as of June 30, 2023 and December 31, 2022 consisted of the following: 

          
   June 30,     
  

2023

(Unaudited)

  

December 31,
2022

 
Accounts receivable   27,172    24,441 
Less: Allowance for credit losses   (2,619)   (1,750)
Accounts receivable, net   24,553    22,691 

 

For the six months ended June 30, 2023, the Group recorded credit losses with amount of $869. For the six months ended June 30, 2022, the Group reversed bad debt provision of $209.

 

 

5. Inventories

 

Inventories as of June 30, 2023 and December 31, 2022 consisted of the following: 

          
   June 30,     
  

2023

(Unaudited)

  

December 31,
2022

 
Finished goods   28,405    22,074 
Goods in transit   721    737 
Work in process   80    1,529 
Raw materials   6,082    4,647 
Total inventories   35,288    28,987 

 

For the six months ended June 30, 2023 and 2022, the Group recorded $1,075 and nil write-downs for inventories, respectively, to reflect the lower of cost or net realizable value.

 

 

 

 17 

 

 

 

6. Share-based Compensation

 

The following table summarizes the consolidated share-based compensation expense, by type of awards: 

               
   For the three months Ended  For the six months Ended 
   June 30,   June 30,  June 30,   June 30, 
   2023   2022  2023   2022 
Employee stock options  $404   $340  $1,021   $935 
Restricted share grants              623 
Total share-based compensation expense   404    340   1,021    1,558 

 

The following table summarizes the consolidated share-based compensation by line items: 

                   
   For the three months Ended  For the six months Ended 
   June 30,   June 30,  June 30,   June 30, 
   2023   2022  2023   2022 
General and administrative  $398   $343  $1,010   $1,554 
Sales, marketing and customer service   6    (3)  11    4 
Total share-based compensation expense, net of nil income taxes  $404   $340  $1,021   $1,558 

 

 

7. Net Loss Per Share

 

As a result of the net loss for the three and six months ended June 30, 2023 and 2022, there is no dilutive impact to the net loss per share calculation for the period. 

 

For the three and six months ended June 30, 2023 and 2022, the following securities were excluded from the computation of diluted net loss per share as inclusion would have been anti-dilutive. 

                   
  

For the three months Ended

(Unaudited)

 

For the six months Ended

(Unaudited)

 
   June 30,   June 30,  June 30,   June 30, 
   2023   2022  2023   2022 
Share options and non-vested restricted stock   5,000    10,000   5,000    10,000 
Convertible bonds   559,905    582,000   546,355    582,000 
Total   564,905    592,000   551,355    592,000 

 

 

 

 

 18 

 

 

 

8. Commitments and Contingencies

 

  (a) Commitments

 

As of June 30, 2023, the Group had other commitments of approximately $1,596 These commitments were solely related to contracts signed with vendors for research and development by the Group and are expected to be paid in one year.

 

  (b) Contingencies

 

On January 26, 2018, Sinsin Group filed a complaint against the Group requesting the payment of outstanding purchase price and related interest of $43,595 (EUR 38,054). On June 25, 2018, an interim measures judgment was made which appointed an interim management of Sinsin, consisting of two members elected by Sinsin Group and one member elected by the Group. The interim management would manage the bank accounts of Sinsin and collect the proceeds of electric energy revenue. On October 29, 2020, an arbitration decision was made that the Group will need to pay the outstanding purchase price of $43,595 (EUR 38,054), together with interest at 6% accruing from November 20, 2015 on half of the outstanding purchase and from September 30, 2016 on the remaining half of the outstanding purchase price to the date of eventual payment. The Group filed an application for appeals in the court of Malta but was turned down by the court in November 2021. The Group furtherly filed an application of retrial and suspension of the enforcement of the awards. The application of retrial was rejected by the court on March 30, 2022. On November 2, 2022, Sinsin filed an action to confirm these arbitral awards pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (“New York Convention”) as implemented by the Federal Arbitration Act (“FAA”) before U.S. District Court Eastern District of California. On April 27, 2023, Sinsin filed amended petition to add a request for an award of attorneys’ fees incurred in connection with the petition, add detail on the allegedly owed costs and liabilities, and request that the court issue an injunction against asset dissipation pending satisfaction of the requested judgment. The Group has filed opposition to amended petition and motion to confirm arbitral award on May 11, 2023, and currently the case is still under court review.

 

On February 16, 2023, Streeterville delivered a Redemption Notice to the Group to redeem $350 of the 2022 Note with a deadline to pay the Redemption Amount by February 22, 2023. The Group failed to pay the Redemption Amount on time and such failure to pay is an Event of Default under the 2022 Note. Due to this Event of Default, (i) the base interest of the 2022 Note was increased to 15% per annum; (ii) the outstanding balance of the 2022 Note was increased by 15%; and (iii) the entire outstanding balance of the 2022 Note was accelerated and due on March 3, 2023. The Group failed to pay the outstanding balance of the 2022 Note by March 3, 2023 and as a result, Streeterville filed a complaint in the third judicial district court of Salt Lake County, requesting for actual damages in an amount not less than $2,676, plus applicable interest, damages, charges, fees, attorney fees, and collection costs. On March 31, 2023, a hearing was held and the temporary restraining order requiring the Group to pay the 2022 Note in full from the proceeds of the IPO of its subsidiary, SolarJuice Co., Ltd. On June 26, 2023, Streeterville and the Group entered into a term sheet to mediate the dispute. The Group agreed to pay Streeterville $375 in cash and $400 in stock by July 5, 2023. After that, the Group agreed to pay Streeterville $425 each month starting from July 31, 2023. Among the monthly installment payments, at least $225 shall be paid in cash.

 

From time to time, the Group is involved in various other legal and regulatory proceedings arising in the normal course of business. While the Group cannot predict the occurrence or outcome of these proceedings with certainty, it does not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to the Group’s consolidated financial condition or cash flows; however, an unfavorable outcome could have a material adverse effect on the Group’s results of operations. 

  

 

 

 

 19 

 

 

9. Concentration Risk

 

(a) Customers

 

A substantial percentage of the Group’s net revenue comes from sales made to a large number of customers at a small transaction amount, to whom sales are typically made on an open account basis.

 

There was no customer of which the revenue accounted for 10% or more of total net revenue for the three months and six months ended June 30, 2023 and 2022.

 

As of June 30, 2023, there was no customer of which the accounts receivable accounted for 10% or more of total accounts receivable. As of December 31, 2022, there was one customer of which the accounts receivable accounted for 18% of total accounts receivable.

 

(b) Suppliers

 

As of June 30, 2023, there were two suppliers of which the accounts payable accounted for 21% and 15% of total accounts payable, respectively. As of December 31, 2022, there were two suppliers of which the accounts payable accounted for 14% and 11% of total accounts payable, respectively.

 

 

10. Related Party Transactions

 

The amount due from related parties were $407 and $332 as of June 30, 2023 and December 31, 2022, respectively, represented expenses paid by the Group on behalf of a related entity for business operations.

 

    

11. Segment information

 

For the three months and six months ended June 30, 2023 and 2022, there are three operating segments: (1) EV business, (2) renewable energy solutions business and (3) solar projects development business. The Group’s CODM assess the performance of each segment based on revenue, cost of revenue and total assets. Other than the information provided below, the CODM does not use any other measures by segments.

 

Summarized information by segments for the three months and six months ended June 30, 2023 and 2022 is as follows: 

                         
   For the three months ended June 30, 2023 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   49,295    8,067    842    646    58,850 
Cost of revenue   45,416    6,154    738    1,304    53,612 
Gross profit (loss)   3,879    1,913    104    (658)   5,238 

 

 

 

 

 

 

 

 20 

 

 

   For the three months ended June 30, 2022 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   44,498    2,479    1,490    117    48,584 
Cost of revenue   43,137    573    1,174    (172)   44,712 
Gross profit (loss)   1,361    1,906    316    289    3,872 

   

   For the six months ended June 30, 2023 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   94,191    8,991    2,083    1,508    106,773 
Cost of revenue   85,990    6,770    1,797    2,482    97,039 
Gross profit (loss)   8,201    2,221    286    (974)   9,734 

 

   For the six months ended June 30, 2022 (Unaudited) 
   Renewable energy solutions   PV stations constructions and operations   Electric vehicles   Others   Total 
   USD   USD   USD   USD   USD 
Revenues from external customers   81,453    3,388    2,161    117    87,119 
Cost of revenue   77,625    1,000    1,725    188    80,538 
Gross profit (loss)   3,828    2,388    436    (71)   6,581 

 

Summarized information by segments as of June 30, 2023 and December 31, 2022 is as follows: 

          
  

As of

June 30, 2023

(Unaudited)

  

As of

December 31, 2022

 
   USD   USD 
Segment assets          
Renewable energy solutions   80,696    71,260 
Solar projects development   123,129    133,663 
Electric vehicles   17,922    20,275 
Others   8,792    5,897 
Total segment assets   230,539    231,095 

 

 

 

 

 21 

 

 

Total long-lived assets excluding financial instruments, intangible assets, long-term investment and goodwill by country were as follows: 

          
  

As of

June 30, 2023

Unaudited

  

As of

December 31, 2022

 
   USD   USD 
Australia   325    398 
United States   45,818    46,307 
Japan   532    586 
Italy   1,461    1,508 
United Kingdom   8,243    7,945 
Greece   13,806    13,882 
Total long-lived assets   70,185    70,626 

 

 

12. Subsequent Events

 

The Group has evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements, there were no subsequent events occurred that would require recognition or disclosure in the consolidated financial statements. 

 

 

 

 

 

 

 22 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Readers are cautioned not to place undue reliance on these forward-looking statements.

 

Overview

 

We are a global provider of photovoltaic (PV) and electric vehicle (EV) solutions for business, residential, government and utility customers and investors. We develop solar PV projects which are either sold to third party operators or owned and operated by us for selling of electricity to the grid in multiple countries in Asia, North America and Europe. In Australia, we primarily sell solar PV components to retail customers and solar project developers. We started to engage in sales and leasing of new zero-emission EVs in U.S. from 2020 and engage in roofing and solar energy systems installation in U.S. from 2021 and commenced pilot production of “Made-in-America” solar modules in US in the second quarter of 2022.

 

Our liquidity position has deteriorated since 2015. We suffered a net loss of $12.4 million during the six months ended June 30, 2023, and the cash flow used in operating activities was $5.5 million. For a detailed discussion, please see “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

 

On June 10, 2022, our wholly owned subsidiary, Phoenix Motor Inc., a Delaware corporation, closed its initial public offering of 2,100,000 shares of common stock at a public offering price of $7.50 per share, for aggregate gross proceeds of $15.75 million before deducting underwriting discounts and commissions and offering expenses. The offering closed on June 10, 2022 and the common stock of Phoenix Motor Inc. began trading on June 8, 2022 on The Nasdaq Capital Market under the ticker symbol “PEV.”

 

Basis of presentation, management estimates and critical accounting policies

 

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our unaudited condensed consolidated financial statements, readers should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial statements in our 2022 Form 10-K.

 

 

 

 

 

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Principal Factors Affecting Our Results of Operations

 

We believe that the following factors have had, and we expect that they will continue to have, a significant effect on the development of our business, financial condition and results of operations.

 

Market Demand

 

Our revenue and profitability depend substantially on the demand for our PV solutions, which is driven by the economics of PV systems, including the availability and size of government subsidies and other incentives, government support, cost improvements in solar power, as well as environmental concerns and energy demand. The world PV market in terms of new annual installations is expected to grow significantly in the next five years, providing engineering procurement construction (“EPC”) service providers and solar project developers like us with significant opportunities to grow our business.

  

In the long term, as PV technology advances and the average system costs of solar projects decrease, we expect the market for electricity in a growing number of countries to achieve grid parity. As the PV industry becomes more competitive against other energy industries and widespread grid parity strengthens demand for solar projects, we expect our costs of sales to decrease and our revenue and profitability to increase.

 

In addition, the medium-duty EV market is expected to grow significantly over the next decade and there are many key factors are shaping the industry for accelerated growth over the next few years. Key factors driving this growth include government regulations requiring fleets to go electric, incentives and grant funding supporting commercial zero emission vehicle deployments, infrastructure deployments and corporate electrification mandates. Many large fleets who operate large truck and bus fleets have committed to go 100% electric over the next few years. This includes large delivery truck fleets like Amazon, FedEx, UPS, DHL, IKEA; also shuttle bus operators like transit agencies in Los Angeles, Orange County, and New York; and large corporate fleet owners like Genentech, Microsoft and Salesforce. All of the above factors, together with key technology catalysts, are expected to spur demand for medium-duty electric vehicles significantly over the next few years. Key technology drivers include reduction in battery costs and costs of other key components, making electric vehicles cheaper, and advances in EV drivetrain technology, including motor improvements that enable better performance and higher efficiencies; and refinements in high-voltage battery technology. The anticipated sales growth in this segment of the EV market is attributed both to new companies that started as electric vehicle manufacturers, as well as and conventional OEMs who are expected to start offering complete EV over the next few years.

 

As PV and energy storage technology advances and the average system costs decrease, in many cases the residential or small business owners of solar systems have effectively achieved grid parity for their systems. Aided by smart meter and virtual power plant technologies such systems can be an attractive alternative to electricity grid in many localities. We expect traditionally strong residential solar markets such as California and Australia to continue to grow . We anticipate capturing scale economies as the overall solar power market grows, and expect our costs of sales to decrease and our revenue and profitability to increase.

 

Government Subsidies and Incentive Policies

 

We believe that the growth of the solar power industry in the short term will continue to depend largely on the availability and effectiveness of government incentives for solar power products and the competitiveness of solar power in relation to conventional and other renewable energy resources in terms of cost. Countries in Europe, notably Italy, Germany, France, Belgium and Spain, certain countries in Asia, including Japan, India and South Korea, as well as Australia and the United States have adopted favorable renewable energy policies. Examples of government sponsored financial incentives to promote solar power include capital cost rebates, tax credits, net metering and other incentives to end users, distributors, project developers, system integrators and manufacturers of solar power products.

 

 

 

 

 24 

 

 

Governments may reduce or eliminate existing incentive programs for political, financial or other reasons, which will be difficult for us to predict. Electric utility companies or generators of electricity from fossil fuels or other renewable energy sources could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. Government economic incentives could be reduced or eliminated altogether.

 

With growing emphasis on improving air quality around our communities, large states like California are mandating key end user segments to switch to zero emission transportation options. Some of the key regulations driving growth in our addressable market include:

 

  · requiring all transit buses in California to be zero emissions by 2040;
  · requiring all airport shuttles in California to be all electric by 2035,
  · requiring at least 50% of all medium-duty trucks sold in California to electric by 2030,
  · requiring specific end user segments like drayage and yard trucks to go electric.

  

Other states like New York, New Jersey and Massachusetts are also expected to bring in regulatory requirements for key end user segments like, transit agencies and school buses to switch to all electric transportation options. Fifteen other states including Connecticut, Colorado, Hawaii, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington have committed to follow California’s Advanced Clean Trucks Regulation. Primarily driven by the urgent need to meet carbon and greenhouse gas emission reduction targets, various state and federal agencies are also supporting the switch to zero emission transportation, providing a host of funding and incentive support to develop, demonstrate and deploy zero emission transportation solutions. Some of the key funding / incentives driving adoption of electric medium duty vehicles include:

 

  · the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project, which offers a minimum of $60,000 per vehicle as incentive for Class 4 electric vehicles registered and operating in the state;
  · the New York Truck Voucher Incentive Program offering up to $100,000 per Class 4 electric vehicle;
  · funding from federal agencies like the Federal Transit Administration, covering up to 80% of the cost of procuring electric transit buses and various funding options covering up to 100% of the cost of procuring all electric school buses across key states.
  · Federal and various state agencies have established incentives for setting up both public and private charging infrastructure. Notably, the California Energy Commission and the California Public Utilities Commission have approved funding up to 100% of the cost of setting up chargers and related infrastructure. Large utilities like Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric have ‘Charge Ready’ programs that cover the entire cost of setting up charging infrastructure. Other states like New York, Chicago, North Carolina, Tennessee, Texas and Ohio have also introduced programs to support fleets with their charging infrastructure requirements.

 

Our Solar Power Generation and Operations Capabilities

 

Our financial condition and results of operations depend on our ability to successfully continue to develop new solar projects and operate our existing solar projects. We expect to build and manage a greater number of solar projects, which we expect to present additional challenges to our internal processes, external construction management, working capital management and financing capabilities. Our financial condition, results of operations and future success depend, to a significant extent, on our ability to continue to identify suitable sites, expand our pipeline of projects with attractive returns, obtain required regulatory approvals, arrange necessary financing, manage the construction of our solar projects on time and within budget, and successfully operate solar projects.

 

 

 

 

 

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Results of Operations for the Three Months Ended June 30, 2023 and 2022

 

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations (in thousands) and each item expressed as a percentage of our total net sales. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

   For the Three Months Ended June 30, 
In thousand US$ 

2023

(Unaudited)

  

 2022

(Unaudited)

 
Net revenues  $58,850    100.0%   $48,584    100.0% 
Cost of revenues   53,612    91.1%    44,712    92.0% 
Gross profit   5,238    8.9%    3,872    8.0% 
Operating expenses:                    
General and administrative   6,287    10.7%    7,625    15.7% 
Sales, marketing and customer service   1,186    2.0%    1,368    2.8% 
Provision for credit losses   832    1.4%    474    1.0% 
Total operating expenses   8,305    14.1%    9,467    19.5% 
Operating loss   (3,067)   -5.2%    (5,595)   -11.5% 
Other (expense) income:                    
Interest expenses, net   (2,375)   -4.0%    (1,637)   -3.4% 
Change in fair value of derivative liability   (361)   -0.6%         
Net foreign exchange (loss) gain   (245)   -0.4%    2,262    4.7% 
Gain on sales-type leases                
Others   4,093    7.0%    3,207    6.6% 
Total other income, net   1,112    1.9%    3,832    7.9% 
Net loss before income taxes   (1,955)   -3.3%    (1,763)   -3.6% 
Income taxes expense   686    1.2%    455    0.9% 
Net loss  $(2,641)   -4.5%   $(2,218)   -4.6% 

 

Net revenues — Net revenues were $58.9 million and $48.6 million for the three months ended June 30, 2023 and 2022, respectively, representing an increase of $10.3 million or 21.1%. The increase in net sales for the three months ended June 30, 2023 over the comparative period was primarily due to the increase of revenue from sales of PV components of $6.2 million and $9.7 million from sales of solar modules, and was partially net off by the decrease of revenue from roofing and solar energy systems installation of $10.8 million. The increase was also due to the one-time sale of pre-developed PV projects of Oregon for $6.7 million

 

Cost of revenues — Cost of revenues was $53.6 million (91.1% of net revenue) and $44.7 million (92.0% of net revenue) for the three months ended June 30, 2023 and 2022, respectively, representing an increase of $8.9 million or 19.9%. The increase in cost of goods sold was consistent with the increase of net revenues.

 

Gross profit — Our gross profit increased to $5.2 million in the three months ended June 30, 2023 from $3.9 million in the three months ended June 30, 2022. Gross margins were 8.9% and 8.0% for the three months ended June 30, 2023 and 2022, respectively. The increase in gross margin was primarily due to the increase in gross margin of sales of solar modules and the decrease of total revenue from the low gross margin roofing and solar energy system installation and its percentage in the total revenue.

 

General and administrative expenses — General and administrative expenses were $6.3 million (10.7% of net revenue) and $7.6 million (15.7% of net revenue) for the three months ended June 30, 2023 and 2022, respectively, representing an decrease of $1.3 million, or 17.5%. The decrease of general and administrative expenses was mainly due to the decrease in salaries and wages as well as stock-based compensation expenses due to employee resignations.

 

 

 

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Sales, marketing and customer service expenses — Sales, marketing and customer service expenses were $1.2 million (2.0% of net revenue) and $1.4 million (2.8% of net revenue) for the three months ended June 30, 2023 and 2022, respectively. The sales, marketing and customer service expenses kept relatively stable in the two periods.

 

Provision for credit losses — In the three months ended June 30, 2023 and 2022, we accrued credit loss provision of $0.8 million and $0.5 million, respectively, which are mainly due to additional provision made for the accounts receivable from the business of roofing and solar system installation business in the U.S.

 

Interest expense, net — Interest expense, net was $2.4 million (4.0% of net sales) and $1.6 million (3.4% of net sales) for the three months ended June 30, 2023 and 2022, respectively. The increase in interest expense was primarily due to penalty interest accrued from convertible bonds as well as debt discount amortization.

  

Net foreign exchange loss (gain) — We had a net foreign exchange loss of $0.2 million (0.4% of net revenue) and a net foreign exchange gain of $2.3 million (4.7% of net revenue) for the three months ended June 30, 2023 and 2022, respectively. The variance is mainly due the fluctuation of exchange rate for EUR/USD and AUD/USD.

 

Income tax expense — We had a provision for income taxes of $0.7 million (1.2% of net revenue) and $0.5 million (0.9% of net revenue) for the three months ended June 30, 2023 and 2022, respectively. The income tax expense kept stable as there was no significant change in profit before tax of our subsidiary in Australia.

 

Net loss — For the foregoing reasons, we incurred a net loss of $2.6 million (4.5% of net revenue), for the three months ended June 30, 2023, representing an increase of net loss of $0.4 million compared to a net loss of $2.2 million (4.6% of net revenue) for the three months ended June 30, 2022.

 

Results of Operations for the Six Months Ended June 30, 2023 and 2022

 

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations (in thousands) and each item expressed as a percentage of our total net sales. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

 

    For the Six Months Ended June 30,  
In thousand US$  

2023

(Unaudited)

   

 2022

(Unaudited)

 
Net revenues   $106,773     100.0%     $87,119     100.0%  
Cost of revenues     97,039       90.9%       80,538       92.4%  
Gross profit     9,734       9.1%       6,581       7.6%  
Operating expenses:                                
General and administrative     16,814       15.7%       16,753       19.2%  
Sales, marketing and customer service     2,386       2.2%       2,611       3.0%  
Provision (reversal) for credit losses     869       0.8%       (209 )     -0.2%  
Total operating expenses     20,069       18.8%       19,155       22.0%  
Operating loss     (10,335 )     -9.7%       (12,574 )     -14.4%  
Other (expense) income:                                
Interest expenses, net     (4,364 )     -4.1%       (3,038 )     -3.5%  
Change in fair value of derivative liability     (589 )     -0.6%              
Net foreign exchange (loss) gain     (1,088 )     -1.0%       3,324       3.8%  
Gain on sales-type leases     99       0.1%              
Others     4,957       4.6%       3,995       4.6%  
Total other (expenses) income, net     (985 )     -0.9%       4,281       4.9%  
Net loss before income taxes     (11,320 )     -10.6%       (8,293 )     -9.5%  
Income taxes expense     1,070       1.0%       711       0.8%  
Net loss   $ (12,390 )     -11.6%     $ (9,004 )     -10.3%  

 

  

 

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Net revenues — Net revenues were $106.8 million and $87.1 million for the six months ended June 30, 2023 and 2022, respectively, representing an increase of $19.7 million or 22.6%. The increase in net sales for the six months ended June 30, 2023 over the comparative period was primarily due to the increase of revenue from sales of PV components of $13.2 million and $18.7 million from sales of solar modules, as well as a one-time sale of pre-developed PV project of Oregon for $6.7 million, and was partially net off by the decrease of revenue from roofing and solar energy systems installation of $18.7 million.

 

Cost of revenues — Cost of revenues was $97.0 million (90.9% of net revenue) and $80.5 million (92.4% of net revenue) for the six months ended June 30, 2023 and 2022, respectively, representing an increase of $16.5 million or 20.5%. The increase in cost of goods sold was consistent with the increase of net revenues.

 

Gross profit — Our gross profit increased to $9.7 million in the six months ended June 30, 2023 from $6.6 million in the six months ended June 30, 2022. Gross margins were 9.1% and 7.6% for the six months ended June 30, 2023 and 2022, respectively. The increase in gross margin was primarily due to the increase in gross margin of sales of solar modules and the decrease of total revenue from the low gross margin roofing and solar energy system installation and its percentage in the total revenue.

 

General and administrative expenses — General and administrative expenses were $16.8 million (15.7% of net revenue) and $16.8 million (19.2% of net revenue) for the six months ended June 30, 2023 and 2022, respectively, representing an increase of $0.06 million, or 0.4%. The general and administrative expenses kept stable in the two periods.

  

Sales, marketing and customer service expenses — Sales, marketing and customer service expenses were $2.4 million (2.2% of net revenue) and $2.6 million (3.0% of net revenue) for the six months ended June 30, 2023 and 2022, respectively. The sales, marketing and customer service expenses kept stable in the two periods.

 

Provision (reversal) for credit losses — In the six months ended June 30, 2023, we accrued credit loss provision of $0.8 million which is mainly due to additional provision made for the accounts receivable from the business of sales of PV components in Australia. In the six months ended June 30, 2022, we reversed credit loss provision of $0.2 million, primarily due to the strengthening monitoring on accounts receivable collection.

 

Interest expense, net — Interest expense, net was $4.4 million (4.1% of net sales) and $3.0 million (3.5% of net sales) for the six months ended June 30, 2023 and 2022, respectively. The increase in interest expense was primarily due to interest accrued from convertible bonds as well as debt discount amortization.

  

Net foreign exchange loss (gain) — We had a net foreign exchange loss of $1.1 million (1.0% of net revenue) and a net foreign exchange gain of $3.3 million (3.8% of net revenue) for the six months ended June 30, 2023 and 2022, respectively. The variance is mainly due the fluctuation of exchange rate for EUR/USD and AUD/USD.

 

Income tax expense — We had a provision for income taxes of $1.1 million (1.0% of net revenue) and $0.7 million (0.8% of net revenue) for the six months ended June 30, 2023 and 2022, respectively. The income tax expense kept stable as there was no significant change in profit before tax of our subsidiary in Australia.

 

Net loss — For the foregoing reasons, we incurred a net loss of $12.4 million (11.6% of net revenue), for the six months ended June 30, 2023, representing an increase of net loss of $3.4 million compared to a net loss of $9.0 million (10.3% of net revenue) for the six months ended June 30, 2022.

 

 

 

 

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Liquidity and Capital Resources

 

Historically, we have financed our operations primarily through cash flows from bank borrowings, financing from issuance of convertible bonds, operating activities, and the proceeds from private placements and registered offerings.

 

As of June 30, 2023, we had $5.9 million in cash and cash equivalents, and restricted cash.

 

We suffered a net loss of $12.4 million during the six months ended June 30, 2023, and the cash flow used in operating activities was $5.5 million. As of June 30, 2022, there is net working capital deficit of $116.7 million and accumulated deficit of $682.7 million. These factors raise substantial doubt as to the Group’s ability to continue as a going concern.

 

For the next 12 months from the issuance date of this report, we plan to continue implementing various measures to boost revenue and control the cost and expenses within an acceptable level. Such measures include: 1) negotiate with potential buyers on PV solar projects; 2) negotiate for postponing of convertible bond payments; 3) improve the profitability of the business in the United States ; 4) proactively implement a robust capital market strategy that includes both debt and equity offerings to meet the Group’s financing needs; 5) strictly control and reduce business, marketing and advertising expenses and 6) seek for certain credit facilities.

 

If we fail to achieve these goals, we may need additional financing to repay debt obligations and execute our business plan, and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that we are unsuccessful in increasing our gross profit margin and reducing operating losses, we may be unable to implement our current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on our business, financial condition and results of operations and may materially adversely affect our ability to continue as a going concern.

 

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.

 

A summary of the sources and uses of cash and cash equivalents is as follows (in thousands):

 

   For the Six Months Ended June 30, 
  

2023

(Unaudited)

  

2022

(Unaudited)

 
Net cash used in operating activities  $(5,484)  $(11,539)
Net cash used in investing activities   (1,994)   (387)
Net cash provided by financing activities   136    15,856 
Effect of exchange rate changes on cash   2,245    (522)
Net (decrease) increase in cash, cash equivalents and restricted cash  $(5,097)  $3,408 

 

Operating Activities

 

Net cash used in operating activities was $5.5 million for the six months ended June 30, 2023, primarily as a result of (i) net loss of $12.4 million, (ii) increase in inventories of $7.5 million for purchasing raw materials for upcoming productions, (iii) decrease in lease liability of $1.0 million, and (iv) increase in accounts receivable of $1.8 million, (v) increase in prepaid expenses and other assets of $1.8 million, (vi) decrease in accrued expenses and other current liabilities; the decrease was partially offset by (i) increase in accounts payable of $7.7 million, (ii) depreciation and amortization of $2.4 million, (iii) amortization of debt discount on convertible bond of $ 2.0 million, (iv) amortization of right-of-use assets of $1.2 million, (v) decrease in project assets of $3.9 million, (vi) credit loss of $0.8 million and inventory write-down of $1.1 million and (vii) stock-based compensation expense of $1.0 million.

 

 

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Net cash used in operating activities was $11.5 million for the six months ended June 30, 2022, primarily as a result of (i) net loss of $9.0 million, (ii) gain on forgiveness of PPP loan of $5.1 million and (iii) increase in prepaid expenses and other assets of $2.2 million, and (iv) decrease in advances from customers of $1.8 million; was partially offset by (i) decrease in accounts receivable of $3.7 million, (ii) loss on extinguishment of convertible bonds of $2.2 million, and (iii) stock-based compensation expense of $1.6 million.

 

Investing Activities

 

Net cash used in investing activities was $2.0 million for six months ended June 30, 2023, primarily as a result of cash paid for purchase of property and equipment of $2.0 million.

 

Net cash used in investing activities was $0.4 million for six months ended June 30, 2022, primarily as a result of cash paid for purchase of property and equipment of $2.0 million, partially offset by proceeds from disposal of equipment of $1.6 million.

 

Financing Activities

 

Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2023, primarily consisted of (i) proceeds from borrowings of $2.4 million, (ii) proceeds received from standby equity purchase agreement of Phoenix of $1.2 million, and (iii) proceeds from issuance of convertible bond, net of debt discount of $1.5 million, partially offset by (i) net repayment of borrowings of $5 million.

 

Net cash generated from financing activities was $15.9 million for the six months ended June 30, 2022, primarily consisted of (i) proceeds from IPO of Phoenix of $13.4 million, (ii) proceeds from issuance of convertible note of $2.0 million.

 

Capital Expenditures

 

We incurred capital expenditures of $2.0 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively. There are no capital commitments as of June 30, 2023.

 

Trend information

 

Our operating results substantially depend on revenues derived from sales of PV project assets, provision of electricity, our Australian subsidiary’s trading of PV components, and our U.S. subsidiary’s business on roofing and solar energy systems installation and sales, leasing of EVs, sales of forklifts, and sale of solar modules, respectively. As the COVID-19 spread and impact of the outbreak of war in Ukraine continues, the measures implemented to curb the spread of the virus and the crisis in Ukraine have resulted in supply chain disruptions, insufficient work force and suspended manufacturing and construction works for solar industry. In light of the rapidly changing situation across different countries and regions, it remains difficult to estimate the duration and magnitude of the impact of COVID-19 and the crisis in Ukraine.

  

Other than as disclosed elsewhere in this quarterly report, we are not aware of any trends, uncertainties, demands, commitments or events for the six months ended June 30, 2023 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause reported consolidated financial information not necessarily to be indicative of future operating results or financial conditions.

 

 

 

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Off-Balance Sheet Arrangements

 

As of June 30, 2023, we had no off-balance sheet arrangements that are or have been reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. We have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our unaudited condensed consolidated financial statements. We do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

For more information on our contractual obligations, commitments and contingencies, see Note 8 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

In connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we identified following material weaknesses, in the design or operation of internal controls.

 

(1)Failure to maintain an effective control environment of internal control over financial reporting;

 

(2)Failure to develop an effective risk assessment process to identify and evaluate at a sufficient level of detail all relevant risks of material misstatement, including business, operational, and fraud risks;

 

(3)Ineffective monitoring activities to assess the operation of internal control over financial reporting;

 

(4)Ineffective process-level controls associated with the revenue, purchasing and inventory, treasury, property and equipment, tax, and payroll processes that (a) addressed relevant risks, (b) provided sufficient evidence of performance, and (c) established appropriate segregation of duties, during the financial reporting processes;

 

 

 

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(5)Lack of sufficient controls designed and implemented for financial information processing and reporting and lacked resources with requisite skills for the financial reporting under U.S. GAAP; and

 

(6)Lack of sufficient controls designed and implemented in IT environment and IT general control activities, which mainly associated with areas of logical access security, system change, computer operation and service organization control monitoring activities. Certain process-level automated controls and manual controls that are dependent on the completeness and accuracy of information derived from the affected information technology systems were also ineffective.

 

We intend to implement measures designed to improve the Company’s internal control over financial reporting to address the underlying causes of these material weaknesses, including:

 

(1)Strengthen overview and monitoring from the Company’s governance, and set up the Company’s internal audit department who reports to the audit committee directly, to ensure enhanced oversight over the Company’s financial reporting function.

 

(2)Engage a professional adviser to review, test and optimize the Company’s internal control system, particularly focusing on the material weaknesses identified as above.

 

(3)Launch and improve the internal control execution plan to supervise and monitor the operational functions.

 

(4)Establish a formal and systematic risk assessment program and involve upper management to identify and analyze risks.

 

(5)Provide our accounting team and other relevant personnel with more comprehensive guidelines and training on the policies and controls over financial reporting under U.S. GAAP and SEC rules and requirements

 

(6)Strengthen the review controls on journal entries and accounting treatments and adjustment by providing our accounting team with more comprehensive guidelines on the policies and controls over financial reporting under U.S. GAAP and SEC rules and requirements.

 

(7)Enhance management monitoring and review of key processes with more comprehensive guidelines on the policies and controls over financial reporting.

 

(8)Strengthen the monitoring and evaluation of the independent and competent tax and accounting agencies.

 

(9)Strengthen the supervision and controls on the IT functions, including the enhancement of logical security and monitor service provider

  

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the occurrence or outcome of these proceedings with certainty, we do not believe that an adverse result in any currently pending legal proceeding to which the Company is a party, individually or in the aggregate, would have a material adverse effect on the Company’s business, prospects, financial condition, cash flows, or results of operations other than the following:

 

As previously disclosed, in June 2018, we, as claimant, filed arbitration proceedings in Malta against SINSIN Europe Solar Asset Limited Partnership and SINSIN Solar Capital Limited Partnership (hereinafter collectively, “SINSIN”), as respondents, for an alleged breach of a share sale and purchase agreement, dated September 6, 2014, entered into between the respondents, as sellers, and us, as purchaser, in relation to all of the shares in Sinsin Renewable Investment Limited, a Malta company (“SRIL”). On January 1, 2017, we had deconsolidated SRIL due to loss of control. 

 

SINSIN filed separate arbitration proceedings in Malta against us, requesting payment of the balance of the purchase price due in terms of the share purchase agreement mentioned above (stated to be EUR38,054,000), together with interest. We contested these claims. Meanwhile, SINSIN has obtained the status of a precautionary garnishee order against us as security for its claims and has had the same order served on SRIL, with a view to freezing any payments that may be due by SRIL to us.

 

On October 29, 2020, awards were issued in both cases, pursuant to which the arbitration tribunal dismissed all of our claims and admitted SINSIN’s counterclaim for payment of the balance of the price of €38,054,000, with interest at 6% accruing from November 30, 2015, on half of this amount, and from June 20, 2016, on the other half. SINSIN’s claims for additional damages were rejected. All costs of case 5320/18 are to be borne by us, while the costs for case 5532/18 are to be borne 80% by us and 20% by SINSIN.

 

On November 13, 2020, we filed Appeal Applications to appeal the arbitration awards with the Malta Court of Appeal (Inferior Jurisdiction) (the “Malta Court”). On November 12, 2021, the Malta Court declared our appeals null and void and ordered us to pay costs. We then applied for new trials in each case before the Malta Court. On March 30, 2022, the Chief Justice of the Malta Court dismissed our requests in both actions. We are aware that on November 2, 2022, Sinsin filed an action to confirm these arbitral awards pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (“New York Convention”) as implemented by the Federal Arbitration Act (“FAA”) before U.S. District Court Eastern District of California. On April 27, 2023, Sinsin filed amended petition to add a request for an award of attorneys’ fees incurred in connection with the petition, add detail on the allegedly owed costs and liabilities, and request that the court issue an injunction against asset dissipation pending satisfaction of the requested judgment. We has filed opposition to amended petition and motion to confirm arbitral award on May 11, 2023, and the case is currently under court review.

 

On February 16, 2023, we received a Redemption Notice from Streeterville to redeem $350 of the 2022 Note with a deadline to pay the Redemption Amount by February 22, 2023. We failed to pay the Redemption Amount on time and such failure to pay is an Event of Default under the 2022 Note. Due to this Event of Default, (i) the base interest of the 2022 Note was increased to 15% per annum; (ii) the outstanding balance of the 2022 Note was increased by 15%; and (iii) the entire outstanding balance of the 2022 Note was accelerated and due on March 3, 2023. We failed to pay the outstanding balance of the 2022 Note by March 3, 2023 and as a result, Streeterville filed a complaint in the third judicial district court of Salt Lake County, requesting for actual damages in an amount not less than $2,676, plus applicable interest, damages, charges, fees, attorney fees, and collection costs. On March 31, 2023, a hearing was held and the temporary restraining order requiring us to pay the 2022 Note in full from the proceeds of the IPO of our subsidiary, SolarJuice Co., Ltd. On June 26, 2023, Streeterville and the Group entered into a term sheet to mediate the dispute. The Group agreed to pay Streeterville $375 in cash and $400 in stock by July 5, 2023. After that, the Group agreed to pay Streeterville $425 each month starting from July 31, 2023. Among the monthly installment payments, at least $225 shall be paid in cash.

 

 

 

 

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Item 1A. Risk Factor

 

This information has been omitted based on the Company’s status as a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

 

None.

  

Item 3. Defaults upon senior securities

 

None.

 

Item 4. Mine safety disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

Item 6. Exhibits.

 

Exhibit No.   Description
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
104.   Cover Page Interactive Data File

 

 

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SPI ENERGY CO., LTD.
     
  By: /s/ Xiaofeng Peng
    Xiaofeng Peng
    Chief Executive Officer
(Principal executive officer)
     
  By: /s/  Janet Chen
    Janet Chen
    Chief Financial Officer
(Principal financial and accounting officer)

 

Date: August 18, 2023

 

 

 

 

 

 

 

 

 

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